| NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Rocket Fuel Inc. (the “Company”) is a technology company that brings the power of machine learning to the world of digital marketing, offering a Predictive Marketing Platform designed to help marketers and their agencies connect with consumers through digital media at moments when that connection is most likely to be influential and most likely to achieve the advertiser’s objectives. The Company's technology autonomously purchases ad spots, or impressions, one at a time, on real-time advertising exchanges to create portfolios of impressions designed to optimize the goals of our advertisers, such as increased sales, heightened brand awareness and decreased cost per customer acquisition. The Company was incorporated as a Delaware corporation on March 25, 2008 and is headquartered in Redwood City, California, with offices in various cities across the United States, Europe, Canada, and Australia. In September 2013, the Company completed the initial public offering of its common stock (the “IPO”) whereby 4,000,000 shares of common stock were sold by the Company and 600,000 shares of common stock were sold by selling stockholders. The public offering price of the shares sold in the offering was $29.00 per share. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The total gross proceeds from the offering to the Company were $116.0 million . After deducting underwriters’ discounts and commissions and offering expenses, the aggregate net proceeds received by the Company totaled approximately $103.3 million . In February 2014, the Company completed an underwritten follow-on public offering (the “Follow-on Offering”) of its common stock in which 2,000,000 shares of common stock were sold by the Company and 3,000,000 shares of common stock were sold by selling stockholders. The public offering price of the shares sold in the offering was $61.00 per share. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The total gross proceeds from the offering to the Company were $122.0 million . After deducting underwriters’ discounts and commissions and offering expenses, the aggregate net proceeds received by the Company totaled approximately $115.4 million . In September 2014, the Company acquired X Plus Two Solutions, Inc., the parent company of [x+1], a privately held programmatic marketing technology company for 5.3 million shares of common stock and $98.0 million in cash. The acquisition of [x+1] added important assets to the Company's technology solutions, principally the Data Management Platform, or DMP. Principles of Consolidation —The consolidated financial statements include the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Principles of Presentation and Going Concern —The Company has incurred losses from operations resulting in an accumulated deficit of $(385.0) million as of December 31, 2016, with a net loss of $(65.7) million during the year ended December 31, 2016 . Since inception, the Company's operations and investments have been funded through cash generated from operations and debt from banks, capital leases and equity financing. As of December 31, 2016 , the Company had cash and cash equivalents of $84.0 million , of which $2.3 million was held by its foreign subsidiaries, $71.2 million in debt obligations, under the Revolving Credit and Term Loan Agreement (the "2016 Loan Facility") which expires on December 31, 2018 and $15.0 million in capital lease obligations. The Company's ability to continue as a going concern is dependent on its ability to generate sufficient cash from operations, which is subject to achieving its operating plans, and the continued availability of external funding sources. The main source of funding is the 2016 Loan Facility which includes bank-defined EBTIDA targets, minimum cash requirements, and other financial and non-financial covenants. The Company considers the continued availability of the loan facility a significant condition to meeting its payment obligations as it has had to amend its terms, in particular the bank-defined EBITDA covenant, several times over the past two fiscal years in order to remain in compliance. In fiscal year 2016 the Company generated $20.8 million of cash from operating activities and in January 2017 announced a plan to improve its operational efficiency which is expected to reduce operating expense by approximately $20 million annually. Refer to Note16 for details. The operating plans for fiscal year 2017 indicate that the Company will meet the bank-defined EBITDA targets. If it appears these targets may not be met, the operating plan has variable costs components that could be adjusted if necessary. If the targets of the operating plan for fiscal year 2017 cannot be met, the Company may seek amendments to the 2016 Loan Facility from its current lenders as it has successfully done several times in the past. Alternatively, the Company may seek alternative sources of financing from other asset-backed lending institutions based on utilizing accounts receivable as collateral. As a result, the Company believes that such plans and the alternative actions available to the Company, mitigate the relevant conditions and events that would raise substantial doubt about the Company's ability to continue as a going concern. Use of Estimates —The preparation of consolidated financial statements in accordance with United States Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, provisions for doubtful accounts, the amount of software development costs which should be capitalized, certain accruals, future taxable income, future cash flows to be derived from the Company, the useful lives of long-lived and intangible assets, and the assumptions used for purposes of determining stock-based compensation. Actual results could differ from those estimates. Foreign Currency Translation —The Company’s foreign subsidiaries record their assets, liabilities and results of operations in their local currencies, which are their functional currencies. The Company translates its subsidiaries' consolidated financial statements into U.S. dollars each reporting period for purposes of consolidation. Assets and liabilities of the Company’s foreign subsidiaries are translated at the period-end currency exchange rates, certain equity accounts are translated at historical exchange rates and revenue, expenses, gains and losses are translated at the average currency exchange rates in effect for the period. The net effect of these translation adjustments are reported in a separate component of stockholders’ equity titled accumulated other comprehensive loss. Fair Value of Financial Instruments —The Company’s financial instruments consist principally of cash equivalents, accounts receivable, accounts payable, term debt and revolving credit facilities. The fair value of the Company’s cash equivalents is determined based on quoted prices in active markets for identical assets for its money market funds. The recorded values of the Company’s accounts receivable, accounts payable and accrued and other current liabilities approximate their current fair values due to the relatively short-term nature of these accounts. The Company believes that the fair value of the capital leases, term debt and revolving credit facilities approximate their respective recorded amounts as of December 31, 2016 and 2015 as the interest rates on the term debt and revolving credit facilities are variable and the rates for each are based on market interest rates after consideration of default and credit risk (using level 2 inputs). Cash and Cash Equivalents —Cash consists of cash maintained in checking and savings accounts. All highly liquid investments purchased with an original maturity date of 90 days or less at the date of purchase are considered to be cash equivalents. Cash equivalents consist of money market funds. Restricted Cash —Restricted cash as of December 31, 2016 and 2015 consists of cash required to be deposited with financial institutions for security deposits for some of the Company's office lease agreements. Concentration of Credit Risk —Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. A significant portion of the Company’s cash is held at four major financial institutions that the Company's management has assessed to be of high credit quality. The Company has not experienced any losses in such accounts. The Company mitigates its credit risk with respect to accounts receivable by performing credit evaluations and monitoring agencies' and advertisers' accounts receivable balances. As of December 31, 2016 , two agency holding companies and one single advertiser accounted for 10% of more of accounts receivable. As of December 31, 2015 , two agency holding companies and no single advertiser accounted for 10% or more of accounts receivable. With respect to revenue concentration, the Company defines a customer as an advertiser that is a distinct source of revenue and is legally bound to pay for the advertising services that the Company delivers on the advertiser’s behalf. The Company counts all advertisers within a single corporate structure as one customer even in cases where multiple brands, branches or divisions of an organization enter into separate contracts with the Company. During the years ended December 31, 2016, 2015 and 2014 , no single customer represented 10% or more of revenue. The Company also monitors the percentage of revenue from advertising agencies, even though advertising agencies that act on behalf of the Company’s advertisers are not considered customers based on the definition above. If all branches and divisions within each global advertising agency were considered to be a single agency for this purpose, two agency holding companies would have been associated with 10% or more of revenue during the years ended December 31, 2016, 2015 and 2014 . Provision for Doubtful Accounts and Sales Reserves —The Company records a provision for doubtful accounts based on historical experience and a detailed assessment of the collectability of its accounts receivable. In estimating the allowance for doubtful accounts, management considers, among other factors, the aging of the accounts receivable, historical write-offs and the credit-worthiness of each customer. The Company also estimates sales returns and allowances in the same period the related revenue is recorded. These estimates are based on an analysis of credits issued for billing corrections. If circumstances change, such as higher-than-expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations, the Company’s estimate of these provisions could change by a material amount. The following is a summary of activities in allowance for doubtful accounts and sales reserves for the fiscal years indicated (in thousands): Years ended December 31, Allowances Beginning Balance Charged Against Revenue Charged to Expense Write-offs, Adjustments, Net of Recovery Allowances Ending Balance 2016 $ 3,338 $ 572 $ 2,146 $ (3,040 ) $ 3,016 2015 2,211 1,252 390 (515 ) $ 3,338 2014 1,752 796 523 (860 ) $ 2,211 Property and Equipment —Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the related assets, or if the estimate of the useful live subsequently changes, the depreciation is accelerated. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation or amortization, as applicable, are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized. Construction in progress primarily includes costs related to the leasehold improvements. Leasehold improvements are amortized on a straight-line basis over the term of the lease, or the useful life of the assets, whichever is shorter. Depreciation and amortization periods for the Company’s property and equipment are as follows: Asset Classification Estimated Useful Life Capitalized internal-use software costs 2–3 years Computer hardware and software 2–3 years Furniture and fixtures 5 years Internal-Use Software Development Costs —The Company incurs costs to develop software for internal use. The Company expenses all costs that relate to the planning and post implementation phases of development as research and development expense. The Company capitalizes costs when preliminary efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and will be used as intended. Costs incurred for enhancements that are expected to result in additional material functionality are capitalized. The Company capitalized $13.1 million and $15.5 million for the years ended December 31, 2016 and 2015 , respectively. These capitalized amounts are included in property, equipment and software—net on the consolidated balance sheets. Amortization commences when the website or software for internal use is ready for its intended use. The amortization period utilized for capitalized software is the estimated useful life of the related asset. Impairment of Long-lived Assets —The Company periodically reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is impaired or the estimated useful life is no longer appropriate. If indicators of impairment exist and the undiscounted projected cash flows associated with an asset are less than the carrying amount of the asset, an impairment loss is recorded to write the asset down to its estimated fair value. Fair value is estimated based on discounted future cash flows. Due to the price decline of our publicly traded stock we conducted an impairment test for our long-lived asset group at the end of fiscal year 2016 and determined that the asset group was not impaired. The Company incurred $19.1 million in accelerated depreciation and impairment charges for leasehold improvements and certain other assets during the twelve months ended December 31, 2016 . The Company incurred $6.6 million in impairment charges for leasehold improvements and certain other assets during the twelve months ended December 31, 2015 . No impairment charges were recorded during the year ended December 31, 2014. Refer to Note 7 for details of the impairment charges for some of the Company's leasehold improvement assets. Business Combinations —The Company accounts for business combinations using the acquisition accounting method as required under the provisions of Financial Accounting Standards Board ("FASB") ASC 805, Business Combinations, or ASC 805. The total purchase price is allocated to the assets acquired and liabilities assumed based on fair values at the date of acquisition. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and the liabilities assumed. Best estimates and assumptions are used in the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business combination date. These estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding adjustment to goodwill. After the preliminary purchase price allocation period, adjustments are recorded in the operating results in the period in which the adjustments were determined. The fair value assigned to identifiable intangible assets acquired is determined using the income approach which discounts expected future cash flows to present value using estimations and assumptions determined by management. The identifiable intangible assets are subject to amortization on a straight-line basis as this best approximates the benefit period related to these assets. The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, is recorded as goodwill and primarily reflects the value of the synergies expected to be generated from combining the Company's and the acquired entity’s technology and operations. Generally, the goodwill is not deductible for income tax purposes. Goodwill —The Company performs an annual impairment test near the end of its fiscal year on December 1 and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. Since the Company operates its business in one reporting unit, the goodwill is tested for impairment at the enterprise level. Due to a stock price decline during the third quarter of 2015, the Company’s market capitalization declined to a value below the net book value of the Company’s equity, triggering the Company to conduct a goodwill impairment test. The outcome of the goodwill impairment test resulted in a non-cash impairment of goodwill of $117.5 million , which was recorded in the Consolidated Statements of Operations for the period ended September 30, 2015. Refer to Note 14 for details of the Company's goodwill impairment test. Revenue Recognition —The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or a service has been provided, customer fees are fixed or determinable, and collection is reasonably assured. Demand Side Platform—To date, the Company has generated most of its revenue by delivering digital advertisements to Internet users through various channels, including display, mobile, social and video. This aspect of its business is referred to as a demand side platform, (“DSP”). These arrangements are typically with advertising agencies on behalf of their advertiser clients and are generally evidenced by a fully-executed insertion order (“IO”) that are generally cancellable by the customer as to any unfulfilled portion without penalty. Generally, IOs describe the campaign objectives, state the number and type of advertising impressions to be delivered, the agreed upon rate for each delivered impression, and a fixed period of time for delivery. Customers are typically billed on a monthly basis for each campaign for impressions delivered during the prior month. Depending on the customers' decision the delivery of impressions can either be measured by our ad servers or by third party ad tracking providers. The Company determines collectability by performing ongoing credit evaluations and monitoring its customers’ accounts receivable balances. For new customers and their agents, which may be advertising agencies or other third parties, the Company performs a credit check with an independent credit agency and may check credit references to determine creditworthiness. The Company only recognizes revenue when collection is reasonably assured. The determination of whether revenue from DSP arrangements 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 is individually considered presumptive or determinative, the Company has concluded that it acts as a principal with respect to these arrangements because (a) the Company is the primary obligor and is responsible for (i) fulfilling the advertisement delivery, (ii) establishing the selling prices for delivery of the advertisements, (iii) selecting the media to fulfill the insertion order, and (iv) performing campaign set-up, campaign management, billing and collection activities including retaining credit risk, and (b) the Company has the risk of fluctuating costs from its media vendors relative to fixed pricing negotiated with its customers and has discretion in selecting media vendors when fulfilling a customer’s campaign. Based on this conclusion, the Company reports revenue earned and costs incurred with respect to its full-service DSP on a gross basis. In addition to delivering internet advertising through its full-service DSP, the Company licenses a self-service version of its DSP. For the majority of self-serve DSP arrangements, the principal-agent criteria are substantially similar to the full-service DSP arrangements described above, and revenue and costs are reported on a gross basis. For a small number of our self-service DSP customers based on the accounting guidance for principal-agent considerations, the Company has concluded that it acts as an agent in cases where (i) the Company is not the primary obligor, as the customers no longer require significant involvement of the ad operations teams (ii) the Company does not have inventory risk as the customer chooses the inventory to purchase on a real-time basis, (iii) the media spend of the campaign is determined by the customer through the real-time bidding process, and (iv) the amount earned by the Company is based on a fixed percentage of the media spend of the customer’s campaign. Based on this conclusion, the Company reports a portion of revenue earned and costs incurred with respect to this type of self-service DSP arrangements on a net basis. For the majority of self-serve DSP arrangements these principal-agent criteria are more akin to full-service DSP arrangements, and revenue and costs are reported on a gross basis. On occasion, the Company has offered customer incentive programs that provide rebates after achieving a specified level of advertising spending. The Company records reductions to revenue for estimated commitments related to these customer incentive programs. For transactions involving incentives, the Company recognizes revenue net of the estimated amount to be paid by rebate, provided that the rebate amount can be reasonably and reliably estimated and the other conditions for revenue recognition have been met. The Company’s policy requires that, if rebates cannot be reliably estimated, revenue is not recognized until reliable estimates can be made or the rebate program lapses. Data Management Platform—The Company licenses the right to access its data management platform ("DMP") to agencies and advertisers for their own use. These arrangements typically run over a period of one year or more and do not provide the customer with the right or ability to take possession of the platform. Revenue from license agreements is recognized ratably over the license term. The Company also provides professional services such as implementation, training or support for its platform. Revenue is deferred until the implementation services are completed or recognized ratably over the term of the support agreement. Multiple-Element Arrangements—The Company enters into arrangements to sell advertising that includes different media placements or ad services that are delivered at the same time during the campaign period, or within close proximity of one another. The Company allocates arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables, based on the relative selling price method in accordance with the selling price hierarchy, which includes: (1) vendor-specific objective evidence (“VSOE”), if available; (2) third-party evidence (“TPE”), if VSOE is not available; and (3) best estimate of selling price (“BESP”), if neither VSOE nor TPE is available. To date, the Company has not been able to establish VSOE or selling price based on TPE for any of its advertising offerings. When it is unable to establish selling price using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the service were sold on a stand-alone basis. BESP is generally used to allocate the selling price to deliverables in the Company’s multiple element arrangements. The Company determines BESP for deliverables by considering multiple factors, including, but not limited to, prices it charges for similar offerings, market conditions, competitive landscape and pricing practices. In particular, the Company reviews multiple data points to determine BESP, including price lists used by the Company’s sales team in pricing negotiations, historical average and median pricing achieved in prior contractual customer arrangements and input from the Company’s sales operation department regarding what it believes the deliverables could be sold for on a stand-alone basis. Given that most arrangements have only one type of advertising deliverable and the campaigns have a relatively short duration, the impact of using BESP versus the contractually-stated prices has historically been immaterial. With some customers, the Company enters into arrangements for both DMP and DSP services at the same time, or within close proximity of one another. In such circumstances, each element is accounted for as a separate unit of accounting because the following criteria are met: the delivered services have value to the customer on a standalone basis as the services are sold separately; the arrangement does not provide the right to return any of the delivered services; and performance of the undelivered services is considered probable and is substantially controlled by the Company. The Company recognizes the relative fair value of advertising services as they are delivered, assuming all other revenue recognition criteria are met. The Company limits the amount of revenue reported in multiple-element arrangements to amounts that are fixed or determinable and that are not contingent on future performance or future deliverables. Deferred revenue is comprised of contractual billings in excess of recognized revenue and payments received in advance of revenue recognition. Media costs —Media costs consists primarily of cost for advertising impressions purchased from real-time advertising exchanges and other third parties. Other cost of revenue —Other cost of revenue consists primarily of third-party inventory validation and data vendor costs, data center hosting costs, depreciation and amortization expense, amortization of internal-use software development costs, personnel costs and allocated costs of the Company’s operations group, which sets up, initiates and monitors the Company’s advertising campaigns. Allocated costs include charges for facilities, office expenses, and other miscellaneous expenses. Research and Development —Research and development expenses include costs associated with the maintenance and ongoing development of the Company’s technology, including compensation and employee benefits and allocated costs associated with the Company’s engineering and research and development departments, as well as costs for contracted services and supplies. The Company reviews costs incurred in the application development stage and assesses such costs for potential capitalization. Sales and Marketing —Sales and marketing expenses consist primarily of compensation (including commissions) and employee benefits of sales and marketing personnel and related support teams, allocated costs, amortization of acquired intangible assets, certain advertising costs, travel, trade shows and marketing materials. The Company incurred advertising costs of $4.5 million , $7.8 million and $6.0 million for the years ended December 31, 2016, 2015 and 2014 , respectively. General and Administrative —General and administrative expenses include facilities costs, executive and administrative compensation and employee benefits, depreciation, professional services fees, insurance costs, bad debt and other allocated costs, such as facility-related expenses, supplies and other fixed costs. Restructuring —Restructuring expense includes severance payments to employees, exit costs for excess facilities, depreciation or impairments of lease-related assets, the loss of assets disposed, and the release of deferred rent liabilities related to terminated leases. Operating Leases —The Company recognizes rent expense on a straight-line basis over the lease term and records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. Rent expense includes the impact of general abatements and tenant improvements paid by the landlord. In the event the Company permanently exits a leased space and executes a sublease, it elects to recognize the related loss upon execution of the sublease. Refer to Note 12 for details of the Company's commitments under its operating leases. Stock-based Compensation —The Company measures compensation expense for all stock-based payment awards, including stock options granted to employees, based on the estimated fair value of the awards on the date of the grant. The fair value of each stock option granted is estimated using the Black-Scholes option pricing model. Stock-based compensation is recognized on a straight-line basis over the requisite vesting period, net of estimated forfeitures. The forfeiture rate is based on an analysis of the Company’s actual historical forfeitures. Income Taxes —The Company accounts for income taxes using an asset and liability approach. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Operating loss and tax credit carry-forwards are measured by applying currently enacted tax laws. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized. The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date, and then, only in an amount more likely than not to be sustained upon review by the tax authorities. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. Recently Issued and Adopted Accounting Pronouncements —Under the Jumpstart Our Business Startups Act (the "JOBS Act"), the Company qualifies as an “emerging growth company” and has irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.” In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-15 ("ASU 2016-15"), Classification of Certain Cash Receipts and Cash Payments , which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for public business entities for annual reporting periods beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of this ASU to its consolidated financial statements and related disclosures. In March 2016, the FASB issued ASU 2016-09 ("ASU 2016-09"), Improvements to Employee Share-Based Payment Accounting , which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as |
