| Basis of presentation and summary of significant accounting policies | Basis of presentation and summary of significant accounting policies This summary of significant accounting policies is presented to assist in understanding the Company’s consolidated financial statements. These accounting policies have been consistently applied in the preparation of the consolidated financial statements. (a) Basis of presentation The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect the financial position, results of operations and cash flows for all periods presented. The Company is an Emerging Growth Company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, Emerging Growth Companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an Emerging Growth Company or (ii) it affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The adoption dates discussed below reflect this election. During the year ended December 31, 2022, the Company reclassified foreign exchange loss, net from "General and administrative" expenses within the Consolidated Statement of Operations and Comprehensive Income (Loss) as a separate line item "Foreign currency translation adjustments" presented on the Consolidated Statement of Operations and Comprehensive Income (Loss). Corresponding prior period amounts have also been reclassified to conform to current period presentation. (b) Basis of consolidation The consolidated financial statements include the accounts of Integral Ad Science Holding, Corp. and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. (c) Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates include fair value of assets acquired in business combinations, including assumptions with respect to future cash inflows and outflows, discount rates, assets useful lives, market multiples, the allocation of purchase price consideration in the business combination valuation of acquired assets and liabilities, the estimated useful lives of intangible assets and internal use software, the allowance for doubtful accounts, goodwill impairment testing; assumptions used to calculate equity-based compensation, and the realization of deferred tax assets. The Company bases its estimates on past experience, market conditions, and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis. Actual results may differ from these estimates due to risks and uncertainties, including the continued uncertainty surrounding rapidly changing market and economic conditions due to heightened inflation, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, challenges in the supply chain, disruptions in European economies as a result of the conflict in Ukraine and ongoing effects of the COVID-19 pandemic. (d) Employee retention tax credit The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") provided an employee retention credit which was a refundable tax credit against certain employment taxes. The Consolidated Appropriations Act (the "Appropriations Act") extended and expanded the availability of the employee retention credit through December 31, 2021. The Appropriations Act amended the employee retention credit to be equal to 70% of qualified wages paid to employees during the 2021 fiscal year. The Company qualified for the employee retention credit beginning in March 2020 for qualified wages through June 2021 and filed a cash refund claim during the year ended December 31, 2022. The Company recorded an employee retention credit totaling $6,981, within Employee retention tax credit on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). As of December 31, 2022, the tax credit receivable has been included within Prepaid expenses and other current assets on the Company's Consolidated Balance Sheets. (e) Foreign currency The reporting currency of the Company is the U.S. dollar. The functional currency of our foreign subsidiaries is the currency of the primary economic environment in which they operate, which is their local currency. The financial statements of these subsidiaries are translated into U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenue, costs and expenses. Translation gains and losses are recorded in accumulated other comprehensive income (loss) in stockholders’ equity. The Company recorded translation losses of $2,584 and $4,838 and gains of $4,348 for the years ended December 31, 2022, 2021, and 2020, respectively. Transaction gains and losses including those on intercompany transactions denominated in a currency other than the functional currency of the entity involved are included in foreign exchange gain (loss) in the Consolidated Statement of Operations and Comprehensive Income (Loss). The Company recorded transaction gains of $480 and losses of $621 and $706 for the years ended December 31, 2022, 2021 and 2020, respectively. (f) Concentrations of credit risk Our assets that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash equivalents consist of money market funds, which are invested through financial institutions in the United States. Such deposits may, at times, exceed federally insured limits. The Company has not experienced any losses in such amounts and believes it is not exposed to any significant credit risk to cash. Accounts receivable are spread over many customers in various countries. The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and through the ongoing performance of credit evaluations of customers’ financial condition. As of December 31, 2022 and 2021, no customer accounted for more than 10% of accounts receivable. The Company has entered into long-term revenue share agreements with certain demand-side platforms. The results of operations would be adversely affected if these agreements were to be terminated. (g) Cash, cash equivalents, and restricted cash Cash and cash equivalents include highly liquid investments with an original maturity date of three months or less at the time of purchase. Cash amounts with restrictions are classified as restricted cash within the Consolidated Balance Sheets. The following table provides a roll forward of the changes in the restricted cash balance: Restricted cash as of January 1, 2021 2,987 Release of deposits for facilities leases no longer restricted (1) Release of deposits for medical claims (117) Restricted cash as of December 31, 2021 2,869 Release of deposits for facilities leases no longer restricted (26) Release of deposits for medical claims (49) Restricted cash as of December 31, 2022 $ 2,794 The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets to the amounts shown in the Consolidated Statements of Cash Flows. December 31, 2022 2021 Cash and cash equivalents $ 86,877 $ 73,210 Short-term restricted cash 45 70 Long-term restricted cash (held in other long-term assets) 2,749 2,798 Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows $ 89,671 $ 76,078 (h) Accounts receivable, net Accounts receivable are carried at the original invoiced amount less an allowance for doubtful accounts. The allowance is estimated based on management’s knowledge of its customers’ financial condition, credit history, and existing economic conditions. Invoices are typically issued with net 30-days to net 90-days terms. Account balances are considered delinquent if payment is not received by the due date, and the receivables are written off when deemed uncollectible. The allowance for doubtful accounts are recorded in general and administrative expenses within the Consolidated Statements of Operations and Comprehensive Income (Loss). The activity in our allowance for doubtful accounts consists of the following: December 31, 2022 2021 2020 Balance at beginning of year $ 5,883 $ 4,257 $ 5,843 Additional provision 1,837 3,024 2,200 Receivables written-off/reversals (1,029) (1,398) (3,786) Balance at the end of year $ 6,691 $ 5,883 $ 4,257 (i) Property and equipment, net Property and equipment are recognized in the Consolidated Balance Sheet at cost less accumulated depreciation. The Company depreciates its property and equipment using the straight-line method of depreciation over the estimated useful lives of the respective assets, with the exception of leasehold improvements, which is the shorter of the useful life of the asset or the lease term. The cost of repairs and maintenance are expensed as incurred. Major renewals or improvements that extend the useful lives of the assets are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed, and any resulting gain or loss is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). Long lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability is assessed based on the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Any impairment loss, if indicated, is measured as the amount by which the carrying amount of the asset exceeds its estimated fair value and is recognized as a reduction in the carrying amount of the asset. As of December 31, 2022, 2021 and 2020, there were no events or changes in circumstances to indicate that the carrying amount of the assets may not be recoverable. (j) Leases For arrangements where there is an identified asset and the contract conveys the right to control its use, the Company will recognize lease liabilities at the lease commencement date based on the present value of lease payments over the lease term. Right-of-use ("ROU") assets represent the Company's right to use leased assets over the term of the lease, adjusted for incremental direct costs and lease incentives such as tenant improvements. ROU assets and lease liabilities are determined based on the present value of future lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. Incremental borrowing rates were determined for each lease based on the Company's borrowing rate adjusted for term differences and foreign currency risk. For operating leases, ROU assets are reduced over the lease term by the straight-line lease expense recognized less the amount of accretion of the lease liability determined using the effective interest method. Some real estate leases contain lease and non-lease components. Non-lease components generally represent use-based charges for common area maintenance, taxes and utilities. The Company has elected not to separate lease and non-lease components. Variable lease payments consist primarily of common area maintenance, utilities and taxes, which are not included in the recognition of ROU assets and related lease liabilities. The Company recognizes variable lease payments in the period in which the obligation for those payments is incurred. Some contracts also contain lease incentives such as tenant improvement allowances and rent holidays, which are treated as a reduction of lease payments for the measurement of the lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these arrangements is recorded as paid over the lease term. The Company has not recognized renewal options as part of its right-of-use assets and lease liabilities, as the renewal options are not reasonably certain of exercise or occurrence as of December 31, 2022. Additionally, these lease arrangements do not contain residual value guarantees, and there are no other restrictions or covenants in the contracts. All long-lived assets used in the Company’s operations are subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is assessed based on the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Any impairment loss, if indicated, is measured as the amount by which the carrying amount of the asset exceeds its estimated fair value and is recognized as a reduction in the carrying amount of the asset. As of December 31, 2022, there were no events or changes in circumstances to indicate that the carrying amount of the assets may not be recoverable. (k) Goodwill Goodwill is the excess of purchase price over the fair value of the net tangible and identifiable intangible assets acquired. In testing goodwill for impairment, there is an option to begin with a qualitative assessment, commonly referred to as “Step 0”, to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in management, strategy and primary user base. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative goodwill impairment analysis is performed which is referred to as “Step 1”. Depending upon the results of that analysis, if the carrying amount of the reporting unit exceeds its fair value, goodwill may be written down and impairment expense is recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss). As of December 31, 2022, 2021 and 2020, there were no impairment charges taken. (l) Intangible assets, net Intangible assets consist of developed technology, customer relationships, favorable leases, and trademarks. Intangible assets are recorded at fair value at the time of their acquisition and are stated within our Consolidated Balance Sheets net of accumulated amortization. Intangible assets are amortized on a straight-line basis or using an accelerated method, over their estimated useful lives. Amortization expenses are recorded as operating expenses within our Consolidated Statements of Operations and Comprehensive Income (Loss). Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. As of December 31, 2022, 2021 and 2020, there were no events or changes in circumstances to indicate that the carrying amount of the assets may not be recoverable. (m) Fair value measurements The Company follows ASC 820-10, Fair Value Measurements , which defines fair value, establishes a framework for measuring fair value and requires certain disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the most advantageous market for the asset or liability in an orderly transaction. Fair value measurement is based on a hierarchy of observable or unobservable inputs. The standard describes three levels of inputs that may be used to measure fair value. Level 1 — Inputs to the valuation methodology are quoted prices available in active markets for identical securities as of the reporting date; Level 2 — Inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk etc. as of the reporting date, and the fair value can be determined through the use of models or other valuation methodologies; and Level 3 — Inputs to the valuation methodology are unobservable inputs in situations where there is little, or no market activity of the securities and the reporting entity makes estimates and assumptions relating to the pricing of the securities including assumptions regarding risk. We segregate all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. (n) Revenue recognition The Company’s customers include advertisers and publishers. The Company’s pre-bid and post-bid verification solutions enable advertisers to measure campaign performance and value across viewability, ad fraud prevention, brand safety and suitability, and contextual targeting for ads on desktop, mobile in-app, social, and CTV platforms. The Company's pre-bid programmatic solution is directly integrated with DSPs to help optimize return on ad spend by directing budgets to the best available inventory. The Company’s solutions help publishers globally deliver high quality ad inventory that is fraud free, viewable, brand safe and suitable, and geographically targeted. The Company recognizes revenue under the five step model in accordance with ASC 606. Identify the contract with a customer The Company maintains agreements with each customer primarily in the form of written master service agreements, which set out the rights and obligations of the arrangement, including key terms and access to the Company’s platform. The Company ensures the following criteria are met when determining if a contract exists (i) contract is approved by all parties, (ii) each party’s rights regarding the services to be transferred are identified, (iii) payment terms are specified, (iv) contract has commercial substance, and (v) collectability of substantially all consideration is probable. Identify the performance obligations in the contract For all contracts, the Company identifies performance obligations at contract inception by evaluating whether the promised services are distinct. Performance obligations within the majority of the Company’s contracts comprise a series of distinct services that are satisfied ratably over time and are treated as a single performance obligation. Promises identified within standard contracts include (i) access to the Company’s platform, (ii) customer support services, and (iii) updates and enhancements to the Company’s platform and data. Determine the transaction price Once the Company identifies the performance obligations within the contract, the Company will determine the transaction price based on contractual amounts and stated terms. Contracts with the Company’s customers primarily utilize a usage-based structure, where CPM pricing is consistent over the contract term. Contracts with the Company’s customers may also utilize other pricing arrangements, including minimum commitments, overages based on tiered pricing or flat fees. Allocate the transaction price to the performance obligations in the contract Transaction prices in the Company’s arrangements are allocated to each distinct service, ensuring that revenue is recorded in the right period and for the right amount. Recognize revenue when a performance obligation is satisfied The Company recognizes revenue when control of the promised services are transferred to customers. The Company recognizes revenue by multiplying the CPM and the number of impressions measured. An impression is measured by the platform when a digital ad is served to a real person rather than a bot, viewable on-screen, and presented in a brand-safe and suitable environment in the correct geography. This method utilizes the “right to invoice” practical expedient as the invoiced amount directly corresponds to the value of the Company’s performance to date. The Company evaluated arrangements with its customers where the customer purchases the Company’s services through a DSP to determine if such revenue should be reported on a gross or net basis. In these arrangements, the demand side platform collects the fee on behalf of the Company for the purchase of advertising inventory on an exchange. In these transactions, the Company is primarily responsible for providing these services directly to the customer and has latitude in establishing the sales price with the customers. As a result, the Company records revenue for the gross amounts paid by the customers for these services and records the amounts retained by the demand side platforms as a cost of revenue. Invoices are typically issued with net 30-days to net 90-days terms and customers do not have a contractual right to refunds. Cash payments received prior to the Company’s delivery of its services are recorded to deferred revenue until the performance obligation is satisfied. The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment of $99 and $160 as of December 31, 2022 and 2021, respectively. The Company recognizes expenses when direct fulfillment costs are incurred. Sales commissions represent incremental contract costs of obtaining a contract. The majority of these costs are recorded in sales and marketing expenses within the Consolidated Statement of Operations and Comprehensive Income (Loss). See Note 11, Segment data, for disaggregated revenue by geographic region. (o) Net income (loss) per share Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares outstanding during the reporting period, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to the shareholders by the weighted-average number of shares and potentially dilutive securities outstanding during the period. (p) Income taxes The Company is subject to U.S. federal, state, and local income taxation on its income. The Company accounts for income taxes using an asset and liability approach, which requires estimates of taxes payable or refunds for the current period and estimates of deferred income tax assets and liabilities for the anticipated future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax purposes. Current and deferred income tax assets and liabilities are based on provisions of the enacted income tax laws and are measured using the enacted income tax rates and laws that are expected to be in effect when the future tax events are expected to reverse. The effects of future changes in income tax laws or rates are not anticipated. The income tax provision is comprised of the current income tax expense and the change in deferred income tax assets and liabilities. The portion of any deferred tax asset for which it is more likely than not that a tax benefit will not be realized is offset by recording a valuation allowance. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The tax effects of an uncertain tax position ("UTP") taken or expected to be taken in income tax returns are recognized only if it is “more-likely-than-not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes estimated interest and penalties related to UTPs in income tax expense. The Company recognizes the resolution of an UTP in the period when it is effectively settled. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination. The Company evaluated all potential uncertain tax positions and identified no significant uncertain positions. (q) Business combinations The Company determines if the acquisition of an entity or a group of assets is a business combination, which is accounted for using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, the assets acquired, and liabilities assumed, including amounts attributed to noncontrolling interests, are recorded at fair value. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. The determination of the fair values is based on estimates and judgments made by management. The Company’s estimates of fair value are based upon assumptions it believes to be reasonable, but which are inherently uncertain and unpredictable. Additionally, uncertain tax positions and tax-related valuation allowances are recorded in connection with a business combination as of the acquisition date. Measurement period adjustments are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired and liabilities assumed is received and is not to exceed one year from the acquisition date. The Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. If outside of the measurement period, any subsequent adjustments are recorded in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). (r) Stock-based compensation Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. The Company used the following assumptions in valuing its time-based service options, which vest over a period of time subject to continued employment ("Time-Based Options"), return target options ("Return-Target Options"), which vest upon a realized cash return of the equity investment of Vista Equity Partners ("Vista"), the Company’s equity sponsor and funds controlled by Vista and registration of the shares held by Vista, market stock units ("MSUs"), and shares to be purchased under the 2021 Employee Stock Purchase Plan ("ESPP"). Expected term — For time-based awards, the estimated expected term of options granted is generally calculated as the vesting period plus the midpoint of the remaining contractual term, as the Company does not have sufficient historical information to develop reasonable expectations surrounding future exercise patterns and post-vesting employment termination behavior. For awards subject to market and performance conditions, the expected term represents the period of time that the options granted are expected to be outstanding. Expected volatility — Since the Company does not have substantive trading history of its common stock, volatility is estimated based upon observed option implied volatilities for a group of peer companies. The Company believes this is the best estimate of the expected volatility over the weighted-average expected term of its option grants. Risk-free interest rate — The risk-free interest rate is based on the implied yield currently available on U.S. Treasury instruments with terms approximately equal to the expected term of the option. Expected dividend — The expected dividend assumption was based on the Company’s history and expectation of dividend payouts. The Company currently has no history or expectation of paying cash dividends on its units. Fair value — Prior to the IPO, because there was no public market for the Company’s common stock/units, the board of directors determined the best estimate of the fair value of the Company’s option grants, based on reasonable judgment and numerous objective and subjective factors, including independent third-party valuations of the Company’s common stock/units, operating and financial performance, and general and industry-specific economic outlook, amongst other factors. As a result of the IPO, the Company’s shares are traded in the public market, and accordingly the Company uses the applicable closing price of its common stock to determine fair value. December 31, 2022 2021 2020 (1) Estimated fair value $3.26 - $15.15 $8.16 - $14.04 $2.29 Expected volatility (%) 70% - 80% 65.0% - 80.0% 70.0% - 75.0% Expected term (in years) 0.50 - 4.00 3.00 - 10.00 3.25 - 6.63 Risk-free interest rate (%) 2.96% - 3.97% 0.46% - 0.98% 0.26% - 0.55% Dividend yield — — — (1) For issuances prior to the pricing of the IPO, the fair value of the Company’s option grants was estimated at the grant date using the Monte Carlo simulation model and relate to the Return-Target Options only as the Time-Based Options were not within the scope of ASC 718, Compensation - Stock Compensation for the year ended December 31, 2020. (s) Internal use software, net Software development costs consist primarily of cost incurred in research and development, software engineering, and web design activities and related employee compensation costs to create, enhance, and deploy the software infrastructure. Software development costs are expensed as incurred where the amounts primarily relate to planning activities, minor developments or normal maintenance activities that do not meet the requirements under ASC 350-40, Internal Use Software. The majority of these costs are recorded in technology and development expenses in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). Capitalized costs would include costs incurred during the software development stage, which occurs after the preliminary design stage. Such costs include consultant costs and salaries of engineers and data scientists. Enhancements to existing internal use software are capitalized when it is more likely than not that they will result in significant additional capabilities. For the years ended December 31, 2022, 2021 and 2020, respectively, the Company incurred $15,379, $13,654 and $9,380 of costs that met the requirements of internal use software capitalization, with $1,517 and $859 of costs in accounts payable as of December 31, 2022 and 2021, respectively. These costs were capitalized when incurred and are recognized in the Consolidated Balance Sheets at cost less accumulated amortization. The Company amortizes the software using the straight-line method over three years. (t) Advertising Costs The Company expenses advertising costs as incurred. The Company incurred $2,333, $1,861 and $690 in advertising expense during the years ended December 31, 2022, 2021 and 2020, respectively. (u) Deferred offering costs Deferred offering costs are capitalized and consist of fees incurred in connection with our IPO and include legal, accounting, printing, and other IPO-related costs. Upon the completion of our IPO, which occu |
