Millennial Media 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2013

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-35478

MILLENNIAL MEDIA, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-5087192
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2400 Boston Street, Suite 201, Baltimore, Maryland	21224
(Address of principal executive offices)	(Zip Code)

(410) 522-8705

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of the close of business on October 31, 2013 was 81,495,152.

Millennial Media, Inc.

FORM 10-Q Quarterly Report

Table of Contents

	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012		1
Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012		2
Unaudited Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2013 and 2012		3
Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2013		4
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012		5
Notes to Unaudited Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	25
Item 4.	Controls and Procedures	25
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 6.	Exhibits	44
	Signatures	46

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

Millennial Media, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

	September 30,			December 31,
	2013			2012
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	121,200		$	137,439
Accounts receivable, net of allowances of $3,487 and $2,673 as of September 30, 2013 and December 31, 2012, respectively	58,521			59,179
Prepaid expenses and other current assets	3,502			1,966
Total current assets	183,223			198,584
Long-term assets:
Property and equipment, net	8,199			6,850
Goodwill	11,124			1,348
Intangible assets, net	2,660			913
Other assets	1,060			754
Total long-term assets	23,043			9,865
Total assets	$	206,266		$	208,449
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	6,616		$	3,788
Accrued cost of revenue	33,848			34,430
Accrued payroll and payroll related expenses	5,151			6,038
Deferred revenue	486			169
Total current liabilities	46,101			44,425
Other long-term liabilities	275			243
Total liabilities	46,376			44,668
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding as of September 30, 2013 and December 31, 2012	—			—
Common stock, $0.001 par value, 250,000,000 shares authorized, 81,445,671 and 79,182,913 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively	81			79
Additional paid-in capital	221,432			213,823
Accumulated other comprehensive loss	(170		)	(78		)
Accumulated deficit	(61,453		)	(50,043		)
Total stockholders’ equity	159,890			163,781
Total liabilities and stockholders’ equity	$	206,266		$	208,449

The accompanying notes are an integral part of these consolidated financial statements.

1

Millennial Media, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue	$	56,061		$	47,366		$	162,508		$	119,707
Cost of revenue	33,860			28,005			95,559			71,683
Gross profit	22,201			19,361			66,949			48,024
Operating expenses:
Sales and marketing	8,626			5,922			25,119			16,561
Technology and development	3,939			4,667			12,203			10,084
General and administrative	14,232			10,491			40,970			28,428
Total operating expenses	26,797			21,080			78,292			55,073
Loss from operations	(4,596		)	(1,719		)	(11,343		)	(7,049		)
Other income (expense)
Interest expense, net	(15		)	(14		)	(36		)	(52		)
Other expense	—			—			—			(834		)
Total other income (expense)	(15		)	(14		)	(36		)	(886		)
Loss before income taxes	(4,611		)	(1,733		)	(11,379		)	(7,935		)
Income tax benefit (expense)	6			(36		)	(31		)	(46		)
Net loss	(4,605		)	(1,769		)	(11,410		)	(7,981		)
Accretion of dividends on redeemable convertible preferred stock	—			—			—			(1,328		)
Net loss attributable to common stockholders	$	(4,605	)	$	(1,769	)	$	(11,410	)	$	(9,309	)
Net loss per share:
Basic and diluted	$	(0.06	)	$	(0.02	)	$	(0.14	)	$	(0.17	)
Weighted average common shares outstanding:
Basic and diluted	81,277			75,499			79,924			55,146
Stock-based compensation expense included above:
Sales and marketing	$	177		$	286		$	622		$	410
Technology and development	176			2,037			1,503			2,889
General and administrative	1,284			903			4,674			1,974

The accompanying notes are an integral part of these consolidated financial statements.

2

Millennial Media, Inc.

Unaudited Consolidated Statements of Comprehensive Loss

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net loss	$	(4,605	)	$	(1,769	)	$	(11,410	)	$	(7,981	)
Foreign currency adjustments:
Intra-entity foreign currency transaction adjustments	(17		)	49			(96		)	13
Foreign currency translation adjustments	(8		)	(52		)	4			(40		)
Total comprehensive loss	$	(4,630	)	$	(1,772	)	$	(11,502	)	$	(8,008	)

The accompanying notes are an integral part of these consolidated financial statements.

3

Millennial Media, Inc.

Unaudited Consolidated Statement of Changes in Stockholders’ Equity

(in thousands, except share data)

							Accumulated
				Additional			Other						Total
	Common Stock			Paid-In			Comprehensive			Accumulated			Stockholders’
	Shares	Amount		Capital			Loss			Deficit			Equity
Balance, December 31, 2012	79,182,913	79		213,823			(78		)	(50,043		)	$	163,781
Issuance of common stock in connection with exercises of stock options	2,032,872	2		1,224			—			—			1,226
Issuance of common stock in connection with vesting of restricted stock units, net of withholdings	229,886	—		(414		)	—			—			(414		)
Stock-based compensation expense	—	—		6,799			—			—			6,799
Net loss	—	—		—			—			(11,410		)	(11,410		)
Intra-entity foreign currency transaction adjustments	—	—		—			(96		)	—			(96		)
Foreign currency translation adjustments	—	—		—			4			—			4
Balance, September 30, 2013	81,445,671	$	81	$	221,432		$	(170	)	$	(61,453	)	$	159,890

The accompanying notes are an integral part of these consolidated financial statements.

4

Millennial Media, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities
Net loss	$	(11,410	)	$	(7,981	)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Stock-based compensation expense	6,799			5,273
Non-cash change in fair value of Series B warrant	—			834
Bad debt expense	1,229			1,123
Depreciation and amortization	3,144			1,593
Amortization of deferred financing fees	17			21
Changes in assets and liabilities, net of acquired balances:
Accounts receivable	(419		)	(17,312		)
Prepaid expenses and other current assets	(1,299		)	(695		)
Other assets	(423		)	(150		)
Accounts payable and accrued expenses	2,377			2,274
Accrued cost of revenue	(582		)	7,264
Accrued payroll and payroll related expenses	(883		)	1,263
Other long-term liabilities	17			62
Deferred revenue	314			(34		)
Net cash and cash equivalents used in operating activities	(1,119		)	(6,465		)
Cash flows from investing activities
Payments for acquisitions, net of cash acquired	(11,676		)	—
Purchases of property and equipment	(4,139		)	(3,480		)
Net cash and cash equivalents used in investing activities	(15,815		)	(3,480		)
Cash flows from financing activities
Proceeds from issuance of common stock, net of offering costs	—			115,089
Proceeds from exercises of stock options	1,226			499
Withholdings for vesting of restricted stock units	(414		)	—
Net cash and cash equivalents provided by financing activities	812			115,588
Effect of exchange rates on cash and cash equivalents	(117		)	54
Net (decrease) increase in cash and cash equivalents	(16,239		)	105,697
Cash and cash equivalents, beginning of the period	137,439			16,707
Cash and cash equivalents, end of the period	$	121,200		$	122,404
Supplemental disclosure of noncash investing and financing activities
Accretion of dividends on redeemable convertible preferred stock	$	—		$	1,328
Accretion of issuance costs on redeemable convertible preferred stock	$	—		$	6

The accompanying notes are an integral part of these consolidated financial statements.

5

Millennial Media, Inc.

Notes to Unaudited Consolidated Financial Statements

1.Description of Business

Millennial Media, Inc. (the “Company”) was incorporated in the state of Delaware in May 2006. The Company is engaged in the business of providing mobile advertising solutions to advertisers and developers. Its technology, tools and services help developers to maximize their advertising revenue, acquire users and gain insight about their users. The Company offers advertisers significant audience reach, sophisticated targeting capabilities and the ability to deliver rich and engaging ad experiences to consumers on their mobile connected devices.

2.Summary of Significant Accounting Policies

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in the accompanying unaudited consolidated financial statements.

Interim Consolidated Financial Information

The accompanying unaudited consolidated financial statements and footnotes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”) for interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position, results of operations, changes in stockholders’ equity and cash flows. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and related footnotes presented in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 20, 2013.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable allowances, the useful lives of long-lived assets and other intangible assets, assumptions used for purposes of determining stock-based compensation, and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable, the results of which form the basis for making judgments about the carrying value of assets and liabilities as well as reporting revenue and expenses during the periods presented.

Cash and Cash Equivalents

Cash and cash equivalents consist of checking accounts and a money market account. The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. The Company maintains cash balances in financial institutions in amounts greater than federally insured limits.

Revenue Recognition and Deferred Revenue

The Company recognizes revenue based on the activity of mobile users viewing advertisements through developer applications and mobile websites. Revenues are recognized when the related advertising services are delivered based on the specific terms of the advertising contract, and are commonly based on the number of ads delivered, or views, clicks or actions by users on mobile advertisements. The Company recognizes revenue based on these terms because the services have been provided, the fees the Company charges are fixed or determinable, persuasive evidence of an arrangement exists, and collectability is reasonably assured.

6

In the normal course of business, the Company acts as an intermediary in executing transactions with third parties. The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. In determining whether the Company acts as the principal or an agent, the Company follows the accounting guidance for principal-agent considerations. While none of the factors identified in this guidance are individually considered presumptive or determinative, because the Company is the primary obligor and is responsible for (i) identifying and contracting with third-party advertisers, (ii) establishing the selling prices of the advertisements sold, (iii) performing all billing and collection activities including retaining credit risk and (iv) bearing sole responsibility for fulfillment of the advertising, the Company acts as the principal in these arrangements and therefore reports revenue earned and costs incurred on a gross basis.

Deferred revenue arises as a result of differences between the timing of revenue recognition and receipt of cash from the Company’s customers. As of September 30, 2013 and December 31, 2012 there were $486,000 and $169,000, respectively, of services for which cash payments were received in advance of the Company’s performance of the service under the arrangement and recorded as deferred revenue in the accompanying unaudited consolidated balance sheets.

Cost of Revenue

Cost of revenue consists primarily of amounts due to developers for the advertising utilized in running mobile advertisements.  These amounts are typically either a percentage of the advertising revenue earned by the Company based on mobile advertisements that are run on each developer’s application or mobile website or a fixed fee for the ad space. The Company recognizes the cost of revenue as the associated revenue is recognized, on a developer by developer basis during the period the advertisements run on the developer’s advertising application or mobile website.  Costs owed to developers but not yet paid are recorded as accrued cost of revenue.

Concentration of Credit Risk

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company has not experienced any losses on cash and cash equivalents to date. To manage accounts receivable risk, the Company evaluates the creditworthiness of its customers and maintains an allowance for doubtful accounts.

Accounts Receivable, Allowance for Doubtful Accounts and Sales Credits

The Company extends credit to customers without requiring collateral. Accounts receivable are stated at realizable value, net of an allowance for doubtful accounts. The Company utilizes the allowance method to provide for doubtful accounts based on management’s evaluation of the collectability of amounts due. The Company’s estimate is based on historical collection experience and a review of the current status of accounts receivable. Historically, actual write-offs for uncollectible accounts have not significantly differed from the Company’s estimates. However, higher than expected bad debts may result in future write-offs that are greater than the Company’s estimates.

The Company also estimates an allowance for sales credits based on the Company’s historical sales credits experience. Historically, actual sales credits have not significantly differed from the Company’s estimates. However, higher than expected sales credits may result in future write-offs that are greater than the Company’s estimates. The allowances for doubtful accounts and sales credits are included in accounts receivable, net in the unaudited consolidated balance sheets.

Stock-Based Compensation

The Company accounts for share-based payment awards by measuring employee services received in exchange for all equity awards granted based on the fair value of the award as of the grant date.  The Company recognizes stock-based compensation expense on a straight-line basis over the awards’ vesting period, adjusted for estimated forfeitures.

The Company values stock options using the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting restrictions.  The use of the option valuation model requires the input of assumptions, including the fair value of the Company’s common stock, the expected life, and the expected stock price volatility based on peer companies. Stock options are granted with exercise prices not less than the fair market value of the Company’s common stock at the date of grant.  Additionally, the recognition of expense requires the estimation of the number of options that will ultimately vest and the number of options that will ultimately be forfeited. Options generally vest ratably over a four-year period, except those options granted to non-employees, portions of which may vest immediately or ratably over the service period. Options generally expire ten years from the date of grant.

7

Preferred Stock Warrant Liability

The Company was a party to a derivative financial instrument in which it issued a warrant to purchase redeemable convertible preferred stock, allowing the holder to purchase 50,750 shares of such preferred stock. Prior to the Company’s initial public offering (the “IPO”) in 2012, the warrant was classified as a liability in the Company’s unaudited consolidated balance sheets and adjusted to fair value at the end of each reporting period due to the fact that it was exercisable for a redeemable security.

Prior to the closing of the IPO, all changes in the fair value of the warrant were recorded in other expense in the Company’s consolidated statements of operations. The Company recorded other expense of $834,000 for the nine months ended September 30, 2012 related to the fair value adjustment of the warrant. On April 3, 2012, upon closing of the IPO, the warrant converted to a warrant to purchase common stock and the liability at its then fair value of $1.0 million was reclassified to additional paid-in capital.

3.Acquisition

On April 1, 2013, the Company completed the acquisition of all of the outstanding stock of Metaresolver, Inc. (“Metaresolver”), a technology and data company focused on analyzing volumes of data from real-time bidding exchanges to help brands and agencies optimize their buy and deliver more relevant promotions. The cash consideration for the acquisition of Metaresolver was $13.7 million, of which $2.0 million represents potential deferred cash payments to certain of the Metaresolver founders. The deferred cash payments are subject to varying service requirements over a two-year period following the closing of the acquisition, are contingent on the Metaresolver founders’ continued service with the Company and will be recognized as compensation expense on a straight-line basis over the requisite service period. For tax purposes, the $2.0 million was included in the purchase price.

The Metaresolver acquisition was accounted for using the acquisition method of accounting. The unaudited consolidated financial statements of the Company as of and for the three and nine months ended September 30, 2013 include the financial position and results of operations of Metaresolver from the acquisition date of April 1, 2013. The following unaudited pro forma financial information presents the Company’s consolidated financial information assuming the acquisition had taken place on January 1, 2012. These amounts are presented in accordance with U.S. GAAP, consistent with the Company’s accounting policies.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(in thousands)
Revenue(1)	$	56,061		$	47,371		$	162,700		$	119,712
Net loss attributable to common stockholders(1) (2)	(4,605		)	(2,281		)	(11,833		)	(10,619		)

(1) Metaresolver’s operations were fully integrated within the Company’s operations as of the acquisition date; therefore, the Company is unable to determine the revenue and earnings amounts separately attributable to Metaresolver subsequent to the acquisition date.

(2) Proforma net loss attributable to common stockholders for the three and nine months ended September 30, 2012 reflect the impact of certain expenses included in the Consolidated Statement of Operations for the three and nine months ended September 30, 2013, but excluded from the calculation of pro forma net loss attributable to common stockholders for those periods. These expenses include acquisition-related costs of $0 and $481,000 for the three and nine months ended September 30, 2013, respectively.

8

The following table summarizes the fair values of the assets and liabilities acquired at the date of acquisition and recorded in the accompanying unaudited consolidated balance sheet as of September 30, 2013 (in thousands). These amounts were determined based upon valuations and studies that have yet to be finalized, and accordingly, the assets and liabilities recorded below are subject to adjustment once the detailed analyses are completed:

Accounts receivable, net	$	150
Prepaid expenses and other current assets	22
Property and equipment, net	47
Goodwill	9,776
Developed technology intangible asset	2,048
Other assets	5
Total assets acquired	12,048
Accounts payable	223
Other current liabilities	149
Total liabilities assumed	372
Purchase price	$	11,676
Cash acquired	$	110

The developed technology intangible asset is being amortized over its estimated useful life of ten years. Amortization expense was $51,000 and $102,000 for the three and nine months ended September 30, 2013 and is included in general and administrative expenses on the accompanying consolidated statements of operations. Goodwill recognized from the transaction results from expected synergies and the acquired workforce. The Metaresolver acquisition was accounted for as a stock acquisition and, as such, none of the goodwill is deductible for tax purposes.

The Company recognized $0 and $481,000 of acquisition-related costs for the three and nine months ended September 30, 2013, respectively, which is included in general and administrative expenses on the accompanying consolidated statements of operations.

On November 6, 2013, the Company completed its acquisition of Jumptap, Inc. See note 8 for additional details.

4.Fair Value Measurements

The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate their respective fair values due to their short-term nature.

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value.  The three tiers are defined as follows:

·Level 1.   Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;

·Level 2.  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

·Level 3.  Unobservable inputs for which there is little or no market data, which require the Company to develop its own assumptions.

9

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments. The following table summarizes the conclusions reached as of September 30, 2013 and December 31, 2012 (in thousands):

	Balance at September 30, 2013		Level 1		Level 2		Level 3
Assets:
Money market funds (1)	$	68,433	$	68,433	$	—	$	—
	$	68,433	$	68,433	$	—	$	—

	Balance at December 31, 2012		Level 1		Level 2		Level 3
Assets:
Money market funds (1)	$	108,419	$	108,419	$	—	$	—
	$	108,419	$	108,419	$	—	$	—

(1)Money market funds are classified as cash equivalents in the Company’s unaudited consolidated balance sheets. As short-term, highly liquid investments readily convertible to known amounts of cash, with remaining maturities of three months or less at the time of purchase, the Company’s cash equivalent money market funds have carrying values that approximate fair value. Amounts do not include $52.8 million and $29.0 million of operating cash balances as of September 30, 2013 and December 31, 2012, respectively.

5.Stock-Based Compensation

As of September 30, 2013, there were options outstanding to purchase an aggregate of 2,821,500 shares of common stock under the Company’s 2006 Equity Incentive Plan, as amended. In March 2012, the Company established the 2012 Equity Incentive Plan (the “2012 Plan”) pursuant to which the Company has reserved an additional 6,258,951 shares of its common stock for issuance to its employees, directors, and non-employee third parties. As of September 30, 2013, options to purchase 2,801,653 shares of common stock and 509,139 restricted stock units (“RSUs”) were outstanding under the 2012 Plan. Each RSU represents the contingent right to receive one share of common stock. Upon adoption of the 2012 Plan, no additional awards under the 2006 Equity Incentive Plan may be issued, although outstanding awards under the 2006 Equity Incentive Plan continue to vest in accordance with their terms until exercised, forfeited or expired. As of September 30, 2013, 2,948,159 shares are available for future grant under the 2012 Plan.

Stock compensation expense recognized by the Company for the three and nine months ended September 30, 2013 and 2012 is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Stock option awards	$	1,024	$	734	$	2,798	$	1,859
Restricted stock awards	70		1,991		1,233		2,802
RSUs	543		501		2,768		612
Total recognized stock-based compensation expense	$	1,637	$	3,226	$	6,799	$	5,273

During the three and nine months ended September 30, 2013 the Company incurred $0 and $1.4 million, respectively, in stock-based compensation expense for the acceleration and modification of equity awards for certain employees who left the Company.

10

Stock Option Awards

The following summarizes the assumptions used for estimating the fair value of stock options granted for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2013	2012	2013	2012
Risk-free interest rate	1.6%— 1.8%	0.8%— 0.9%	0.9% — 1.8%	0.8% — 1.3%
Expected life	6.0 years	6.0 years	6.0 years	5.7 — 6.1 years
Expected volatility	55%	55%	55%	53% — 55%
Dividend yield	0%	0%	0%	0%
Weighted-average grant date fair value	$4.68	$6.40	$3.93	$5.82

The following is a summary of option activity for the nine months ended September 30, 2013:

					Weighted-
					Average
					Remaining	Aggregate
			Weighted-		Contractual	Intrinsic
			Average		Term	Value
	Number		Exercise Price		(in years)	(in thousands)
Options outstanding at January 1, 2013	5,600,021		$	2.55
Granted	2,345,200		7.64
Exercised	(2,032,872	)	0.63
Forfeited	(278,219	)	8.50
Expired	(10,977	)	1.91
Options outstanding at September 30, 2013	5,623,153		$	5.06	8.05	$	15,080
Options exercisable at September 30, 2013	2,468,206		$	2.47	6.22	12,927
Options vested and expected to vest at September 30, 2013	5,472,565		$	5.06	7.81	15,700

The total compensation cost related to unvested awards not yet recognized as of September 30, 2013 totaled $10.8 million and will be recognized over a weighted-average period of approximately 3.2 years.

The aggregate intrinsic value of all stock options exercised during the nine months ended September 30, 2013 and 2012 was $16.3 million and $17.1 million respectively. The total fair value of stock options that vested during the nine months ended September 30, 2013 and 2012 was $2.8 million and $1.6 million, respectively.

Restricted Common Stock Awards

In connection with the acquisition of Condaptive, Inc. (“Condaptive”) on May 6, 2011, the Company issued 1,448,080 shares of restricted common stock to the employee shareholders of Condaptive. Under the terms of the stock restriction agreements, a portion of the shares of common stock issued was released from restriction on May 6, 2012, the first anniversary of the issuance. Thereafter, the remaining shares of common stock will be released from restriction on a monthly basis over a period that expires between May 2014 and December 2014, depending on the individual award, so long as the shareholder remains an employee of the Company as of the date of each such release, until all of the common stock is released from restriction. If the shareholder’s employment terminates prior to the release of all shares from restriction, the shares not yet vested are subject to repurchase by the Company at a price of $0.001 per share. As of September 30, 2013, a total of 1,341,986 shares had been released from restriction.

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Stock-based compensation expense related to the restricted common stock is being recognized ratably over the restriction period based on the fair value of the individual awards. At September 30, 2013, unrecognized compensation expense relating to the restricted stock awards was $307,000 and the aggregate intrinsic value of the unvested restricted stock was $750,000. The unrecognized compensation expense will be amortized for the remaining vesting period based on the vesting schedules of the awards.

Restricted Stock Units (RSUs)

The following is a summary of RSU activity for the nine months ended September 30, 2013:

			Weighted-Average
			Grant Date
	Number		Fair Value
RSUs outstanding at January 1, 2013	444,549		$	12.71
Granted	358,127		7.39
Vested	(271,337	)	11.54
Forfeited	(22,200	)	9.71
RSUs outstanding at September 30, 2013	509,139		$	9.71

At September 30, 2013, unrecognized compensation expense related to the RSUs was $4.4 million. The unrecognized compensation expense will be amortized on a straight-line basis through July 2017.

6.Net Loss Per Share Attributable to Common Stockholders

The Company uses the two-class method to compute net loss per share because the Company has issued securities other than common stock that contractually entitle the holders to participate in dividends and earnings of the Company. The two-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings. The holders of restricted common stock issued in the Condaptive acquisition are entitled to participate in distributions, if and when declared by the board of directors, that are made to common stockholders and as a result are considered participating securities.

Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current year earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the year’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses. Diluted net loss per common share is computed under the two-class method by using the weighted-average number of shares of common stock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options, warrants, unvested restricted common stock awards, and RSUs. In addition, the Company analyzes the potential dilutive effect of the outstanding participating securities under the “if-converted” method when calculating diluted earnings per share, in which it is assumed that the outstanding participating securities convert into common stock at the beginning of the period. The Company reports the more dilutive of the approaches (two-class or “if-converted”) as its diluted net income per share during the period. Due to net losses for the three- and nine-month periods ended September 30, 2013 and 2012, basic and diluted loss per share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

The following securities have been excluded from the calculation of weighted average common shares outstanding because the effect is anti-dilutive:

	Three and Nine Months Ended  September 30,
	2013	2012
Unvested restricted common stock	106,094	943,043
Stock options	5,623,153	7,289,641
RSUs	509,139	17,307

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7.Segment and Geographic Information

The Company has concluded that its operations constitute one operating and reportable segment. Operating segments are defined as components of an enterprise about which separate financial information is available that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assets performance. The Company’s chief operating decision maker is its Chief Executive Officer (“CEO”). The CEO reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Substantially all assets were held in the United States at September 30, 2013 and December 31, 2012.  The following table summarizes revenues generated through sales personnel employed by U.S. and non-U.S. subsidiaries (in thousands):

	Three Months Ended  September 30,				Nine Months Ended  September 30,
	2013		2012		2013		2012
Revenues:
Domestic	$	40,922	$	41,119	$	122,715	$	104,856
International	15,139		6,247		39,793		14,851
Total	$	56,061	$	47,366	$	162,508	$	119,707

8.Subsequent Event

On November 6, 2013, the Company completed its acquisition of Jumptap, Inc. (“Jumptap”). Jumptap is a technology and data company focused on analyzing volumes of data from real-time bidding exchanges to help brands and agencies optimize their buy and deliver more relevant promotions.

The acquisition date fair value of the consideration transferred to the former Jumptap securityholders was approximately $186.6 million, which consisted of the following:

	Fair value of consideration transferred (in thousands, except share data)
Cash	$	9,484
Common stock (24,745,470 shares)		175,445
Fair value of stock options assumed		1,699
Total	$	186,628

The value of the share consideration for the Company’s common stock was based on the closing price of $7.09 on the closing date of the acquisition. The fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model.

The Jumptap acquisition was accounted for using the acquisition method of accounting. The unaudited consolidated financial statements of the Company as of and for the three and nine months ended September 30, 2013 do not include the financial position and results of operations of Jumptap. The following unaudited pro forma financial information presents the Company’s consolidated financial information assuming the acquisition had taken place on January 1, 2012. These amounts are presented in accordance with U.S. GAAP, consistent with the Company’s accounting policies.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(in thousands)
Revenue	$	86,319		$	62,025		$	232,258		$	165,453
Net loss attributable to common stockholders (1)	(5,271		)	(9,938		)	(23,952		)	$	(26,181	)

(1) Net loss attributable to common stockholders for the three and nine months ended September 30, 2013 includes adjustments for warrant and derivative expense, amortization of intangible assets acquired and acquisition costs.

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The following table summarizes the estimated fair values of the assets and liabilities acquired as of the date of acquisition (in thousands). In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.  The amount allocated to definite-lived intangible assets represents the estimated fair values of technology of $35.0 million and customer relationships of $20.8 million. These intangible assets will be amortized on a straight-line basis over the estimated remaining useful lives of 7 and 6 years for the technology and customer relationships assets, respectively.  Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives.  Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including acquired workforce, as well as expected future synergies.  The estimated fair values of assets acquired and liabilities and unvested options assumed are considered preliminary and are based on the information that was available as of the date of this report.  Thus, the provisional measurements of fair value are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. The Jumptap acquisition was accounted for as a stock acquisition and, as such, none of the goodwill is deductible for tax purposes.

Net tangible assets acquired	$	11,731
Customer relationships	20,810
Technology	35,030
Goodwill	119,057
Total purchase price	$	186,628

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “will continue,” “is anticipated,” “estimate,” “project,” “believe,” “expect,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors,” and our other filings with the Securities and Exchange Commission, or “SEC”. Statements made herein are as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes for the fiscal year ended December 31, 2012 appearing in our Annual Report on Form 10-K filed with the SEC on February 20, 2013.

Overview

We are the leading independent mobile advertising platform company and the second largest mobile display advertising platform overall in the United States. Our technology, tools and services help developers maximize their advertising revenue, acquire users for their apps and gain insight about their users. To advertisers, we offer significant audience reach, sophisticated targeting capabilities and the opportunity to deliver interactive and engaging ad experiences to consumers on their mobile connected devices. More than 49,000 apps are enabled to receive ads through our platform, and we can deliver ads on over 8,500 different mobile device types and models. Our platform is compatible with all major mobile operating systems, including Apple® iOS, Android™, Windows Phone and BlackBerry®.

We help developers and advertisers remove complexity from mobile advertising. By working with us, developers gain access to our tools and services that allow their apps to display banner ads, interactive rich media ads and video ads from our platform. In return, developers supply us with space on their apps to deliver ads for our advertiser clients and also provide us with access to anonymous data associated with their apps and users. We analyze this data to build sophisticated user profiles and audience groups that, in combination with the real-time decisioning, optimization and targeting capabilities of our technology platform, enable us to deliver highly targeted advertising campaigns for our advertiser clients. Advertisers pay us to deliver their ads to mobile connected device users, and we pay developers a fee for the use of their ad space. As we deliver more ads, we are able to collect additional anonymous data about users, audiences and the effectiveness of particular ad campaigns, which in turn enhances our targeting capabilities and allows us to deliver better performance for advertisers and better opportunities for developers to increase their revenue streams.

Recent Developments

On November 6, 2013, we completed our acquisition of Jumptap, Inc., or Jumptap, a privately held mobile advertising platform, pursuant to the terms of an Agreement and Plan of Reorganization, or Acquisition Agreement, dated as of August 13, 2013, and as amended on November 1, 2013, by and among us, our wholly owned subsidiary Polo Corp., and Jumptap.  At the closing, Polo Corp. was merged with and into Jumptap, which we refer to in this report as the Acquisition. As a result of the Acquisition, the separate corporate existence of Polo Corp. ceased, and Jumptap continues as the surviving corporation and a wholly-owned subsidiary of our company.

Pursuant to the Acquisition Agreement, we issued an aggregate of 24,745,470 shares of our common stock to the former securityholders of Jumptap and participants in Jumptap’s Management Incentive Plan, or MIP, and we also assumed options to purchase Jumptap stock, which were converted into options to purchase 861,584 shares of our common stock.  In the aggregate, the shares issued and options assumed equaled approximately 22.8% of the total number of shares of our common stock on a fully diluted basis following the closing of the Acquisition.  Of the shares of common stock we issued in connection with the Acquisition, 2,560,709  shares are being held in escrow as partial security for the indemnification obligations of the Jumptap securityholders and management participants in the MIP.  We also paid an aggregate of $9.5 million in cash consideration in lieu of shares under the terms of the Acquisition Agreement.   All outstanding warrants exercisable for, and all outstanding debt instruments convertible into, common stock of Jumptap, were exchanged for a portion of the 24,745,470 shares of our common stock issued at the closing.

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Based on the issuance of an aggregate of 24,745,470 shares of our common stock at the closing, each valued at $7.09, the closing price per share of our common stock on November 6, 2013, and including options assumed with a fair value of $1.7 million and the $9.5 million in cash consideration, the transaction was valued at an aggregate of $186.6 million.

Key Operating and Financial Performance Metrics

We monitor the key operating and financial performance metrics set forth in the tables below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess our operational efficiencies.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(in thousands, except percentages and per share amounts)
Revenue	$	56,061		$	47,366		$	162,508		$	119,707
Gross margin	39.6		%	40.9		%	41.2		%	40.1		%
Net loss	$	(4,605	)	$	(1,769	)	$	(11,410	)	$	(7,981	)
Adjusted EBITDA	$	220		$	2,138		$	1,368		$	(1,017	)
Basic and diluted net loss per share	$	(0.06	)	$	(0.02	)	$	(0.14	)	$	(0.17	)
Diluted non-GAAP net income (loss) per share	$	0.00		$	0.03		$	0.02		$	(0.02	)

Gross margin is our gross profit, or revenue less cost of revenue, expressed as a percentage of our total revenue. Our gross margin has been and will continue to be primarily affected by our pricing terms with new and existing developers.

Adjusted EBITDA represents our earnings before interest, income taxes, depreciation and amortization, adjusted to eliminate stock-based compensation expense, which is a non-cash item, and expenses related to acquisitions, such as costs for services of lawyers, investment bankers, accountants, and other third parties, and accrual of retention payments of deferred compensation to employees who are acquired as part of our acquisitions that represent contingent compensation to be recognized as expense over a requisite service period. We do not consider the inclusion of these costs to be indicative of our core operating performance. Adjusted EBITDA is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, we believe that the exclusion of the expenses eliminated in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in connection with the development of incentive-based compensation for our executive officers. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Diluted non-GAAP net income (loss) per share is calculated as adjusted EBITDA divided by the diluted weighted average number of shares outstanding during the period.

Adjusted EBITDA and diluted non-GAAP net income (loss) per share are not measures calculated in accordance with U.S. generally accepted accounting principles, or GAAP, and should not be considered as an alternative to any measure of financial performance calculated and presented in accordance with GAAP. In addition, these non-GAAP measures may not be comparable to similarly titled measures of other companies because other companies may not calculate them in the same manner that we do.

These non-GAAP measures have limitations as an analytical tool, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. Some of these limitations are:

· although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA and diluted non-GAAP net income (loss) per share do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

· adjusted EBITDA and diluted non-GAAP net income (loss) per share do not reflect changes in, or cash requirements for, our working capital needs;

· adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation;

· adjusted EBITDA and diluted non-GAAP net income (loss) per share do not reflect tax payments that may represent a reduction in cash available to us; and

· other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.

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Because of these and other limitations, you should consider adjusted EBITDA and diluted non-GAAP net income (loss) per share alongside other GAAP-based financial performance measures, including various cash flow metrics, net loss and our other GAAP financial results. The following tables present reconciliations of net loss to adjusted EBITDA for each of the periods indicated:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(in thousands)
Net loss	$	(4,605	)	$	(1,769	)	$	(11,410	)	$	(7,981	)
Adjustments:
Interest expense, net	15			14			36			52
Income tax (benefit) expense	(6		)	36			31			46
Depreciation and amortization expense	1,142			631			3,144			1,593
Acquisition-related costs	1,787			—			2,268			—
Deferred compensation	250			—			500			—
Stock-based compensation expense	1,637			3,226			6,799			5,273
Total net adjustments	4,825			3,907			12,778			6,964
Adjusted EBITDA	$	220		$	2,138		$	1,368		$	(1,017	)

The following tables present reconciliations of GAAP net loss per share attributable to common stockholders to diluted non-GAAP net income (loss) per share for each of the periods indicated:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Net loss per share	$	(0.06	)	$	(0.02	)	$	(0.14	)	$	(0.17	)
Adjustments:
Accretion of dividends on preferred	—			—			—			0.02
Interest expense, net	0.00			0.00			0.00			0.00
Income tax benefit (expense)	(0.00		)	0.00			0.00			0.00
Depreciation and amortization expense	0.02			0.01			0.04			0.03
Acquisition-related costs	0.02			—			0.03			—
Deferred compensation	0.00			—			0.01			—
Stock-based compensation expense	0.02			0.04			0.08			0.10
Total net adjustments	0.06			0.05			0.16			0.15
Diluted non-GAAP net income (loss) per share	$	0.00		$	0.03		0.02			$	(0.02	)
Diluted weighted average common shares outstanding	83,526			82,173			83,346			55,146

Components of Operating Results

Revenue

We generate revenue by charging advertisers to deliver ads to users of mobile connected devices. Depending on the specific terms of each advertising contract, we generally recognize revenue based on the activity of mobile users viewing these ads. Our fees from advertisers are commonly based on the number of ads delivered, views, clicks or actions by users on mobile advertisements we deliver, and we recognize revenue at the time the user views, clicks or otherwise acts on the ad. We sell ads on several bases: cost per thousand, or CPM, on which we charge advertisers for each ad delivered to a consumer; cost per click, or CPC, on which we charge advertisers for each ad clicked on by a user; and cost per action, or CPA, on which we charge advertisers each time a consumer takes a specified action, such as downloading an app.

We classify our advertiser clients as “brand” advertisers or “performance” advertisers, depending on the intent of the advertiser.  We believe this classification is typical in the advertising and media industries.  The goal of a brand advertiser, such as a large automobile manufacturer, is primarily to promote recognition and awareness of its brand among potential consumers and to induce

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those consumers to purchase a product or service over time.  On the other hand, a performance advertiser, such as a social gaming company, typically seeks to cause a specific action by the viewer of the ad, such as clicking on the ad to be taken to a mobile website, downloading an app on the viewer’s mobile device or registering the viewer’s email address in order to receive further communications from the provider of a product or service.

Most of our brand advertiser clients, whether based in the U.S. or internationally, pay us on a CPM basis, as their primary goal is to maximize the number of ad impressions being viewed, although some brand advertisers may use CPC pricing terms from time to time.  On the other hand, U.S. and international performance advertisers generally pay us on a CPC or CPA basis, in which case we are only paid when a viewer takes the specified action, such as clicking on the ad or downloading an app.

Brand advertisers have typically represented about 60% of our annual revenues, with performance advertisers generating the remainder.  Historically, we have not experienced meaningful trends in the mix of our annual revenue between these types of advertisers; however, the composition of revenue from brand and performance advertisers on our platform often changes throughout the year. For example, we typically see a larger proportion of our revenue derived from brand advertisers in the second and fourth quarters, reflecting what we believe to be traditional seasonality in the advertising industry due to increased consumer spending going into the summer and winter holiday seasons.  We tend to see the lowest percentage of brand advertising and the highest percentage of performance advertising in the first quarter of the year.  Following these seasonal trends, brand advertising typically represents between one-half and two-thirds of our revenue in any particular quarter.  In addition, based on our historical experience, a higher percentage of our international revenue is derived from performance advertisers than is the percentage for domestic revenues, although there is a wide variation from country to country, even within a global region, of the mix between performance and brand advertising in any particular quarter.

During the nine months ended September 30, 2013, and particularly during the three months ended September 30, 2013, we have experienced a decline in our U.S. performance advertising business and corresponding increase in the percentage of our business from brand advertisers. We believe this decline was the result of certain performance advertisers looking to drive downloads of their applications moving their business to competitive platforms, particularly those that enabled them to buy across multiple mobile exchanges. Jumptap, which we recently acquired, had captured a meaningful portion of this business. After we announced the Acquisition on August 13, 2013, we saw an acceleration of this trend, as some performance advertisers consolidated their spending on Jumptap’s buying platform understanding that Jumptap could purchase advertising through us as needed. We believe the Acquisition will help reverse the trend of slowing growth in our U.S. performance business.

Cost of Revenue

Cost of revenue consists primarily of the payments we make to developers for their advertising space on which we deliver mobile ads. These payments are typically determined in advance either as a percentage of the advertising revenue we earn from mobile ads placed on the developer’s app or as a fixed fee for the ad space. We recognize cost of revenue on a developer-by-developer basis at the same time as we recognize the associated revenue. Costs owed to developers but not yet paid are recorded on our consolidated balance sheets as accrued cost of revenue. The use of CPM, CPC, or CPA pricing, whether by U.S. or international advertisers, does not directly affect the gross margin percentage we earn because we pay the same percentage or fixed fee to a developer regardless of what pricing model generated the revenue for us. In addition, the geographic location of our developers is not a factor in determining the percentage or fixed fee we pay for ad space.

Operating Expenses

Operating expenses consist of sales and marketing, technology and development and general and administrative expenses. Salaries and personnel costs are the most significant component of each of these expense categories. We expect to continue to hire new employees in order to support our anticipated revenue growth. We include stock-based compensation expense in connection with the grant of any equity instrument in the applicable operating expense category based on the respective equity award recipient’s function. Additionally, with the close of our Acquisition and our assumption of the Jumptap sales and marketing, technology and development and general and administrative functions, we expect to see an immediate increase in our operating expenses.

Sales and marketing expense. Sales and marketing expense consists primarily of salaries and personnel costs for our advertiser-focused sales and marketing employees, including stock-based compensation, commissions and bonuses. Additional expenses include marketing programs, consulting, travel and other related overhead. We expect our sales and marketing expense to increase in the foreseeable future as we further increase the number of our sales and marketing professionals and expand our marketing activities.

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Technology and development expense. Technology and development expense primarily consists of salaries and personnel costs for development employees, including stock-based compensation and bonuses. Technology and development employees are focused on new product and technology development. Additional expenses include costs related to the development, quality assurance and testing of new technology and enhancement of existing technology, amortization of internally developed software related to our technology infrastructure, consulting, travel and other related overhead. Other general IT costs are included in general and administrative expenses. We engage third-party consulting firms for various technology and development efforts, such as documentation, quality assurance and support. We intend to continue to invest in our technology and development efforts by hiring additional development personnel and by using outside consulting firms for various technology and development efforts. We believe continuing to invest in technology and development efforts is essential to maintaining our competitive position.

General and administrative expense. General and administrative expense primarily consists of salaries and personnel costs for product, operations, developer support, business development, administration, finance and accounting, legal, information systems and human resources employees, including stock-based compensation and bonuses. Additional expenses include consulting and professional fees, travel, bad debt expense, insurance and other corporate expenses. We expect our general and administrative expenses to increase in the foreseeable future as we further increase the number of general and administrative personnel and expand our organization as a public company, including additional compliance costs associated with the Sarbanes-Oxley Act and other regulations covering public companies, maintaining directors’ and officers’ liability insurance, engaging professional services firms and enhancing our investor relations function.

Other Expense

Other expense consists primarily of interest expense, offset by interest income. Interest income is derived from interest received on our cash and cash equivalents. Interest expense consists primarily of the fees incurred on the unused portion of our credit facilities.

Prior to our IPO in April 2012, the fair value of our preferred stock warrant liability was re-measured at the end of each reporting period and any changes in fair value were also recognized in other income or expense. Upon the closing of our IPO in April 2012, the preferred stock warrant was automatically converted into a warrant to purchase common stock, which resulted in a reclassification of the preferred stock warrant liability to additional paid-in capital. Upon reclassification of the preferred stock warrant liability, no further changes in fair value have been or will be recognized in other income or expense.

Income Tax Expense

Income tax expense consists of U.S. federal, state and foreign income taxes. To date, we have not been required to pay U.S. federal income taxes because of our current and accumulated net operating losses. We incurred minimal state and foreign income tax expenses for the three and nine month periods ended September 30, 2013 and 2012.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statements presentation, financial condition, results of operations, and cash flows will be affected. During the nine months ended September 30, 2013, there were no material changes to our critical accounting policies and use of estimates, which are disclosed in our audited consolidated financial statements for the year ended December 31, 2012 included in our Annual Report on Form 10-K filed with the SEC on February 20, 2013.

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Results of Operations

Three Months Ended September 30, 2013 Compared to the Three Months Ended September 30, 2012

	Three Months Ended September 30,
	2013					2012
	(in thousands)
				Percentage of					Percentage of		Period-to-Period Change
Consolidated Statement of Operations Data:	Amount			Revenue		Amount			Revenue		Amount			Percentage
Revenue	$	56,061		100.0	%	$	47,366		100.0	%	$	8,695		18.4	%
Cost of revenue	33,860			60.4		28,005			59.1		5,855			20.9
Gross profit	22,201			39.6		19,361			40.9		2,840			14.7
Operating expenses:
Sales and marketing	8,626			15.4		5,922			12.5		2,704			45.7
Technology and development	3,939			7.0		4,667			9.9		(728		)	(15.6	)
General and administrative	14,232			25.4		10,491			22.1		3,741			35.7
Total operating expenses	26,797			47.8		21,080			44.5		5,717			27.1
Loss from operations	(4,596		)	(8.2	)	(1,719		)	(3.6	)	(2,877		)	167.4
Other income (expense):
Interest expense, net	(15		)	—		(14		)	0.0		(1		)	7.1
Total other income (expense)	(15		)	0.0		(14		)	0.0		(1		)	7.1
Loss before income taxes	(4,611		)	(8.2	)	(1,733		)	(3.7	)	(2,878		)	166.1
Income tax benefit (expense)	6			0.0		(36		)	(0.1	)	42			(116.7	)
Net loss	$	(4,605	)	(8.2	)%	$	(1,769	)	(3.7	)%	$	(2,836	)	160.3

Revenue. Revenue was $56.1 million for the quarter ended September 30, 2013, compared to $47.4 million for the quarter ended September 30, 2012, an increase of $8.7 million, or 18.4%. This growth was primarily attributable to an increase in the number of advertiser clients using our platform as well as an increase in spending from our existing advertiser clients. Revenue from our existing advertiser clients increased by 19.0% during the quarter ended September 30, 2013 as compared to the quarter ended September 30, 2012 and represented 76.6 % of our total revenue for the quarter ended September 30, 2013 as compared to 75.6% of our total revenue for the quarter ended September 30, 2012. The increase in revenue from existing clients was driven by additional campaigns from brands that had previously advertised with us, larger campaign sizes and new brands owned by existing clients that began advertising with us during the quarter. We believe that existing advertisers tend to increase their spending with us once we have demonstrated to them the potential return on investment from using our platform.

When we discuss existing advertising clients for any period, we are referring to advertising clients who had, as of the beginning of the period being discussed, previously advertised on our platform at any time. If an existing client advertises a new brand on our platform, or a subsidiary of an existing client begins advertising on our platform, we also categorize those as existing clients.

Our revenue from international operations increased to $15.1 million, or 27.0% of total revenue, for the quarter ended September 30, 2013, from $6.2 million, or 13.2% of total revenue, for the quarter ended September 30, 2012. The revenue growth in our international operations during the quarter ended September 30, 2013 as compared to the quarter ended September 30, 2012 was primarily attributable to an increase in revenue from new performance advertiser clients in Europe and Asia for the quarter ended September 30, 2013 and an increase in the size of our international sales force focused on generating revenue, principally in Europe and Southeast Asia.

We classify revenue based on the geographic location where the advertising was sold. Performance advertising often is displayed globally. Therefore, we may sell a campaign to a large performance advertiser in one location, such as Europe, and principally deliver ads for that campaign to consumers located in the United States. As a result, our revenue from advertising delivered to U.S. consumers was higher than the revenue derived from advertising sold in the United States in the third quarter of 2013.

We also increased the size of our overall sales force during the quarter ended September 30, 2013 compared to the same period in the prior year, allowing us to increase our number of advertising client relationships and the number of developer applications enabled to receive ads delivered through our platform.

Cost of revenue. Cost of revenue was $33.9 million, or 60.4% of revenue, for the quarter ended September 30, 2013, an increase of $5.9 million, or 20.9%, from $28.0 million, or 59.1% of revenue, for the quarter ended September 30, 2012. The increase in cost of revenue in absolute dollars was the direct result of the increase in our revenue, as we pay a percentage of that revenue to developers

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for use of their ad space in delivering mobile ads for our advertiser clients.  The increase in cost of revenue as a percentage of revenue and corresponding decrease in gross margin for the quarter ended September 30, 2013 was primarily the result of fixed price arrangements with certain developers in order to increase the amount of ad space that we received from them. Though we have historically entered into a limited number of fixed price arrangements with these developers, we entered into a larger number of sometimes less profitable price arrangements with these developers between the signing and closing of the Acquisition than we typically would have in a particular quarter. We entered into these arrangements in order to ensure that we would be able to maintain sufficient ad inventory during that pre-closing period. The uncertainty around a large acquisition, such as the Jumptap acquisition, can cause supply disruptions in the advertising market and we therefore believed it was prudent to enter into more fixed price arrangements than we typically would in a given quarter.

Sales and marketing. Sales and marketing expense was $8.6 million, or 15.4% of revenue, for the quarter ended September 30, 2013, an increase of $2.7 million, or 45.7%, from $5.9 million, or 12.5% of revenue, for the quarter ended September 30, 2012. The increase in sales and marketing expense, both in absolute dollars and as a percentage of revenue, was primarily attributable to a $1.4 million increase in salaries and personnel-related costs associated with an increase in headcount and stock-based compensation expense, as we increased the number of sales and marketing personnel to support our expanding client base and experienced higher commission costs associated with higher revenue. The number of full-time sales and marketing employees increased to 152 at September 30, 2013 from 107 at September 30, 2012. In addition, we experienced a $1.0 million increase in our marketing programs and travel expenses.

Technology and development. Technology and development expense was $3.9 million, or 7.0% of revenue, for the quarter ended September 30, 2013, a decrease of $728,000, or 15.6%, from $4.7 million, or 9.9% of revenue, for the quarter ended September 30, 2012. The decrease in technology and development expense, both in absolute dollars and as a percentage of revenue, was attributable to a $1.8 million decrease primarily associated with a one-time stock-based compensation cost recorded in the prior year related to the departure of certain employees in the technology and development functions and acceleration of unvested stock awards, partially offset by a $1.1 million increase in salaries and personnel costs. The number of full-time technology and development employees increased to 91 at September 30, 2013 from 73 at September 30, 2012.

General and administrative. General and administrative expense was $14.2 million, or 25.4% of revenue, for the quarter ended September 30, 2013, an increase of $3.7 million, or 35.7%, from $10.5 million, or 22.1% of revenue, for the quarter ended September 30, 2012. The increase in general and administrative expense, both in absolute dollars and as a percentage of revenue, was primarily attributable to a $1.5 million increase in salaries and personnel-related costs, associated with an increase in headcount and stock-based compensation expense. We also incurred an additional $205,000 in depreciation expense for capital expenditures, $1.8 million of acquisition-related costs related to the acquisition of Jumptap and $250,000 of deferred compensation expense related to our acquisition of Metaresolver, Inc., or Metaresolver, that closed on April 1, 2013. The number of full-time general and administrative employees increased to 194 at September 30, 2013 from 143 at September 30, 2012.

Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012

	2013					2012
	(in thousands)
				Percentage of					Percentage of		Period-to-Period Change
Consolidated Statement of Operations Data:	Amount			Revenue		Amount			Revenue		Amount			Percentage
Revenue	$	162,508		100.0	%	$	119,707		100.0	%	$	42,801		35.8	%
Cost of revenue	95,559			58.8		71,683			59.9		23,876			33.3
Gross profit	66,949			41.2		48,024			40.1		18,925			39.4
Operating expenses:
Sales and marketing	25,119			15.5		16,561			13.8		8,558			51.7
Technology and development	12,203			7.5		10,084			8.4		2,119			21.0
General and administrative	40,970			25.2		28,428			23.7		12,542			44.1
Total operating expenses	78,292			48.2		55,073			46.0		23,219			42.2
Loss from operations	(11,343		)	(7.0	)	(7,049		)	(5.9	)	(4,294		)	60.9
Other income (expense):
Interest expense, net	(36		)	0.0		(52		)	0.0		16			(30.8	)
Other expense	—			0.0		(834		)	(0.7	)	834			(100.0	)
Total other income (expense)	(36		)	0.0		(886		)	(0.7	)	850			(95.9	)
Loss before income taxes	(11,379		)	(7.0	)	(7,935		)	(6.6	)	(3,444		)	43.4
Income tax expense	(31		)	0.0		(46		)	—		15			(32.6	)
Net loss	$	(11,410	)	(7.0	)%	$	(7,981	)	(6.7	)%	$	(3,429	)	43.0

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Revenue. Revenue was $162.5 million for the nine months ended September 30, 2013, compared to $119.7 million for the nine months ended September 30, 2012, an increase of $42.8 million, or 35.8%. This growth was primarily attributable to an increase in the number of advertiser clients using our platform as well as an increase in spending from our existing advertiser clients. Revenue from our existing advertiser clients increased by 40.6% during the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 and represented 85.8% of our total revenue for the nine months ended September 30, 2013 as compared to 82.2% of our total revenue for the nine months ended September 30, 2012. The increase in revenue from existing clients was driven by additional campaigns from brands that had previously advertised with us, larger campaign sizes and new brands owned by existing clients that began advertising with us during the nine month period. We believe that existing advertisers tend to increase their spending with us once we have demonstrated to them the potential return on investment from using our platform.

Our revenue from international operations increased to $39.8 million, or 24.5% of total revenue, for the nine months ended September 30, 2013, from $14.9 million, or 12.4% of total revenue, for the nine months ended September 30, 2012. The revenue growth in our international operations during the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 was primarily attributable to an increase in revenue from one of our new performance advertiser clients in Europe and an increase in the size of our international sales force focused on generating revenue, principally in Europe and Southeast Asia.

We also increased the size of our overall sales force during the nine months ended September 30, 2013 compared to the same period in the prior year, allowing us to increase our number of advertising client relationships and the number of developer applications enabled to receive ads delivered through our platform.

Cost of revenue. Cost of revenue was $95.6 million, or 58.8% of revenue, for the nine months ended September 30, 2013, an increase of $23.9 million, or 33.3%, from $71.7 million, or 59.9% of revenue, for the nine months ended September 30, 2012. The increase in cost of revenue in absolute dollars was the direct result of the increase in our revenue, as we pay a percentage of that revenue to developers for use of their ad space in delivering mobile ads for our advertiser clients.  The decrease in cost of revenue as a percentage of revenue and corresponding increase in gross margin for the nine months ended September 30, 2013 was primarily the result of overall more favorable pricing terms that we were able to negotiate with some of our existing developers because of our prior performance in monetizing ad space for those developers, as well as increased demand for our solutions from new developers, many of which use our  mMedia self-service portal, from which we were able to negotiate a lower revenue share.  We also improved the optimization algorithms inherent in our ad delivery process, which enabled us to deliver more ads to apps from developers with which we had negotiated lower revenue share percentages, while delivering the same or better results to advertisers than we would be able to deliver on other sites or apps with higher revenue share percentages. These decreases in cost of revenue were partially offset by fixed price arrangements with certain developers in order to increase the amount of ad space that we received from them.

Sales and marketing. Sales and marketing expense was $25.1 million, or 15.5% of revenue, for the nine months ended September 30, 2013, an increase of $8.5 million, or 51.7%, from $16.6 million, or 13.8% of revenue, for the nine months ended September 30, 2012. The increase in sales and marketing expense, both in absolute dollars and as a percentage of revenue, was primarily attributable to a $5.9 million increase in salaries and personnel-related costs associated with an increase in headcount and stock-based compensation expense, as we increased the number of sales and marketing personnel to support our expanding client base and experienced higher commission costs associated with higher revenue. The number of full-time sales and marketing employees increased to 152 at September 30, 2013 from 107 at September 30, 2012. In addition, we experienced a $1.8 million increase in our marketing programs and travel expenses and increased depreciation expense of $404,000 for the nine months ended September 30, 2013.

Technology and development. Technology and development expense was $12.2 million, or 7.5% of revenue, for the nine months ended September 30, 2013, an increase of $2.1 million, or 21%, from $10.1 million, or 8.4% of revenue, for the nine months ended September 30, 2012. The increase in technology and development expense was primarily attributable to a $3.0 million increase in salaries and personnel-related costs associated with an increase in headcount as we increased the number of technology and development personnel. This increase was offset by a decrease of $1.4 million in stock-based compensation expense associated with an additional one-time stock-based compensation expense in the prior year related to the departure of certain employees in the technology and development functions. The number of full-time technology and development employees increased to 91 at September 30, 2013 from 73 at September 30, 2012. The decrease in technology and development expense as a percentage of revenue for the nine months ended September 30, 2013 was primarily attributable to higher stock-based compensation expense in the prior year.

General and administrative. General and administrative expense was $41.0 million, or 25.2% of revenue, for the nine months ended September 30, 2013, an increase of $12.6 million, or 44.1%, from $28.4 million, or 23.7% of revenue, for the nine months ended September 30, 2012. The increase in general and administrative expense was primarily attributable to a $6.8 million increase in salaries and personnel-related costs associated with an increase in headcount and stock-based compensation expense, which includes $1.4 million of additional stock-based compensation expense and $477,000 of severance payments for terminated employees. We incurred an additional $106,000 in bad debt expense, an additional $637,000 in depreciation expense for capital expenditures, $2.8

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million of acquisition-related costs and deferred compensation expense related to the Metaresolver and Jumptap transactions, and an additional $2.3 million in overhead costs to support our growing employee base. The number of full-time general and administrative employees increased to 194 at September 30, 2013 from 143 at September 30, 2012. Additionally, we experienced higher overhead costs in 2013 as a result of having been a public company for the full period, as compared to 2012, when we were a public company for only a portion of the year. The increase in general and administrative expense as a percentage of revenue for the nine months ended September 30, 2013 was primarily attributable to our increase in general and administrative headcount.

Liquidity and Capital Resources

Sources of Liquidity

Prior to our IPO, we funded our operations principally through private placements of our capital stock and bank borrowings and raised an aggregate of $64.8 million from the sale of redeemable convertible preferred stock to third parties.

In August 2011, we entered into a line of credit with Silicon Valley Bank, or SVB, which allows for borrowings up to $15.0 million. Amounts borrowed under the line of credit are secured by all of our assets. The loan agreement was last amended in October 2013. Advances under the line of credit bear interest at a floating rate equal to SVB’s prime rate, with interest payable monthly. The line of credit agreement requires that we maintain a ratio of cash, cash equivalents and billed accounts receivable to current liabilities of at least 1.25 to 1.00. Additionally, the line of credit agreement contains an unused line fee of 0.25% per year, calculated based on the average unused portion of the loan, payable monthly. The line of credit is scheduled to mature on May 9, 2014. As of September 30, 2013, we had not yet drawn on this line of credit. As part of the line of credit, we have a maximum of $2.0 million in available letters of credit. As of September 30, 2013, we had $304,000 in standby letters of credit outstanding against the available balance under the line of credit.

Public Offerings of Common Stock

On April 3, 2012, we closed our IPO in which we sold 9,873,270 shares of common stock, and received net proceeds of approximately $115.1 million, after deducting underwriting discounts and offering-related expenses. Upon closing of the IPO, all of the redeemable convertible preferred stock then outstanding automatically converted into 47,679,003 shares of common stock. In addition, an outstanding warrant to purchase redeemable convertible preferred stock automatically converted into a warrant to purchase common stock, and our preferred stock warrant liability of $1.0 million as of April 3, 2012 was reclassified to additional paid-in capital.

On October 29, 2012, we closed an offering in which we sold 921,952 shares of common stock and received net proceeds of approximately $11.9 million, after deducting underwriting discounts and additional offering-related expenses.

Cash Flows

Our cash and cash equivalents at September 30, 2013 were held for working capital purposes. We do not enter into investments for trading or speculative purposes. Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity. Accordingly, our cash and cash equivalents are invested primarily in demand deposit accounts and money market funds that are currently providing only a minimal return.

Of our total cash and cash equivalents, less than 2.0% was held outside of the United States at September 30, 2013 and December 31, 2012. Our international operations consist of selling and marketing functions supported by our U.S. operations, and we are dependent on our U.S. operations for our international working capital needs. If our cash and cash equivalents held outside of the United States were ever needed for our operations inside the United States, we would be required to accrue and pay U.S. taxes to repatriate these funds. We currently intend to permanently reinvest these foreign amounts outside the United States, and our current plans do not demonstrate a need to repatriate the foreign amounts to fund our U.S. operations.

The following table summarizes our cash flows for the nine months ended September 30, 2013 and 2012:

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	Nine Months Ended September 30,
	2013			2012
	(in thousands)
Cash provided by (used in):
Operating activities	$	(1,119	)	$	(6,465	)
Investing activities	(15,815		)	(3,480		)
Financing activities	812			115,588

Operating Activities

For the nine months ended September 30, 2013, our net cash used in operating activities of $1.1 million consisted of a net loss of $11.4 million and $898,000 of cash used to fund changes in working capital, which was primarily driven both by the domestic and international expansion of our operations and by our investment in technology and development and personnel to facilitate our growth, offset by $11.2 million in adjustments for non-cash items. Adjustments for non-cash items primarily consisted of non-cash stock compensation expense of $6.8 million, depreciation and amortization expense of $3.1 million and bad debt expense of $1.2 million. The increased depreciation and amortization expense primarily related to increased capital expenditure requirements and amortization of our intangible assets resulting from acquisitions. The changes in working capital primarily consisted of changes in accounts receivable of $419,000, primarily the result of timing of cash collections, and changes in prepaid expenses and other current assets of $1.3 million, as we had a number of annual contracts that began in the second half of 2013, in addition to the deferred compensation recorded as part of the Metaresolver acquisition in the first half of 2013, offset by $2.4 million of changes in accounts payable and accrued expenses. The primary drivers for this change in accounts payable and accrued expenses were $340,000 in higher accounts payable due to the timing of payments, increases in additional accrued audit and tax fees of $481,000, $1.2 million in additional accrued legal costs primarily related to the Metaresolver and Jumptap acquisitions, $268,000 in additional accrued travel costs, and an additional $111,000 in deferred tax liabilities.

For the nine months ended September 30, 2012, our net cash used in operating activities of $6.5 million consisted of a net loss of $8.0 million and $7.3 million of cash used to fund changes in working capital, which was primarily driven both by the domestic and international expansion of our operations and by our investment in technology and development and personnel to facilitate our growth, offset by $8.8 million in adjustments for non-cash items. Adjustments for non-cash items primarily consisted of non-cash stock compensation expense of $5.3 million, non-cash change in the fair value of our Series B preferred stock warrant of $834,000 which was reclassified to additional paid-in capital on April 3, 2012 upon the closing of our IPO, depreciation and amortization expense of $1.6 million and bad debt expense of $1.1 million. The increased depreciation and amortization expense primarily related to increased capital expenditure requirements and our intangible assets resulting from the acquisition of a business. The decrease in cash resulting from changes in working capital primarily consisted of an increase in accounts receivable of $17.3 million, primarily driven by increased revenue during the period as we expanded our operations both domestically and internationally. These decreases in working capital were partially offset by increases in operating cash flow due to a $7.3 million increase in accrued cost of revenue, driven primarily by an increase in developer-related charges.

Investing Activities

Our investing activities have consisted primarily of purchases of property and equipment and payments made for acquisitions.

For the nine months ended September 30, 2013 and 2012, net cash used in investing activities was $15.8 million and $3.5 million, respectively. Net cash used in investing activities for the nine months ended September 30, 2013 included $11.7 million paid for the acquisition of Metaresolver, net of cash acquired. Additionally, for the nine months ended September 30, 2013 and 2012, net cash used in investing activities included purchases of property and equipment of $4.1 million and $3.5 million, respectively.

Financing Activities

For the nine months ended September 30, 2013, net cash provided by financing activities was $812,000, consisting primarily of $1.2 million in proceeds received upon the exercise of stock options, offset by cash used for payment of employee withholding taxes related to restricted stock unit vesting of $414,000.

For the nine months ended September 30, 2012, net cash provided by financing activities was $115.6 million, consisting primarily of $115.1 million in net proceeds from our IPO. In addition, we received cash of $500,000 upon the exercise of stock options.

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Operating and Capital Expenditure Requirements and Contractual Obligations

We believe our existing cash balances and the interest income we earn on these balances will be sufficient to meet our anticipated cash requirements for at least the next 12 months.  There have been no material changes in our commitments under contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on February 20, 2013.

Off-Balance Sheet Arrangements

As of September 30, 2013, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

No material changes in our market risk occurred from December 31, 2012 through September 30, 2013. Information regarding our market risk at December 31, 2012 is contained in Management’s Discussion and Analysis, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K filed with the SEC on February 20, 2013.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2013 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

Augme Technologies, Inc. v. Millennial Media, Inc.  On April 5, 2012, Augme Technologies, Inc. filed a complaint in the U.S. District Court for the District of Delaware, alleging patent infringement against us. Plaintiff alleges that we are infringing U.S. Patent No. 7,783,721 entitled “Method and Code Module For Adding Function To A Web Page,” U.S. Patent No. 7,269,636 entitled “Method and Code Module For Adding Function To A Web Page,” and U.S. Patent No. 6,594,691 entitled “Method and System For Adding Function To A Web Page.” We answered the complaint on July 5, 2012. Among other things, we filed counterclaims asking for a declaratory judgment of non-infringement and invalidity of the patents in question. Augme disclosed its initial infringement contentions on January 2, 2013. We disclosed our invalidity contentions on February 1, 2013. Discovery remains in the early stages in the case. The parties have agreed to a stay of the litigation proceedings until December 1, 2013 while engaged in settlement discussions.

Streetspace, Inc. v. Google, Inc. et al.  On August 23, 2010, plaintiff Streetspace, Inc. filed a complaint in the U.S. District Court for the Southern District of California, alleging patent infringement against a group of defendants including us. The plaintiff alleged that each of the defendants has infringed, and continues to infringe, plaintiff’s patent. On September 12, 2011, the court granted the defendants’ motion to transfer the case to the U.S. District Court for the Northern District of California. On September 15, 2011, the defendants jointly filed a request to reexamine plaintiff’s claimed patent with the U.S. Patent and Trademark Office (the “PTO”). On November 18, 2011, the PTO granted the defendants’ request, ordered a reexamination of the plaintiff’s patent, and rejected all of the plaintiff’s patent claims in the first office action. The PTO entered an Action Closing Prosecution on June 4, 2012 rejecting all claims of the patent-in-suit. The PTO entered its final rejection, also known as Right of Appeal Notice, on May 10, 2013 rejecting all claims of the patent-in-suit.  The plaintiff filed its Notice of Appeal on June 10, 2013 and the defendants filed their Notice of Cross Appeal on June 24, 2013.  The defendants also filed a motion to stay the case in the Northern District of California, pending the reexamination. The court granted the motion to stay in February 2012 and there has been no discovery in the litigation.  The court entered orders maintaining the stay of litigation on May 8, 2013 and August 14, 2013.

Evolutionary Intelligence, LLC. v. Millennial Media, Inc.  On October 17, 2012, Evolutionary Intelligence, LLC filed a complaint in the U.S. District Court for the Eastern District of Texas, Tyler Division, alleging patent infringement against us. The plaintiff alleges that we are infringing U.S. Patent No. 7,010,536, entitled “System and Method for Creating and Manipulating Containers with Dynamic Registers” and U.S. Patent No. 7,702,682, entitled “System and Method for Creating and Manipulating Containers with Dynamic Registers.” The complaint seeks declaratory judgment, unspecified damages and injunctive relief. We answered the complaint on December 17, 2012. Among other things, we asserted defenses based non-infringement and invalidity of the patents in question. We have filed a motion to transfer venue to the Northern District of California on December 21, 2012 and the Eastern District of Texas granted the transfer motion on August 27, 2013.  The case was opened in the Northern District of California on September 17, 2013.   An initial case management conference is set for December 17, 2013.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. Before you invest in our common stock, you should carefully consider the following risks, as well as general economic and business risks, and all of the other information contained in this report, together with any other documents we file with the SEC from time to time. If any of the following events actually occur or the risks actually materialize, it could have a material adverse effect on our business, operating results and financial condition and cause the trading price of our common stock to decline.

Risks Related to Our Acquisition of Jumptap

The consummation of our acquisition of Jumptap could have a negative impact on our business, or on our stock price.

On November 6, 2013, we completed our acquisition of Jumptap, a competing mobile advertising company, in which we acquired all of the outstanding shares of capital stock of Jumptap. We refer to this transaction in this report as the Acquisition. The closing of the Acquisition could disrupt our and Jumptap’s businesses in the following ways, any of which could negatively affect our stock price or could harm our financial condition, results of operations or business prospects:

·our and Jumptap’s customers and other third-party business partners may seek to terminate or renegotiate their relationships as a result of the Acquisition, whether pursuant to the terms of their existing agreements with us or Jumptap, or otherwise;

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·the attention of our management may be directed toward the integration of our businesses and related matters and may be diverted from our current business operations, including from other opportunities that might otherwise be beneficial to us; and

·current and prospective employees may experience uncertainty regarding their future roles with our company, which might adversely affect our ability to retain, recruit and motivate key personnel.

The issuance of our shares in the Acquisition diluted the voting power and economic interests of our current stockholders.

Upon consummation of the Acquisition, all of Jumptap’s capital stock and certain of its convertible securities and warrants issued and outstanding immediately prior to the effective time of the Acquisition were converted into shares of our common stock. We issued 24,745,470 shares of our common stock to the former securityholders of Jumptap, and we also assumed options that are now exercisable for 861,584 shares of our common stock to the former securityholders of Jumptap, together representing approximately 22.8% of the total number of common shares following the Acquisition on a fully diluted basis. Consequently, our stockholders prior to the Acquisition now own a smaller percentage of the combined company and they should expect to exercise less influence over the management and policies of the combined company following the Acquisition than they previously exercised over our management and policies.

We may be unable to realize the benefits anticipated by the Acquisition, including estimated cost savings and synergies, or it may take longer than we anticipate for us to achieve those benefits.

Our realization of the benefits anticipated as a result of the Acquisition will depend in part on the integration of Jumptap’s business with ours. However, there can be no assurance that we will be able to operate Jumptap’s business profitably or integrate it successfully into our operations in a timely fashion, or at all. Following the Acquisition, the size of the combined company’s business will be significantly larger than our current business. Our future success as a combined company depends, in part, upon our ability to manage this expanded business, which will pose substantial challenges for our management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. The dedication of management resources to this integration could detract attention from our current day-to-day business, and we cannot assure you that there will not be substantial costs associated with the transition process or other negative consequences as a result of these integration efforts. These effects, including, but not limited to, incurring unexpected costs or delays in connection with integration of the two businesses, or the failure of Jumptap’s business to perform as expected, could harm our results of operations.

The loss of key personnel could hurt our business and our prospects.

The success of the Acquisition will depend, in part, on our ability to retain key employees who continue employment with the combined company now that the Acquisition is completed. If any of these key employees terminate their employment, our sales, marketing or development activities might be negatively impacted and management’s attention might be diverted from successfully integrating Jumptap’s operations. In addition, we might not be able to locate suitable replacements on reasonable terms for any such key employees who leave the combined company.

Our success will also depend on relationships with third parties and pre-existing customers of both companies, which relationships may be affected by customer preferences or public attitudes about the Acquisition.

Our success following the Acquisition will be dependent on the ability to maintain and renew relationships with pre-existing customers and other clients of both our company and Jumptap and to establish new advertiser and developer relationships. There can be no assurance that the business of the combined company will be able to maintain pre-existing customer contracts and other business relationships, or that we will be able to enter into or maintain new customer contracts and other business relationships on acceptable terms, if at all. Our failure to maintain important customer relationships could harm our reputation, while also negatively impacting our financial condition and results of operations of the combined company.

Charges to earnings resulting from the Acquisition may cause our operating results to suffer.

Under accounting principles, we will allocate the total purchase price of the Acquisition to Jumptap’s net tangible assets and intangible assets based on their fair values as of the date of the Acquisition, and we will record the excess of the purchase price over those fair values as goodwill. Our management’s estimates of fair value will be based upon assumptions that they believe to be reasonable but that are inherently uncertain. The following factors, among others, could result in material charges that would cause our financial results to be negatively impacted:

·impairment of goodwill;

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·charges for the amortization of identifiable intangible assets and for stock-based compensation;

·accrual of newly identified pre-acquisition contingent liabilities that are identified subsequent to the finalization of the purchase price allocation; and

·charges to income to eliminate certain of our pre-acquisition activities that duplicate those of Jumptap or to reduce our cost structure.

Additional costs may include costs of employee redeployment, relocation and retention, including salary increases or bonuses, accelerated amortization of deferred equity compensation and severance payments, reorganization or closure of facilities, taxes and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would decrease our net income and earnings per share for the periods in which those adjustments are made.

Risks Related to Our Business and Our Industry

We have incurred significant net losses since inception, and we expect our operating expenses to increase significantly in the foreseeable future. Accordingly, we may never achieve profitability.

We incurred net losses of $11.4 million for the first nine months of 2013 and $5.4 million for the year ended December 31, 2012, and we had an accumulated deficit of $61.5 million as of September 30, 2013. We do not know when or if we will ever achieve profitability. Although our revenue has increased substantially in recent periods, it is likely that we will not be able to maintain this rate of revenue growth. Historically, our operating expenses have increased in proportion to our revenue. We anticipate that our operating expenses will continue to increase in the foreseeable future to the extent that our revenue grows and as we increase headcount, particularly our sales and technology-related headcount, incur general and administrative expenses associated with being a public company and expand our facilities. Although we expect to achieve operating efficiencies and greater leverage of resources as we grow, if we are unable to do so, we may be unable to achieve profitability. If we are not able to achieve and maintain profitability, the value of our company and our common stock could decline significantly.

We operate in an intensely competitive industry, and we may not be able to compete successfully.

The mobile advertising market is highly competitive, with numerous companies providing mobile advertising services. We compete primarily with Google Inc. and Apple Inc., both of which are significantly larger than us and have more capital to invest in their mobile advertising businesses.  We also compete with in-house solutions used by companies who choose to coordinate mobile advertising across their own properties such as Facebook, Twitter, Yahoo!, Pandora, ESPN and The Weather Channel. They, or other companies that offer competing mobile advertising solutions, may establish or strengthen cooperative relationships with their mobile operator partners, brand advertisers, app developers or other parties, thereby limiting our ability to promote our services and generate revenue. Competitors could also seek to gain market share from us by reducing the prices they charge to advertisers or by introducing new technology tools for developers. Moreover, increased competition for mobile advertising space from developers could result in an increase in the portion of advertiser revenue that we must pay to developers to acquire that advertising space.

Our business will suffer to the extent that our developers and advertisers purchase and sell mobile advertising directly from each other or through other companies that are able to become intermediaries between developers and advertisers. For example, we are aware of companies that have substantial existing platforms for developers who had previously not heavily used those platforms for mobile advertising campaigns. These companies could compete with us to the extent they expand into mobile advertising. Other companies, such as large app developers with a substantial mobile advertising business, may decide to directly monetize some or all of their advertising space without utilizing our services. Other companies that offer analytics, mediation, exchange or other third-party services may also become intermediaries between mobile advertisers and developers and thereby compete with us. Any of these developments would make it more difficult for us to sell our services and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share.

The mobile advertising market may deteriorate or develop more slowly than expected, which could harm our business.

Advertising on mobile connected devices is an emerging phenomenon. Advertisers have historically spent a smaller portion of their advertising budgets on mobile media as compared to traditional advertising methods, such as television, newspapers, radio and billboards, or online advertising over the internet, such as placing banner ads on websites. Future demand and market acceptance for mobile advertising is uncertain. Many advertisers still have limited experience with mobile advertising and may continue to devote larger portions of their advertising budgets to more traditional offline or online personal computer-based advertising, instead of shifting additional advertising resources to mobile advertising. In addition, our current and potential advertiser clients may ultimately

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find mobile advertising to be less effective than traditional advertising media or marketing methods or other technologies for promoting their products and services, and they may even reduce their spending on mobile advertising from current levels as a result. If the market for mobile advertising deteriorates, or develops more slowly than we expect, we may not be able to increase our revenue.

Our business is dependent on the continued growth in usage of smartphones, tablets and other mobile connected devices.

Our business depends on the continued proliferation of mobile connected devices, such as smartphones and tablets, that can connect to the internet over a cellular, wireless or other network, as well as the increased consumption of content through those devices. Consumer usage of these mobile connected devices may be inhibited for a number of reasons, such as:

·inadequate network infrastructure to support advanced features beyond just mobile web access;

·users’ concerns about the security of these devices;

·inconsistent quality of cellular or wireless connection;

·unavailability of cost-effective, high-speed internet service; and

·changes in network carrier pricing plans that charge device users based on the amount of data consumed.

For any of these reasons, users of mobile connected devices may limit the amount of time they spend on these devices and the number of apps they download on these devices. If user adoption of mobile connected devices and consumer consumption of content on those devices do not continue to grow, our total addressable market size may be significantly limited, which could compromise our ability to increase our revenue and to become profitable.

If mobile connected devices, their operating systems or content distribution channels, including those controlled by our primary competitors, develop in ways that prevent our advertising from being delivered to their users, our ability to grow our business will be impaired.

Our business model depends upon the continued compatibility of our mobile advertising platform with most mobile connected devices, as well as the major operating systems that run on them and the thousands of apps that are downloaded onto them.

The design of mobile devices and operating systems is controlled by third parties with whom we do not have any formal relationships. These parties frequently introduce new devices, and from time to time they may introduce new operating systems or modify existing ones. Network carriers, such as Verizon, AT&T or T-Mobile, may also impact the ability to download apps or access specified content on mobile devices.

In some cases, the parties that control the development of mobile connected devices and operating systems include companies that we regard as our most significant competitors. For example, Apple controls two of the most popular mobile devices, the iPhone® and the iPad®, as well as the iOS operating system that runs on them. Apple also controls the App Store for downloading apps that run on Apple® mobile devices. Similarly, Google controls the Android™ platform operating system and, through its ownership of Motorola Mobility, it controls a significant number of additional mobile devices. If our mobile advertising platform were unable to work on these devices or operating systems, either because of technological constraints or because a maker of these devices or developer of these operating systems wished to impair our ability to provide ads on them or our ability to fulfill advertising space, or inventory, from developers whose apps are distributed through their controlled channels, our ability to generate revenue could be significantly harmed.

We do not control the mobile networks over which we provide our advertising services.

Our mobile advertising platform is dependent on the reliability of network operators and carriers who maintain sophisticated and complex mobile networks, as well as our ability to deliver ads on those networks at prices that enable us to realize a profit. Mobile networks have been subject to rapid growth and technological change, particularly in recent years. We do not control these networks.

Mobile networks could fail for a variety of reasons, including new technology incompatibility, the degradation of network performance under the strain of too many mobile consumers using the network, a general failure from natural disaster or a political or regulatory shut-down. Individuals and groups who develop and deploy viruses, worms and other malicious software programs could also attack mobile networks and the devices that run on those networks. Any actual or perceived security threat to mobile devices or any mobile network could lead existing and potential device users to reduce or refrain from mobile usage or reduce or refrain from responding to the services offered by our advertising clients. If the network of a mobile operator should fail for any reason, we would

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not be able to effectively provide our services to our clients through that mobile network. This in turn could hurt our reputation and cause us to lose significant revenue.

Mobile carriers may also increase restrictions on the amounts or types of data that can be transmitted over their networks. We currently generate different amounts of revenue from our advertiser clients based on the kinds of ads we deliver, such as display ads, rich media ads or video ads. In some cases, we are paid by advertisers on a cost-per-thousand, or CPM, basis depending on the number of ads shown. In other cases, we are paid on a cost-per-click, or CPC, or cost-per-action, or CPA, basis depending on the actions taken by the mobile device user. Different types of ads consume differing amounts of bandwidth and network capacity. If a network carrier were to restrict the amounts of data that can be delivered on that carrier’s network, or otherwise control the kinds of content that may be downloaded to a device that operates on the network, it could negatively affect our pricing practices and inhibit our ability to deliver targeted advertising to that carrier’s users, both of which could impair our ability to generate revenue.

Mobile connected device users may choose not to allow advertising on their devices.

The success of our business model depends on our ability to deliver targeted, highly relevant ads to consumers on their mobile connected devices. Targeted advertising is done primarily through analysis of data, much of which is collected on the basis of user-provided permissions. This data might include a device’s location or data collected when device users view an ad or video or when they click on or otherwise engage with an ad. Users may elect not to allow data sharing for targeted advertising for a number of reasons, such as privacy concerns, or pricing mechanisms that may charge the user based upon the amount or types of data consumed on the device. Users may also elect to opt out of receiving targeted advertising from our platform. In addition, the designers of mobile device operating systems are increasingly promoting features that allow device users to disable some of the functionality, which may impair or disable the delivery of ads on their devices, and device manufacturers may include these features as part of their standard device specifications. Although we are not aware of any such products that are widely used in the market today, as has occurred in the online advertising industry, companies may develop products that enable users to prevent ads from appearing on their mobile device screens. If any of these developments were to occur, our ability to deliver effective advertising campaigns on behalf of our advertiser clients would suffer, which could hurt our ability to generate revenue and become profitable.

Our limited operating history makes it difficult to evaluate our business and prospects and may increase your investment risk.

We commenced operations in 2006 and, as a result, we have only a limited operating history upon which you can evaluate our business and prospects. Although we have experienced significant revenue growth in recent periods, it is likely that we will not be able to sustain this growth. As part of the nascent mobile advertising industry, we will encounter risks and difficulties frequently encountered by early-stage companies in rapidly evolving industries, including the need to:

·maintain our reputation and build trust with our advertisers and developers;

·offer competitive pricing to both advertisers and developers;

·maintain and expand our network of advertising space through which we deliver mobile advertising campaigns;

·deliver advertising results that are superior to those that advertisers or developers could achieve directly or through the use of competing providers or technologies;

·continue to develop and upgrade the technologies that enable us to provide mobile advertising services;

·respond to evolving government regulations relating to the internet, telecommunications, privacy, direct marketing and advertising aspects of our business;

·identify, attract, retain and motivate qualified personnel; and

·manage our expanding operations.

If we do not successfully address these risks, our revenue could decline and our ability to pursue our growth strategy and attain profitability could be compromised.

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We may not be able to enhance our mobile advertising platform to keep pace with technological and market developments.

The market for mobile advertising services is characterized by rapid technological change, evolving industry standards and frequent new service introductions. To keep pace with technological developments, satisfy increasing advertiser and developer requirements, maintain the attractiveness and competitiveness of our mobile advertising solutions and ensure compatibility with evolving industry standards and protocols, we will need to regularly enhance our current services and to develop and introduce new services on a timely basis.

For example, advances in technology that allow developers to generate revenue from their apps without our assistance could harm our relationships with developers and diminish our available advertising inventory within their apps. Similarly, technological developments that allow third parties to better mediate the delivery of ads between advertisers and developers by introducing an intermediate layer between us and our developers could impair our relationships with those developers. Our inability, for technological, business or other reasons, to enhance, develop, introduce and deliver compelling mobile advertising services in response to changing market conditions and technologies or evolving expectations of advertisers or mobile device users could hurt our ability to grow our business and could result in our mobile advertising platform becoming obsolete.

We depend on developers for mobile advertising space to deliver our advertiser clients’ advertising campaigns, and any decline in the supply of advertising inventory from these developers could hurt our business.

We depend on developers to provide us with space within their apps, which we refer to as “advertising inventory”, on which we deliver ads. The developers that sell their advertising inventory to us are not required to provide any minimum amounts of advertising space to us, nor are they contractually bound to provide us with a consistent supply of advertising inventory. The tools that we provide to developers allow them to make decisions as to how to allocate advertising inventory among us and other advertising providers, some of which may be our competitors. A third party acting as a mediator on behalf of developers, or any competing mediation tools embedded within a developer’s apps, could result in pressure on us to increase the prices we pay to developers for that inventory or otherwise block our access to developer inventory, without which we would be unable to deliver ads on behalf of our advertiser clients.

We generate a significant portion of our revenue from the advertising inventory provided by a limited number of developers, and, as a nascent industry, the market for mobile applications is undergoing, and will likely continue to undergo, rapid change and significant consolidation. In most instances, developers can change the amount of inventory they make available to us at any time. Developers may also change the price at which they offer inventory to us, or they may elect to make advertising space available to our competitors who offer ads to them on more favorable economic terms. In addition, developers may place significant restrictions on our use of their advertising inventory. These restrictions may prohibit ads from specific advertisers or specific industries, or they could restrict the use of specified creative content or format. Developers may also use a fee-based or subscription-based business model to generate revenue from their content, in lieu of or to reduce their reliance on ads.

If developers decide not to make advertising inventory available to us for any of these reasons, decide to increase the price of inventory, or place significant restrictions on our use of their advertising space, we may not be able to replace this with inventory from other developers that satisfy our requirements in a timely and cost-effective manner. If this happens, our revenue could decline or our cost of acquiring inventory could increase.

Our business depends on our ability to collect and use data to deliver ads, and any limitation on the collection and use of this data could significantly diminish the value of our services and cause us to lose clients and revenue.

When we deliver an ad to a mobile device, we are often able to collect anonymous information about the placement of the ad and the interaction of the mobile device user with the ad, such as whether the user visited a landing page or watched a video. We may also be able to collect information about the user’s mobile location. As we collect and aggregate this data provided by billions of ad impressions, we analyze it in order to optimize the placement and scheduling of ads across the advertising inventory provided to us by developers. For example, we may use the collected information to limit the number of times a specific ad is presented to the same mobile device, to provide an ad to only certain types of mobile devices, or to provide a report to an advertiser client on the number of its ads that were clicked. We also compile the data derived from our platform to publish monthly reports of key mobile industry trends in the form of our S.M.A.R.T. and Mobile Mix reports, which we provide to advertisers and developers to enable them to improve their business decisions about mobile advertising or monetization strategies and to promote their use of our services.

Although the data we collect is not personally identifiable information, our clients might decide not to allow us to collect some or all of this data or might limit our use of this data. For example, app developers may not agree to provide us with the data generated by interactions with the content on their apps, or device users may not consent to having information about their device usage provided to the developer. Any limitation on our ability to collect data about user behavior and interaction with mobile device content could make it more difficult for us to deliver effective mobile advertising programs that meet the demands of our advertiser clients.

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Although our contracts with advertisers generally permit us to aggregate data from advertising campaigns, these clients might nonetheless request that we discontinue using data obtained from their campaigns that have already been aggregated with other clients’ campaign data. It would be difficult, if not impossible, to comply with these requests, and responding to these kinds of requests could also cause us to spend significant amounts of resources. Interruptions, failures or defects in our data collection, mining, analysis and storage systems, as well as privacy concerns and regulatory restrictions regarding the collection of data, could also limit our ability to aggregate and analyze mobile device user data from our clients’ advertising campaigns. If that happens, we may not be able to optimize the placement of advertising for the benefit of our advertiser clients, which could make our services less valuable, and, as a result, we may lose clients and our revenue may decline.

Our business depends in part on our ability to collect and use location-based information about mobile connected device users.

Our business model depends in part upon our ability to collect data about the location of mobile connected device users when they are interacting with their devices, and then to use that information to provide effective targeted advertising on behalf of our advertising clients. Our ability to either collect or use location-based data could be restricted by a number of factors, including new laws or regulations, technology or consumer choice. Limitations on our ability to either collect or use location data could impact the effectiveness of our platform and our ability to target ads.

Our business practices with respect to data could give rise to liabilities or reputational harm as a result of governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection.

In the course of providing our services, we transmit and store information related to mobile devices and the ads we place, including a device’s geographic location for the purpose of delivering targeted location-based ads to the user of the device, with that user’s consent. Federal, state and international laws and regulations govern the collection, use, retention, sharing and security of data that we collect across our mobile advertising platform. We strive to comply with all applicable laws, regulations, policies and legal obligations relating to privacy and data protection. However, it is possible that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure, or perceived failure, by us to comply with U.S. federal, state, or international laws, including laws and regulations regulating privacy or consumer protection, could result in proceedings or actions against us by governmental entities or others. We are aware of several ongoing lawsuits filed against companies in our industry alleging various violations of privacy-related laws. Any such proceedings could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, adversely affect the demand for our services and ultimately result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless our clients from the costs or consequences of inadvertent or unauthorized disclosure of data that we store or handle as part of providing our services.

The regulatory framework for privacy issues worldwide is evolving, and various government and consumer agencies and public advocacy groups have called for new regulation and changes in industry practices, including some directed at the mobile industry in particular. For example, in early 2012, the State of California entered into an agreement with several major mobile app platforms under which the platforms have agreed to require mobile apps to meet specified standards to ensure consumer privacy. Subsequently, in January 2013, the State of California released a series of recommendations for privacy best practices for the mobile industry. It is possible that new laws and regulations will be adopted in the United States and internationally, or existing laws and regulations may be interpreted in new ways, that would affect our business, particularly with regard to location-based services, collection or use of data to target ads and communication with consumers via mobile devices.

The U.S. government, including the Federal Trade Commission, or FTC, and the Department of Commerce, is focused on the need for greater regulation of the collection of consumer information, including regulation aimed at restricting some targeted advertising practices. In December 2012, the FTC adopted revisions to the Children’s Online Privacy Protection Act, or COPPA, that went into effect on July 1, 2013. COPPA imposes a number of obligations on operators of websites and online services including mobile apps, such as obtaining parental consent, if the operator collects specified information from users and either the site or service is directed to children under 13 years old or the site or service knows that a specific user is a child under 13 years old. The changes broaden the applicability of COPPA, including the types of information that are subject to these regulations, and may apply to information that we or our clients collect through mobile devices or apps that, prior to the adoption of these new regulations, was not subject to COPPA. These revisions impose new compliance burdens on us. In February 2013, the FTC issued a staff report containing recommendations for best practices with respect to consumer privacy for the mobile industry. To the extent that we or our clients choose to adopt these recommendations, or other regulatory or industry requirements become applicable to us, we may have greater compliance burdens.

As we expand our operations globally, compliance with regulations that differ from country to country may also impose substantial burdens on our business. In particular, the European Union has traditionally taken a broader view as to what is considered

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personal information and has imposed greater obligations under data privacy regulations. In addition, individual EU member countries have had discretion with respect to their interpretation and implementation of the regulations, which has resulted in variation of privacy standards from country to country. In January 2012, the European Commission announced significant proposed reforms to its existing data protection legal framework, including changes in obligations of data controllers and processors, the rights of data subjects and data security and breach notification requirements. The EU proposals, if implemented, may result in a greater compliance burden if we deliver ads to mobile device users in Europe. Complying with any new regulatory requirements could force us to incur substantial costs or require us to change our business practices in a manner that could compromise our ability to effectively pursue our growth strategy.

In addition to compliance with government regulations, we voluntarily participate in several trade associations and industry self-regulatory groups that promulgate best practices or codes of conduct addressing the provision of location-based services, delivery of promotional content to mobile devices, and tracking of device users or devices for the purpose of delivering targeted advertising. We could be adversely affected by changes to these guidelines and codes in ways that are inconsistent with our practices or in conflict with the laws and regulations of U.S. or international regulatory authorities. If we are perceived as not operating in accordance with industry best practices or any such guidelines or codes with regard to privacy, our reputation may suffer and we could lose relationships with advertiser or developer partners.

Our quarterly operating results have fluctuated in the past and may do so in the future, which could cause our stock price to decline.

Our operating results have historically fluctuated and our future operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our operating results as an indication of our future performance. Factors that may affect our quarterly operating results include the following:

·seasonal patterns in the mix of brand and performance advertiser clients and in overall spending by mobile advertisers, which tend to be cyclical;

·the addition of new advertisers or developers or the loss of existing advertisers or developers;

·changes in demand for our mobile advertising services;

·changes in the amount, price and quality of available advertising inventory from developers;

·the timing and amount of sales and marketing expenses incurred to attract new advertisers and developers;

·changes in the economic prospects of advertisers or the economy generally, which could alter current or prospective advertisers’ spending priorities, or could increase the time it takes us to close sales with advertisers;

·changes in our pricing policies, the pricing policies of our competitors or the pricing of mobile advertising generally;

·changes in governmental regulation of the internet, wireless networks, mobile advertising or the collection of mobile device user data;

·costs necessary to improve and maintain our technology platform;

·timing differences at the end of each quarter between our payments to developers for advertising space and our collection of advertising revenue related to that space; and

·costs related to acquisitions of other businesses.

Our operating results may fall below the expectations of market analysts and investors in some future periods. If this happens, even just temporarily, the market price of our common stock may fall.

Seasonal fluctuations in mobile advertising activity could adversely affect our cash flows.

Our cash flows from operations could vary from quarter to quarter due to the seasonal nature of our advertisers’ spending. For example, many advertisers devote the largest portion of their budgets to the fourth quarter of the calendar year, to coincide with increased holiday purchasing. To date, these seasonal effects have been masked by our rapid revenue growth. However, if and to the

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extent that seasonal fluctuations become more pronounced, our operating cash flows could fluctuate materially from period to period as a result.

We do not have long-term agreements with our advertiser clients, and we may be unable to retain key clients, attract new clients or replace departing clients with clients that can provide comparable revenue to us.

Our success requires us to maintain and expand our current advertiser client relationships and to develop new relationships. Our contracts with our advertiser clients generally do not include long-term obligations requiring them to purchase our services and are cancelable upon short or no notice and without penalty. As a result, we may have limited visibility as to our future advertising revenue streams. We cannot assure you that our advertiser clients will continue to use our services or that we will be able to replace, in a timely or effective manner, departing clients with new clients that generate comparable revenue. If a major advertising client representing a significant portion of our business decides to materially reduce its use of our platform or to cease using our platform altogether, it is possible that we would not have a sufficient supply of ads to fill our developers’ advertising inventory, in which case our revenue could be significantly reduced. Any non-renewal, renegotiation, cancellation or deferral of large advertising contracts, or a number of contracts that in the aggregate account for a significant amount of revenue, could cause an immediate and significant decline in our revenue and harm our business.

Our sales efforts with both advertisers and developers require significant time and expense.

Attracting new advertisers and developers requires substantial time and expense, and we may not be successful in establishing new relationships or in maintaining or advancing our current relationships. For example, it may be difficult to identify, engage and market to potential advertiser clients who do not currently spend on mobile advertising or are unfamiliar with our current services or platform. Furthermore, many of our clients’ purchasing and design decisions typically require input from multiple internal constituencies. As a result, we must identify those involved in the purchasing decision and devote a sufficient amount of time to presenting our services to each of those individuals.

The novelty of our services and our business model often requires us to spend substantial time and effort educating potential advertisers and developers about our offerings, including providing demonstrations and comparisons against other available services. This process can be costly and time-consuming. If we are not successful in streamlining our sales processes with advertisers and developers, our ability to grow our business may be adversely affected.

If we do not achieve satisfactory results under performance-based pricing models, we could lose clients and our revenue could decline.

We offer our services to advertisers based on a variety of pricing models, including CPM, CPA and CPC. Under performance-driven CPA and CPC pricing models, from which we currently derive a significant portion of our revenue, advertisers only pay us if we provide the results they specify. These results-based pricing models differ from fixed-rate pricing models, like CPM, under which the fee is based on the number of times the ad is shown, without regard to its effectiveness. As a result, under our contracts with advertisers that provide for us to be paid on a CPC or CPA basis, we must be able to develop effective ad campaigns that result in the desired actions being taken by consumers. If we are not able to perform effectively under these arrangements, or have disagreements with clients over the measurement of deliverables, it could hurt our reputation with advertisers and developers and could cause our revenues to decline.

If we cannot increase the capacity of our mobile advertising technology platform to meet advertiser or device user demand, our business will be harmed.

We must be able to continue to increase the capacity of our MYDAS technology platform in order to support substantial increases in the number of advertisers and device users, to support an increasing variety of advertising formats and to maintain a stable service infrastructure and reliable service delivery for our mobile advertising campaigns. If we are unable to efficiently and effectively increase the scale of our mobile advertising platform to support and manage a substantial increase in the number of advertisers and mobile device users, while also maintaining a high level of performance, the quality of our services could decline and our reputation and business could be seriously harmed. In addition, if we are not able to support emerging mobile advertising formats or services preferred by advertisers, we may be unable to obtain new advertising clients or may lose existing advertising clients, and in either case our revenue could decline.

If we fail to detect click fraud or other invalid clicks on ads, we could lose the confidence of our advertiser clients, which would cause our business to suffer.

Our business relies on delivering positive results to our advertiser clients. We are exposed to the risk of fraudulent and other invalid clicks or conversions that advertisers may perceive as undesirable. Because of their smaller sizes as compared to personal

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computers, mobile device usage could result in a higher rate of accidental or otherwise inadvertent clicks by a user. Invalid clicks could also result from click fraud, where a mobile device user intentionally clicks on ads for reasons other than to access the underlying content of the ads. If fraudulent or other malicious activity is perpetrated by others, and we are unable to detect and prevent it, the affected advertisers may experience or perceive a reduced return on their investment. High levels of invalid click activity could lead to dissatisfaction with our advertising services, refusals to pay, refund demands or withdrawal of future business. Any of these occurrences could damage our brand and lead to a loss of advertisers and revenue.

System failures could significantly disrupt our operations and cause us to lose advertiser clients or advertising inventory.

Our success depends on the continuing and uninterrupted performance of our own internal systems, which we utilize to place ads, monitor the performance of advertising campaigns and manage our inventory of advertising space. Our revenue depends on the technological ability of our platform to deliver ads and measure them on a CPM, CPC or CPA basis. Sustained or repeated system failures that interrupt our ability to provide services to clients, including technological failures affecting our ability to deliver ads quickly and accurately and to process mobile device users’ responses to ads, could significantly reduce the attractiveness of our services to advertisers and reduce our revenue. Our systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages, malicious human acts and natural disasters. In addition, any steps we take to increase the reliability and redundancy of our systems may be expensive and may not ultimately be successful in preventing system failures.

Failure to adequately manage our growth may seriously harm our business.

We have experienced, and may continue to experience, significant growth in our business. If we do not effectively manage our growth, the quality of our services may suffer, which could negatively affect our reputation and demand for our services. Our growth has placed, and is expected to continue to place, a significant strain on our managerial, administrative, operational and financial resources and our infrastructure. Our future success will depend, in part, upon the ability of our senior management to manage growth effectively. This will require us to, among other things:

·implement additional management information systems;

·further develop our operating, administrative, legal, financial and accounting systems and controls;

·hire additional personnel;

·develop additional levels of management within our company;

·locate additional office space;

·maintain close coordination among our engineering, operations, legal, finance, sales and marketing and client service and support organizations; and

·manage our expanding international operations.

Moreover, as our sales increase, we may be required to concurrently deploy our services infrastructure at multiple additional locations or provide increased levels of customization. As a result, we may lack the resources to deploy our services on a timely and cost-effective basis. Failure to accomplish any of these requirements could impair our ability to deliver our mobile advertising platform in a timely fashion, fulfill existing client commitments or attract and retain new clients.

Our increasing international operations subject us to increased challenges and risks.

We have expanded our operations internationally over the last three years, including opening international offices in the United Kingdom in the first half of 2010, launching operations in Singapore in the fourth quarter of 2011 and opening offices in continental Europe and Southeast Asia during 2012 and Japan in the first half of 2013. We expect to further expand our international operations by opening offices in new countries and regions worldwide. However, we have a limited operating history as a company outside the United States, and our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. International expansion will require us to invest significant funds and other resources. Expanding internationally may subject us to new risks that we have not faced before or increase risks that we currently face, including risks associated with:

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·recruiting and retaining talented and capable employees in foreign countries;

·providing mobile advertising services among different cultures, including potentially modifying our platform and features to ensure that we deliver ads that are culturally relevant in different countries;

·increased competition from local providers of mobile advertising services;

·compliance with applicable foreign laws and regulations;

·longer sales or collection cycles in some countries;

·credit risk and higher levels of payment fraud;

·compliance with anti-bribery laws, such as the Foreign Corrupt Practices Act and the UK Anti-Bribery Act;

·currency exchange rate fluctuations;

·foreign exchange controls that might prevent us from repatriating cash earned outside the United States;

·economic instability in some countries, particularly those in Europe given our recent expansion in the United Kingdom;

·political instability;

·compliance with the laws of numerous taxing jurisdictions, both foreign and domestic, in which we conduct business, potential double taxation of our international earnings and potentially adverse tax consequences due to changes in applicable U.S. and foreign tax laws;

·the complexity and potential adverse consequences of U.S. tax laws as they relate to our international operations;

·increased costs to establish and maintain effective controls at foreign locations; and

·overall higher costs of doing business internationally.

If our revenue from our international operations, and particularly from our operations in the countries and regions on which we have focused our spending, do not exceed the expense of establishing and maintaining these operations, our business and operating results will suffer.

If we do not retain our senior management team and other employees, or attract additional sales and technology talent, we may not be able to sustain our growth or achieve our business objectives.

Our future success is substantially dependent on the continued service of our senior management team, particularly Paul Palmieri, our chief executive officer, Michael Avon, our executive vice president, or EVP, and chief financial officer, Mollie Spilman, our EVP, Global Sales and Marketing, and Matt Gillis, our EVP, Global Product and Platform. We do not maintain key-person insurance on any of these employees. Our future success also depends on our ability to continue to attract, retain and motivate highly skilled employees, particularly employees with technical skills that enable us to deliver effective mobile advertising solutions and sales, and client support representatives with experience in mobile and other digital advertising and strong relationships with brand advertisers and app developers. Competition for these employees in our industry is intense. As a result, we may be unable to attract or retain these management, technical, sales and client support personnel that are critical to our success, resulting in harm to our key client relationships, loss of key information, expertise or know-how and unanticipated recruitment and training costs. The loss of the services of our senior management or other key employees could make it more difficult to successfully operate our business and pursue our business goals.

Acquisitions or investments may be unsuccessful and may divert our management’s attention and consume significant resources.

A key part of our growth strategy is to pursue additional acquisitions or investments in other businesses or individual technologies, including additional technology tools for app developers that allow them to generate revenue from their apps through advertising that we can supply. For example, we acquired Metaresolver, Inc., a mobile media buying and targeting platform, in  April 2013, and we acquired Jumptap, Inc., a competing mobile advertising company, in November 2013. These and future

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acquisitions or investments may require us to use significant amounts of cash, issue potentially dilutive equity securities or incur debt. In addition, acquisitions involve numerous risks, any of which could disrupt or harm our business, including:

·difficulties in integrating the operations, technologies, services and personnel of acquired businesses, especially if those businesses operate outside of our core competency of delivering mobile advertising;

·cultural challenges associated with integrating employees from the acquired company into our organization;

·ineffectiveness or incompatibility of acquired technologies or services;

·potential loss of key employees of acquired businesses;

·inability to maintain the key business relationships and the reputations of acquired businesses;

·diversion of management’s attention from other business concerns;

·litigation related to activities of the acquired company, including claims by terminated employees, clients, former stockholders or other third parties;

·in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;

·costs necessary to establish and maintain effective internal controls for acquired businesses;

·failure to successfully further develop the acquired technology in order to recoup our investment; and

·increased fixed costs.

Activities of our advertiser clients could damage our reputation or give rise to legal claims against us.

Our advertiser clients’ promotion of their products and services may not comply with federal, state and local laws, including, but not limited to, laws and regulations relating to mobile communications. Failure of our clients to comply with federal, state or local laws or our policies could damage our reputation and expose us to liability under these laws. We may also be liable to third parties for content in the ads we deliver if the artwork, text or other content involved violates copyrights, trademarks or other intellectual property rights of third parties or if the content is defamatory, unfair and deceptive, or otherwise in violation of applicable laws. Although we generally receive assurance from our advertisers that their ads are lawful and that they have the right to use any copyrights, trademarks or other intellectual property included in an ad, and although we are normally indemnified by the advertisers, a third party orregulatory authority may still file a claim against us. Any such claims could be costly and time-consuming to defend and could also hurt our reputation. Further, if we are exposed to legal liability as a result of the activities of our advertiser clients, we could be required to pay substantial fines or penalties, redesign our business methods, discontinue some of our services or otherwise expend significant resources.

Our business depends on our ability to maintain the quality of our advertiser and developer content.

We must be able to ensure that our clients’ ads are not placed in developer content that is unlawful or inappropriate. Likewise, our developers rely upon us not to place ads in their apps that are unlawful or inappropriate. If we are unable to ensure that the quality of our advertiser and developer content does not decline as the number of advertisers and developers we work with continues to grow, then our reputation and business may suffer.

Our inability to use software licensed from third parties, or our use of open source software under license terms that interfere with our proprietary rights, could disrupt our business.

Our technology platform incorporates software licensed from third parties, including some software, known as open source software, which we use without charge. Although we monitor our use of open source software, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide our platform to our clients. In the future, we could be required to seek licenses from third parties in order to continue offering our platform, which licenses may not be available on terms that are acceptable to us, or at all. Alternatively, we may need to re-engineer our platform or discontinue use of portions of the

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functionality provided by our platform. In addition, the terms of open source software licenses may require us to provide software that we develop using such software to others on unfavorable license terms. Our inability to use third-party software could result in disruptions to our business, or delays in the development of future offerings or enhancements of existing offerings, which could impair our business.

Software and components that we incorporate into our mobile advertising platform may contain errors or defects, which could harm our reputation and hurt our business.

We use a combination of custom and third-party software, including open source software, in building our mobile advertising platform. Although we test software before incorporating it into our platform, we cannot guarantee that all of the third-party technology that we incorporate will not contain errors, bugs or other defects. We continue to launch enhancements to our mobile advertising platform, and we cannot guarantee any such enhancements will be free from these kinds of defects. If errors or other defects occur in technology that we utilize in our mobile advertising platform, it could result in damage to our reputation and losses in revenue, and we could be required to spend significant amounts of additional resources to fix any problems.

Our failure to protect our intellectual property rights could diminish the value of our services, weaken our competitive position and reduce our revenue.

We regard the protection of our intellectual property, which includes trade secrets, copyrights, trademarks, domain names and patent applications, as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties, with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others.

We have begun to seek patent protection for certain of our technologies and currently have one issued U.S. patent, and ten U.S. and eight international patent applications on file, although there can be no assurance that these additional patents will ultimately be issued. We are also pursuing the registration of our domain names, trademarks and service marks in the United States and in certain locations outside the United States. Effective trade secret, copyright, trademark, domain name and patent protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights. We may be required to protect our intellectual property in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location. We may, over time, increase our investment in protecting our intellectual property through additional patent filings that could be expensive and time-consuming.

We have licensed in the past, and expect to license in the future, some of our proprietary rights, such as trademarks or copyrighted material, to third parties. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation.

Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights may not be adequate to prevent misappropriation of our intellectual property. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Our competitors may also independently develop similar technology. In addition, the laws of many countries, such as China and India, do not protect our proprietary rights to as great an extent as do the laws of European countries and the United States. Further, the laws in the United States and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully protect our intellectual property could result in competitors offering services that incorporate our most technologically advanced features, which could seriously reduce demand for our mobile advertising services. In addition, we may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination that is unfavorable to us. In addition, litigation is inherently uncertain, and thus we may not be able to stop our competitors from infringing upon our intellectual property rights.

We operate in an industry with extensive intellectual property litigation. Claims of infringement against us may hurt our business.

Our success depends, in part, upon non-infringement of intellectual property rights owned by others and being able to resolve claims of intellectual property infringement without major financial expenditures or adverse consequences. The mobile  telecommunications industry generally is characterized by extensive intellectual property litigation. Although our technology is relatively new and our industry is rapidly evolving, many participants that own, or claim to own, intellectual property historically have aggressively asserted their rights. From time to time, we may be subject to legal proceedings and claims relating to the intellectual

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property rights of others, including currently pending proceedings related to alleged patent infringement, as described in Part II, Item 1. Legal Proceedings, above, and we expect that third parties will continue to assert intellectual property claims against us, particularly as we expand the complexity and scope of our business.

Future litigation may be necessary to defend ourselves or our clients by determining the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary rights. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. Regardless of whether claims that we are infringing patents or other intellectual property rights have any merit, these claims are time-consuming and costly to evaluate and defend and could:

·adversely affect our relationships with our current or future clients;

·cause delays or stoppages in providing our mobile advertising services;

·divert management’s attention and resources;

·require technology changes to our platform that would cause us to incur substantial cost;

·subject us to significant liabilities; and

·require us to cease some or all of our activities.

In addition to liability for monetary damages against us, which may be tripled and may include attorneys’ fees, or, in some circumstances, damages against our clients, we may be prohibited from developing, commercializing or continuing to provide some or all of our mobile advertising solutions unless we obtain licenses from, and pay royalties to, the holders of the patents or other intellectual property rights, which may not be available on commercially favorable terms, or at all.

Our business involves the use, transmission and storage of confidential information, and the failure to properly safeguard such information could result in significant reputational harm and monetary damages.

We may at times collect, store and transmit information of, or on behalf of, our clients that may include certain types of confidential information that may be considered personal or sensitive, and that are subject to laws that apply to data breaches. We believe that we take reasonable steps to protect the security, integrity and confidentiality of the information we collect and store, but there is no guarantee that inadvertent or unauthorized disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts to protect this information. If such unauthorized disclosure or access does occur, we may be required to notify persons whose information was disclosed or accessed. Most states have enacted data breach notification laws and, in addition to federal laws that apply to certain types of information, such as financial information, federal legislation has been proposed in the past that would establish broader federal obligations with respect to data breaches. We may also be subject to claims of breach of contract for such disclosure, investigation and penalties by regulatory authorities and potential claims by persons whose information was disclosed. The unauthorized disclosure of information may result in the termination of one or more of our commercial relationships or a reduction in client confidence and usage of our services. We may also be subject to litigation alleging the improper use, transmission or storage of confidential information, which could damage our reputation among our current and potential clients, require significant expenditures of capital and other resources and cause us to lose business and revenue.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.

We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations of the New York Stock Exchange. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Commencing with our current fiscal year ending December 31, 2013, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Annual Report on Form 10-K for this year, as required by Section 404 of the Sarbanes-Oxley Act. This will require that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. Prior to our initial public offering in March 2012, we were never required to test our internal controls within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner.

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We may in the future discover areas of our internal financial and accounting controls and procedures that need improvement. Our internal control over financial reporting will not prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements, and we may conclude that our internal controls over financial reporting are not effective. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the New York Stock Exchange, the SEC or other regulatory authorities.

We are an “emerging growth company,” and if we decide to comply only with reduced disclosure requirements applicable to emerging growth companies, our common stock could be less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startup Act, or JOBS Act, enacted in 2012, and, for as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” through the year ending December 31, 2017, although a variety of circumstances could cause us to lose that status earlier. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies that become public can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We may need additional capital in the future to meet our financial obligations and to pursue our business objectives. Additional capital may not be available on favorable terms, or at all, which could compromise our ability to meet our financial obligations and grow our business.

We may need to raise additional capital to fund operations in the future or to finance acquisitions. If we seek to raise additional capital in order to meet various objectives, including developing future technologies and services, increasing working capital, acquiring businesses and responding to competitive pressures, capital may not be available on favorable terms or may not be available at all. In addition, pursuant to the terms of our credit facility, we may be restricted from using the net proceeds of financing transactions for our operating objectives. Lack of sufficient capital resources could significantly limit our ability to take advantage of business and strategic opportunities. Any additional capital raised through the sale of equity or debt securities with an equity component would dilute our stock ownership. If adequate additional funds are not available, we may be required to delay, reduce the scope of, or eliminate material parts of our business strategy, including potential additional acquisitions or development of new technologies.

Our net operating loss carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.

We may be limited in the portion of net operating loss carryforwards that we can use in the future to offset taxable income for U.S. federal income tax purposes. At December 31, 2012, we had federal net operating loss carryforwards of $51.3 million, which expire at various dates through 2033. Our gross state net operating loss carryforwards are equal to or less than the federal net operating loss carryforwards and expire over various periods based on individual state tax law.

We periodically assess the likelihood that we will be able to recover our net deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible profits. As a result of this analysis of all available evidence, both positive and negative, we concluded that a valuation allowance against our net deferred tax assets should be applied as of December 31, 2012. To the extent we determine that all or a portion of our valuation allowance is no longer necessary, we will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. Once the valuation allowance is

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eliminated or reduced, its reversal will no longer be available to offset our current tax provision. These events could have a material impact on our reported results of operations.

Risks Related to Ownership of Our Common Stock

An active trading market for our common stock may not continue to develop or be sustained.

Prior to our initial public offering in March 2012, there was no public market for our common stock, and we cannot assure you that an active trading market for our shares will continue to develop or be sustained. If an active market for our common stock does not continue to develop or is not sustained, it may be difficult for investors in our common stock to sell shares without depressing the market price for the shares or to sell such shares at all.

The trading price of the shares of our common stock has been and is likely to continue to be volatile.

Since our initial public offering in March 2012, our stock price has exhibited significant volatility. The stock market in general and the market for technology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price paid for the shares. The market price for our common stock may be influenced by many factors, including:

·actual or anticipated variations in quarterly operating results;

·changes in financial estimates by us or by any securities analysts who might cover our stock;

·conditions or trends in our industry;

·stock market price and volume fluctuations of other publicly traded companies and, in particular, those that operate in the advertising, internet or media industries;

·announcements by us or our competitors of new product or service offerings, significant acquisitions, strategic partnerships or divestitures;

·announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

·capital commitments;

·additions or departures of key personnel; and

·sales of our common stock, including sales by our directors and officers or specific stockholders.

In addition, in the past, stockholders have initiated class action lawsuits against technology companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources.

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. As a newly public company, we have only limited research coverage by equity research analysts. Equity research analysts may elect not to initiate or to continue to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. Even if we do have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

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The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.

Our certificate of incorporation authorizes us to issue up to 250,000,000 shares of common stock and up to 5,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue our shares of common stock or securities convertible into our common stock from time to time in connection with a financing, acquisition, investment, our stock incentive plans or otherwise. For example, in connection with our acquisition of Jumptap in November 2013, we issued 24,745,470 shares of our common stock to the former securityholders of Jumptap and assumed options that are now exercisable for an additional 861,584 shares of our common stock.  In the aggregate, this represented approximately 22.8% of the total number of our common shares following the Acquisition on a fully diluted basis. Any similar issuances of our equity securities in the future could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.

There are provisions in our amended and restated certificate of incorporation and amended and restated bylaws that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by you and other stockholders. For example, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock. The board of directors can fix the price, rights, preferences, privileges, and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change in control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to other stockholders.

Our charter documents also contain other provisions that could have an anti-takeover effect, including:

·only one of our three classes of directors is elected each year;

·stockholders are not entitled to remove directors other than by a 662/3% vote and only for cause;

·stockholders are not permitted to take actions by written consent;

·stockholders cannot call a special meeting of stockholders; and

·stockholders must give advance notice to nominate directors or submit proposals for consideration at stockholder meetings.

In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions by prohibiting Delaware corporations from engaging in specified business combinations with particular stockholders of those companies. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.

Our amended and restated certificate of incorporation also provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders.

Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

As of September 30, 2013, our current executive officers, directors and beneficial owners of 10% or more of our common stock and their respective affiliates, in the aggregate, beneficially owned approximately 30% of our outstanding common stock, without giving effect to shares of common stock that our officers, directors, and beneficial owners may acquire in the future pursuant to outstanding stock options or restricted stock units. These persons, acting together, are able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with our interests or the interests of other stockholders.

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We do not anticipate paying any cash dividends on our common stock in the foreseeable future and our stock may not appreciate in value.

We have not declared or paid cash dividends on our common stock to date. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any existing or future debt agreements may preclude us from paying dividends. There is no guarantee that shares of our common stock will appreciate in value or that the price at which our stockholders have purchased their shares will be able to be maintained.

We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States.

As a public company listed in the United States, and particularly after we cease to be an “emerging growth company,” we will incur significant additional legal, accounting and other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and stock exchanges, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating  activities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Public Offering of Common Stock

On March 28, 2012, our Registration Statement on Form S-1, as amended (Reg. No. 333-178909) was declared effective in connection with the IPO of our common stock, pursuant to which we registered an aggregate of 11,730,000 shares of our common stock, of which we sold 9,873,270 shares and certain selling stockholders sold 1,856,730 shares, in each case including the full exercise of the underwriters’ over-allotment option, at a price to the public of $13.00 per share. The offering closed on April 3, 2012, and, as a result, we received net proceeds of approximately $115.1 million (after underwriters’ discounts and commissions of approximately $9.0 million and additional offering related costs of approximately $4.3 million), and the selling stockholders received net proceeds of approximately $22.4 million (after underwriters’ discounts and commissions of approximately $1.7 million). The joint managing underwriters of the offering were Morgan Stanley & Co. LLC, Goldman Sachs & Co., and Barclays Capital Inc.

The principal purposes of the offering were to create a public market for our common stock and to facilitate our future access to the public equity markets, as well as to obtain additional capital. We currently have no specific plans for the use of a significant portion of the net proceeds of the offering. However, we anticipate that we will use the net proceeds from the offering for general corporate purposes, which may include working capital, capital expenditures, other corporate expenses and acquisitions of complementary products, technologies or businesses. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business.

We intend to invest the net proceeds in a variety of short-term, interest-bearing, investment grade securities. There has been no material change in the planned use of proceeds from our IPO from that described in the final prospectus filed by us with the SEC

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pursuant to Rule 424(b) on March 29, 2012, other than the $13.8 million in proceeds used for the acquisition of Metaresolver, Inc. and $9.5 million used for the acquisition of Jumptap, Inc., in each case as described in this report.

Item 6.   Exhibits

The following is a list of Exhibits filed as part of this Quarterly Report on Form 10-Q:

Exhibit No.	Description of Exhibit
2.1(1)	Agreement and Plan of Merger, dated as of February 15, 2013, by and among Millennial Media, Inc., Mojo Merger Sub, Inc., Metaresolver, Inc. and Michael Dearing, as the Stockholders’ Representative.
2.2(2)	Amendment to Agreement and Plan of Merger and Consent, dated as of March 31, 2013, by and between Millennial Media, Inc. and Metaresolver, Inc.
2.3(3)	Agreement and Plan of Reorganization, dated as of August 13, 2013, by and among Millennial Media, Inc., Polo Corp, and Jumptap, Inc.
2.4(4)	First Amendment to Agreement and Plan of Reorganization, dated as of November 1, 2013, by and between Millennial Media, Inc., and Jumptap, Inc.
3.1(5)	Amended and Restated Certificate of Incorporation of the Registrant.
3.2(6)	Amended and Restated Bylaws of the Registrant.
4.1(7)	Specimen Stock Certificate evidencing shares of the Registrant’s Common Stock.
10.1(8)	Second Amendment to Loan and Security Agreement, dated July 29, 2013.
10.2	Third Amendment to Loan and Security Agreement, dated October 30, 2013.
10.3	Eighth Amendment to the 2008 Can Company Lease Agreement, dated October 31, 2013.
31.1	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
32*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a- 14(b) and 15d-14(b) promulgated under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase
101.DEF**	XBRL Taxonomy Extension Definition Linkbase
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase

(1)           Previously filed as Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35478), filed with the Commission on May 9, 2012, and incorporated by reference herein.

(2)           Previously filed as Exhibit 2.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35478), filed with the Commission on May 9, 2012, and incorporated by reference herein.

(3)           Previously filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35478), filed with the Commission on August 19, 2013, and incorporated by reference herein.

(4)           Previously filed as Exhibit 2.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35478), filed with the Commission on November 8, 2013, and incorporated by reference herein.

44

(5)           Previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35478), filed with the Commission on April 3, 2012, and incorporated by reference herein.

(6)           Previously filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35478), filed with the Commission on April 3, 2012, and incorporated by reference herein.

(7)           Previously filed as Exhibit 4.2 to Amendment No. 4 to the Registrant’s Registration Statement on Form S-1 (File No. 333-178909), filed with the Commission on March 15, 2012, and incorporated by reference herein.

(8)           Previously filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35478), filed with the Commission on August 14, 2013, and incorporated by reference herein.

*              These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

**           Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files included in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

45

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Millennial Media, Inc.
	(Registrant)
Date: November 14, 2013	By	/s/ PAUL J. PALMIERI
		Paul Palmieri President and Chief Executive Officer (on behalf of the registrant)
Date: November 14, 2013		/s/ MICHAEL B. AVON
	Michael Avon
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

46

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
2.1(1)	Agreement and Plan of Merger, dated as of February 15, 2013, by and among Millennial Media, Inc., Mojo Merger Sub, Inc., Metaresolver, Inc. and Michael Dearing, as the Stockholders’ Representative.
2.2(2)	Amendment to Agreement and Plan of Merger and Consent, dated as of March 31, 2013, by and between Millennial Media, Inc. and Metaresolver, Inc.
2.3(3)	Agreement and Plan of Reorganization, dated as of August 13, 2013, by and among Millennial Media, Inc., Polo Corp, and Jumptap, Inc.
2.4(4)	First Amendment to Agreement and Plan of Reorganization, dated as of November 1, 2013, by and between Millennial Media, Inc., and Jumptap, Inc.
3.1(5)	Amended and Restated Certificate of Incorporation of the Registrant.
3.2(6)	Amended and Restated Bylaws of the Registrant.
4.1(7)	Specimen Stock Certificate evidencing shares of the Registrant’s Common Stock.
10.1(8)	Second Amendment to Loan and Security Agreement, dated July 29, 2013.
10.2	Third Amendment to Loan and Security Agreement, dated October 30, 2013.
10.3	Eighth Amendment to the 2008 Can Company Lease Agreement, dated October 31, 2013.
31.1	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
32*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a- 14(b) and 15d-14(b) promulgated under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase
101.DEF**	XBRL Taxonomy Extension Definition Linkbase
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase

(1)           Previously filed as Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35478), filed with the Commission on May 9, 2012, and incorporated by reference herein.

(2)           Previously filed as Exhibit 2.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35478), filed with the Commission on May 9, 2012, and incorporated by reference herein.

(3)           Previously filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35478), filed with the Commission on August 19, 2013, and incorporated by reference herein.

(4)           Previously filed as Exhibit 2.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35478), filed with the Commission on November 8, 2013, and incorporated by reference herein.

47

(5)           Previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35478), filed with the Commission on April 3, 2012, and incorporated by reference herein.

(6)           Previously filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35478), filed with the Commission on April 3, 2012, and incorporated by reference herein.

(7)           Previously filed as Exhibit 4.2 to Amendment No. 4 to the Registrant’s Registration Statement on Form S-1 (File No. 333-178909), filed with the Commission on March 15, 2012, and incorporated by reference herein.

(8)           Previously filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35478), filed with the Commission on August 14, 2013, and incorporated by reference herein.

*              These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

**           Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files included in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

48