Item 8. Financial Statements and Supplementary Data

THE TRADE DESK, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm			53
Consolidated Balance Sheets			55
Consolidated Statements of Operations			56
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)			57
Consolidated Statements of Cash Flows			58
Notes to Consolidated Financial Statements			59

The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results of Operations,” which is incorporated herein by reference.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of The Trade Desk, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of The Trade Desk, Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, of convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting related to an absence of information technology general controls over certain financially significant applications existed as of that date.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2017 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Los Angeles, California

February 27, 2018

We have served as the Company’s auditor since 2015.

THE TRADE DESK, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

		As of December 31,
		2016				2017
ASSETS
Current assets:
Cash and cash equivalents		$	133,400			$	155,950
Accounts receivable, net			377,240				599,565
Prepaid expenses and other current assets			5,763				10,298
TOTAL CURRENT ASSETS			516,403				765,813
Property and equipment, net			14,779				17,405
Deferred income taxes			1,778				3,359
Other assets, non-current			4,636				10,587
TOTAL ASSETS		$	537,596			$	797,164
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Accounts payable		$	321,163			$	490,377
Accrued expenses and other current liabilities			22,973				28,155
TOTAL CURRENT LIABILITIES			344,136				518,532
Debt, net			25,847				27,000
Other liabilities, non-current			3,233				6,049
TOTAL LIABILITIES			373,216				551,581
Commitments and contingencies (Note 13)
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued and outstanding as of December 31, 2016 and 2017			—				—
Common stock, par value $0.000001; 1,000,000 Class A shares authorized as of December 31, 2016 and 2017; 10,071 and 32,486 shares issued and outstanding as of December 31, 2016 and 2017, respectively; 95,000 Class B shares authorized as of December 31, 2016 and 2017; 29,060 and 9,155 shares issued and outstanding as of December 31, 2016 and 2017, respectively			—				—
Additional paid-in capital			179,198				209,603
Retained earnings (accumulated deficit)			(14,818	)			35,980
TOTAL STOCKHOLDERS’ EQUITY			164,380				245,583
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	537,596			$	797,164

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

		Year Ended December 31,
		2015				2016				2017
Revenue		$	113,836			$	202,926			$	308,217
Operating expenses:
Platform operations			22,967				39,876				66,230
Sales and marketing			26,794				46,056				61,379
Technology and development			12,819				27,313				52,806
General and administrative			13,276				32,163				58,446
Total operating expenses			75,856				145,408				238,861
Income from operations			37,980				57,518				69,356
Interest expense			1,141				3,075				1,791
Change in fair value of preferred stock warrant liabilities			5,961				9,458				—
Foreign currency exchange loss, net			1,023				1,151				3,940
Total other expense, net			8,125				13,684				5,731
Income before income taxes			29,855				43,834				63,625
Provision for income taxes			13,926				23,352				12,827
Net income		$	15,929			$	20,482			$	50,798
Net income (loss) attributable to common stockholders		$	8,764			$	(26,727	)		$	50,798
Net income (loss) per share attributable to common stockholders:
Basic		$	0.85			$	(1.46	)		$	1.26
Diluted		$	0.39			$	(1.46	)		$	1.15
Weighted average shares outstanding:
Basic			10,290				18,280				40,262
Diluted			16,779				18,280				44,056

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)

																						Retained				Total
		Convertible								Class A and B								Additional				Earnings				Stockholders’
		Preferred Stock								Common Stock (1)								Paid-In				(Accumulated				Equity
		Shares				Amount				Shares				Amount				Capital				Deficit)				(Deficit)
Balance as of December 31, 2014			66,330			$	27,997				10,166			$	—			$	488			$	(6,619	)		$	(6,131	)
Modification to Series B participation rights			—				(3,793	)			—				—				—				3,793				3,793
Exercise of common stock options			—				—				711				—				166				—				166
Issuance of common stock to employee			—				—				7				—				—				—				—
Stock-based compensation			—				—				—				—				385				—				385
Net income			—				—				—				—				—				15,929				15,929
Balance as of December 31, 2015			66,330				24,204				10,884				—				1,039				13,103				14,142
Exercise of common stock options			—				—				785				—				488				—				488
Stock-based compensation			—				—				—				—				5,144				—				5,144
Issuance of series C convertible preferred stock, net of issuance costs			11,501				59,871				—				—				—				—				—
Reclassification of preferred stock warrant liability upon net exercise of warrant			789				3,789				—				—				—				—				—
Repurchase of convertible preferred stock			(12,384	)			(4,623	)			—				—				(1,168	)			(46,041	)			(47,209	)
Repurchase and retirement of common stock			—				—				(189	)			—				—				(2,362	)			(2,362	)
Issuance of Class A common stock upon IPO, net of underwriters’ commissions and offering costs of $10,366			—				—				4,667				—				73,634				—				73,634
Conversion of convertible preferred stock to Class B common stock in connection with IPO			(66,236	)			(83,241	)			22,079				—				83,241				—				83,241
Conversion of warrant for convertible preferred stock to a warrant for Class B common stock in connection with IPO			—				—				—				—				12,596				—				12,596
Net exercise of warrant to purchase Class B common stock			—				—				449				—				—				—				—
Issuance of common stock under employee stock purchase plan			—				—				276				—				4,224				—				4,224
Grants of restricted stock			—				—				180				—				—				—				—
Net income			—				—				—				—				—				20,482				20,482
Balance as of December 31, 2016			—				—				39,131				—				179,198				(14,818	)			164,380
Exercise of common stock options			—				—				1,932				—				2,565				—				2,565
Stock-based compensation			—				—				—				—				21,860				—				21,860
Issuance of common stock under employee stock purchase plan			—				—				433				—				6,997				—				6,997
Restricted stock, net of forfeitures and shares withheld for taxes			—				—				145				—				(1,017	)			—				(1,017	)
Net income			—				—				—				—				—				50,798				50,798
Balance as of December 31, 2017			—			$	—				41,641			$	—			$	209,603			$	35,980			$	245,583

(1)	See Note 9-Capitalization for discussion of the establishment of the Company’s two classes of common stock and the reclassification of its common stock into Class B common stock prior to the Company’s initial public offering (“IPO”) in September 2016.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

		Year Ended December 31,
		2015				2016				2017
OPERATING ACTIVITIES:
Net income		$	15,929			$	20,482			$	50,798
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			1,828				3,798				7,209
Stock-based compensation			374				5,056				21,317
Change in fair value of preferred stock warrant liabilities			5,961				9,458				—
Deferred income taxes			338				(607	)			(1,581	)
Bad debt expense			542				1,890				4,289
Other			176				1,160				(1,303	)
Changes in operating assets and liabilities:
Accounts receivable			(114,170	)			(187,736	)			(224,636	)
Prepaid expenses and other assets			(3,040	)			(2,675	)			(5,033	)
Accounts payable			50,021				209,483				171,793
Accrued expenses and other liabilities			5,481				14,722				8,371
Net cash provided by (used in) operating activities			(36,560	)			75,031				31,224
INVESTING ACTIVITIES:
Purchases of property and equipment			(5,128	)			(6,884	)			(10,110	)
Capitalized software development costs			(1,799	)			(2,337	)			(2,954	)
Business acquisition			—				—				(3,000	)
Redemption of short-term investment			551				—				—
Net cash used in investing activities			(6,376	)			(9,221	)			(16,064	)
FINANCING ACTIVITIES:
Proceeds from line of credit			30,000				75,847				—
Repayment on line of credit			(15,000	)			(65,000	)			—
Proceeds from term debt			15,000				—				—
Repayment of term debt			—				(30,000	)			—
Payment of debt financing costs			(190	)			(976	)			(154	)
Payment of financing obligations			(109	)			(550	)			(1,001	)
Proceeds from issuance of Series C convertible preferred stock			—				60,000				—
Repurchase of preferred stock and common stock			—				(54,000	)			—
Proceeds from exercise of stock options			166				488				2,565
Proceeds from employee stock purchase plan			—				4,224				6,997
Taxes paid related to net settlement of restricted stock			—				—				(1,017	)
Payment of stock repurchase costs			(39	)			(155	)			—
Payment of Series C convertible preferred stock offering cost			—				(129	)			—
Proceeds from the issuance of Class A common stock in initial public offering, net of underwriting commissions			—				78,120				—
Payment of offering costs—initial public offering			(160	)			(4,326	)			—
Net cash provided by financing activities			29,668				63,543				7,390
Increase (decrease) in cash and cash equivalents			(13,268	)			129,353				22,550
Cash and cash equivalents—Beginning of year			17,315				4,047				133,400
Cash and cash equivalents—End of year		$	4,047			$	133,400			$	155,950
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes		$	12,931			$	16,740			$	19,163
Cash paid for interest		$	895			$	1,696			$	1,320
Capitalized assets financed by accounts payable		$	88			$	3,490			$	701
Tenant improvements paid by lessor		$	—			$	—			$	640
Debt financing costs included in debt, net		$	—			$	—			$	1,153
Stock-based compensation included in capitalized software development costs		$	11			$	88			$	543
Conversion of convertible preferred stock to Class B common stock		$	—			$	83,241			$	—
Conversion of warrant for convertible preferred stock to a warrant for Class B common stock and net exercise of warrant to purchase Class B common stock		$	—			$	12,596			$	—
Deferred initial public offering costs and stock repurchase costs included in accounts payable		$	58			$	—			$	—
Net exercise of warrants to purchase Series Seed convertible preferred stock		$	—			$	3,789			$	—
Asset retirement obligation		$	—			$	354			$	—

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Nature of Operations

The Trade Desk, Inc. (the “Company”) was formed in November 2009 as a Delaware corporation. The Company is headquartered in Ventura, California and has offices in various cities in the United States (“U.S.”), Europe, Asia and Australia. The Company is a global technology company that empowers ad buyers by providing a self-service omnichannel software platform that enables its clients to purchase and manage data-driven digital advertising campaigns across various advertising channels and formats.

Risks

The Company is subject to certain business risks, including dependence on key employees, competition, market acceptance of the Company’s platform, ability to source demand from buyers of advertising inventory, availability of equity or debt financings and dependence on growth to achieve its business plan.

Note 2—Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the operations of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. The Company has no components of other comprehensive income (loss), and accordingly, the Company’s comprehensive income is the same as its net income for all periods presented.

Reverse Stock Split

On September 2, 2016, the Company effected a 1-for-3 reverse stock split of its outstanding common stock and a proportional adjustment to the then existing conversion ratios for each series of convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in these consolidated financial statements and notes thereto, have been adjusted retrospectively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and 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. Actual results could differ materially from these estimates.

On an on-going basis, management evaluates its estimates, primarily those related to: (1) revenue recognition criteria, including the determination of revenue reporting as net versus gross in the Company’s revenue arrangements, (2) allowances for doubtful accounts, (3) the useful lives of property and equipment and capitalized software development costs, (4) income taxes, (5) assumptions used in the Black-Scholes option pricing model to determine the fair value of stock-based compensation, (6) the recognition and disclosure of contingent liabilities and (7) the assumptions used in valuing acquired assets and assumed liabilities in business combinations. These estimates are based on historical data and experience, as well as, various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Prior to the IPO, the Company used estimates to determine the value of common and preferred stock which required the selection of appropriate valuation methodologies and models, and significant judgment in evaluating ranges of assumptions and financial inputs. Actual results may differ materially from those estimates under different assumptions or circumstances.

Revenue Recognition

The Company generates revenue from clients who enter into agreements to use the Company’s platform to purchase advertising inventory, data and other add-on features. The Company charges clients a platform fee, which is a percentage of a client’s purchases through the platform. In addition, the Company invoices clients for the cost of advertising inventory purchased, plus data and any add-on features purchased through the platform less any advertising inventory that clients purchase directly from suppliers through the Company’s platform. The Company maintains agreements with each client and supplier in the form of master service agreements, which set out the terms of the relationship and access to the Company’s platform.

The Company recognizes revenue when four basic criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fees are fixed or determinable, and (4) collectability is reasonably assured. In applying the foregoing criteria, the Company recognizes revenue upon the completion of a transaction, that is, when a bid is won, subject to satisfying these criteria. Subsequent to a bid being won through the Company’s platform, the associated fees are generally not subject to adjustment or refund. Historically, any refunds and adjustments have not been material. The Company assesses collectability based on a number of factors, including the creditworthiness of a client or advertiser and related payment history. The Company generally bills clients for the gross amount of advertising inventory, data or other add-on features they purchase through the Company’s platform plus the Company’s platform fees, although some of the Company’s clients have payment relationships directly with advertising inventory suppliers in which case the Company only bills the clients for data, other services and the Company’s platform fees.

The Company reports revenue net of amounts it pays suppliers for the cost of advertising inventory, data and add-on features in conformity with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition -Principal Agent Considerations. The determination of whether the Company is the principal or agent, and hence whether to report revenue on a gross basis for the amount of the advertising inventory, third-party data and other add-on features the clients purchase using the platform plus the Company’s platform fees or on a net basis for the amount of platform fees charged to the client, requires the Company to evaluate a number of indicators, none of which is presumptive or determinative. The Company determined that it is not the primary obligor for the purchase of advertising inventory, third-party data and other add-on features but rather the primary obligor to provide a platform that enables clients to bid on advertising inventory, and use data and other add-on features in designing and executing their campaigns. The Company does not have pricing latitude with respect to the cost of advertising inventory, third-party data and other add-on features purchased by clients through the Company’s platform. The fee the Company charges clients is a percentage of their purchases through the Company’s platform, similar to a commission, and the Company’s fee is not contingent on the results of an advertising campaign. The client has supplier selection for the advertising inventory, third-party data and other add-on features through the platform. The Company has credit risk on the gross spend through the Company’s platform, which includes the amounts due to suppliers for purchases through the Company’s platform plus the Company’s platform fees, as the Company is required to pay suppliers irrespective of whether the Company collects from clients.

Based on these and other factors, the Company has determined it is not the principal in the purchase and sale of advertising inventory, data and other add-on features in all of the Company’s arrangements and therefore reports revenue on a net basis for the fees the Company charges clients.

The Company’s accounts receivable are recorded at the amount of gross billings to clients, net of allowances (“Gross Billings”), for the amounts it is responsible to collect, and accounts payable are recorded at the net amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.

Operating Expenses

The Company classifies its operating expenses into four categories:

Platform Operations. Platform operations expense consists of expenses related to hosting the Company’s platform, which includes “internet traffic” associated with the viewing of available impressions or queries per second (QPS) and providing support to clients. Platform operations expense includes hosting costs, personnel costs, and amortization of acquired technology and capitalized software costs for the development of the Company’s platform, including allocated overhead. Personnel costs included in platform operations include salaries, bonuses, stock-based compensation, and employee benefit costs, and are primarily attributable to personnel who provide the Company’s clients with support using the Company’s platform and the Company’s network operations group, who support the Company’s platform. The Company capitalizes certain costs associated with the development of the Company’s platform and amortizes these costs over their estimated useful lives in platform operations expense. The Company allocates overhead such as information technology infrastructure, rent and occupancy charges based on headcount.

Sales and Marketing. Sales and marketing expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, employee benefits costs and commission costs for the Company’s sales and marketing personnel. Sales and marketing expense also includes costs for market development programs, advertising, promotional and other marketing activities, and allocated overhead. The Company allocates overhead such as information technology infrastructure, rent and occupancy charges based on headcount. Commissions costs are expensed as incurred.

Technology and Development. The Company’s technology and development expenses consist primarily of personnel costs, including salaries, bonuses, stock-based compensation and employee benefits costs, third-party consultant costs associated with the ongoing development and maintenance of the Company’s platform, amortization of capitalized third-party software used in the development of the Company’s platform and allocated overhead. The Company allocates overhead such as information technology infrastructure, rent and occupancy charges based on headcount. Technology and development costs are expensed as incurred, except to the extent that such costs are associated with software development that qualify for capitalization, which are then recorded as capitalized software development costs included in other assets, non-current on the Company’s consolidated balance sheet. The Company amortizes capitalized software development costs relating to the Company’s platform to platform operations expense.

General and Administrative. The Company’s general and administrative expenses consist primarily of personnel costs, including salaries, bonuses, stock-based compensation, and employee benefits costs associated with the Company’s executive, finance, legal, human resources, compliance, and other administrative personnel, as well as accounting and legal professional services fees, bad debt expense and allocated overhead. The Company allocates overhead such as information technology infrastructure, rent and occupancy charges based on headcount.

Stock-Based Compensation

Compensation expense related to stock options, restricted stock awards and units, which are referred to collectively as restricted stock, and awards granted under the Company’s employee stock purchase plan (“ESPP”), is measured and recognized in the consolidated financial statements based on the fair value of the awards granted. The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model. The fair value of restricted stock is calculated using the closing market price of the Company’s common stock on the date of grant. Stock-based compensation expense related to stock options and restricted stock is recognized on a straight-line basis over the requisite service periods of the awards, which is generally four years. Stock-based compensation expense for ESPP awards is recognized on a graded-vesting attribution basis over the requisite service period of each award.

Stock options granted to non-employees are accounted for at fair value determined by using the Black-Scholes option-pricing model. The Company believes that the fair value of the stock options is more reliably measured than the fair value of the services received. The fair value of the non-employee stock options is re-measured each period until a commitment date is reached, which is generally the vesting date.

Determining the fair value of stock options and ESPP awards requires judgment. The Company’s use of the Black-Scholes option pricing model requires the input of subjective assumptions, including the fair value of the underlying common stock for periods prior to the completion of the Company’s IPO, the expected term of the option, the expected volatility of the Company’s common stock, risk-free interest rates, and the expected dividend yield of the Company’s common stock. The assumptions used in the Company’s option-pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment.

These assumptions and estimates are as follows:

Fair Value of Common Stock. For stock options granted subsequent to the Company’s IPO and ESPP awards, the fair value of common stock is based on the closing price of its common stock as reported on the NASDAQ Global Market on the grant date. Prior to the IPO, the board of directors determined the fair value of the common stock at the time of the grant of options by considering a number of objective and subjective factors including the Company’s actual operating and financial performance, market conditions and performance of comparable publicly traded companies, developments and milestones in the Company, the likelihood of achieving a liquidity event and transactions involving the Company’s preferred or common stock, among other factors. The fair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants, Valuation of Privately Held Company Equity Securities Issued as Compensation.

Risk -Free Interest Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities approximating the expected term of the awards.

Expected Term. Given insufficient historical data relating to stock option exercises, to determine the expected term, the Company applies the simplified approach, in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award. For ESPP awards, the expected term is the time period from the grant date to the respective purchase dates included within each offering period.

Volatility. Because the Company has a short trading history for its common stock, the Company determines the price volatility based on the historical volatilities of a publicly traded peer group based on daily price observations over a period equivalent to the expected term of the award, and during the year ended December 31, 2017, the Company began to include a blend of implied volatilities from its traded options.

Dividend Yield. The dividend yield assumption is based on the Company’s history and current expectations of dividend payouts. The Company has never declared or paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future, so the Company used an expected dividend yield of zero.

During the year ended December 31, 2016, the Company early adopted Accounting Standards Update (“ASU”) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share—Based Payment Accounting and changed its policy from estimating forfeitures to recording forfeitures when they occur. The impact of forfeitures on the Company’s historical consolidated financial statements was not material and the Company’s adoption of this guidance was also not material. The change in accounting policy to record forfeitures when they occur and the requirement to record excess tax benefits when they occur in the statement of operations has resulted in a reduction in the Company’s effective tax rate and may result in volatility in earnings in the future.

The Company will continue to use judgment in evaluating the assumptions related to the Company’s stock-based compensation. Future expense amounts for any particular period could be affected by changes in the Company’s assumptions or market conditions.

Income Taxes

Deferred income tax assets and liabilities are determined based upon the net tax effects of the differences between the Company’s consolidated financial statements carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected to be reversed. A valuation allowance is used to reduce some or all of the deferred tax assets if, based upon the weight of available evidence, it is more likely than not that those deferred tax assets will not be realized.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. The Company recognizes interest and penalties accrued related to its uncertain tax positions in its income tax provision in the accompanying consolidated statements of operations.

On December 22, 2017, "H.R.1," known as the "Tax Cuts and Jobs Act," was signed into law. The primary impact of H.R.1 on the Company’s consolidated results from operations for the year ended December 31, 2017 and consolidated balance sheet as of December 31, 2017 was the revaluation of deferred taxes by $0.6 million resulting from the reduction in the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Given cumulative overseas deficits, no liability for foreign earnings and profits has been established.

Net Income (Loss) Per Share Attributable to Common Stockholders

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding. The Company applies the two-class method to allocate net income (loss) between common and other participating securities based on their participation rights. Prior to the conversion of preferred stock to common stock concurrent with the IPO and because the holders of the Company’s convertible preferred stock were entitled to participate in dividends, the Company allocated net income to common and preferred stock based on their respective rights to receive dividends, whether or not declared. For 2015, the adjustment to the carrying value of the Series B preferred stock (Note 9) has been recorded as a benefit to net income attributable to common stockholders. For 2016, the excess of the repurchase price of preferred stock over its carrying value (Note 9) has been recorded as a reduction to net income to determine net loss attributable to common stockholders.

Diluted net income (loss) per share attributable to common stockholders adjusts the basic net income (loss) per share attributable to common stockholders and the weighted-average number of shares of common stock outstanding for the potentially dilutive impact of stock options, restricted stock, ESPP and warrants, using the treasury-stock method, and convertible preferred stock using the as-if-converted method.

Cash and Cash Equivalents

The Company considers all short-term highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents, consisting of money market funds, are carried at fair value. Refer to Note 6—Fair Value Measurements for additional information regarding the fair value of cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount, are unsecured and do not bear interest. The Company performs ongoing credit evaluations of its clients and certain advertisers when the Company’s agreements with its clients contain sequential liability terms that provide that the client payments are not due to the Company until the client has received payment from its customers who are advertisers. The allowance for doubtful accounts is based on the best estimate of the amount of probable credit losses in existing accounts receivable. The allowance for doubtful accounts is determined based on historical collection experience and the review in each period of the status of the then-outstanding accounts receivable, while taking into consideration current client information, subsequent collection history and other relevant data. The Company reviews the allowance for doubtful accounts on a quarterly basis. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered.

The following table presents changes in the allowance for doubtful accounts (in thousands):

		Year Ended December 31,
		2015				2016				2017
Beginning balance		$	172			$	686			$	2,574
Add: bad debt expense			542				1,890				4,289
Less: write-offs, net of recoveries			(28	)			(2	)			(4,606	)
Ending balance		$	686			$	2,574			$	2,257

Property and Equipment, Net

Property and equipment are recorded at historical cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method based upon the following estimated useful lives:

		Years
Computer equipment			2
Purchased software			5
Furniture, fixtures and office equipment			5
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.

Repair and maintenance costs are charged to expense as incurred, while renewals and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the Company’s operating results.

Capitalized Software Development Costs

The Company capitalizes certain costs associated with creating and enhancing internally developed software related to the Company’s technology infrastructure. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software development projects, and external direct costs of materials and services consumed in developing or obtaining the software. Software development costs that do not qualify for capitalization, as further discussed below, are expensed as incurred and recorded in technology and development expenses in the consolidated statements of operations.

Software development activities typically consist of three stages: (1) the planning phase; (2) the application and infrastructure development stage; and (3) the post implementation stage. Costs incurred in the planning and post implementation phases, including costs associated with the post-configuration training and repairs and maintenance of the developed technologies, are expensed as incurred. The Company capitalizes costs associated with software developed when the preliminary project stage is completed, management implicitly or explicitly authorizes and commits to funding the project and it is probable that the project will be completed and perform as intended. Costs incurred in the application and infrastructure development phases, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete and the software is ready for its intended purpose. Software development costs are amortized using a straight-line method over the estimated useful life of two years, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived.

The Company does not transfer ownership of its internally developed software, or lease its software, to third parties.

Business Combinations

The results of a business acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.

Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in the consolidated statements of operations.

The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed may require management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparable companies. The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination.

In October 2017, the Company paid $3.0 million in cash for certain assets of a data company accounted for as a business combination. These assets primarily consisted of acquired technology and goodwill which are included in other assets, non-current.

Operating Leases

The Company records rent expense for operating leases, some of which have escalating rent payments, on a straight-line basis over the lease term. The Company begins recognition of rent expense on the date of initial possession, which is generally when the Company enters the leased premises and begins to make improvements in preparation for its intended use. Some of the Company’s lease arrangements provide for concessions by the landlords, including payments for leasehold improvements and rent-free periods. The Company accounts for the difference between the straight-line rent expense and rent paid as deferred rent.

Debt Issuance Costs

Debt issuance costs related to the term loans have been recorded as a reduction of the carrying amount of the debt and are amortized to interest expense using the effective interest method. Debt financing costs associated with credit facilities have been deferred and recorded in other assets, non-current and are amortized to interest expense on a straight-line basis over the term of the credit facilities.

Preferred Stock Warrant Liabilities

Prior to the completion of the Company’s IPO, warrants to purchase preferred stock of the Company were accounted for as liabilities at fair value because the underlying shares of convertible preferred stock were contingently redeemable, including in the case of a deemed liquidation, which could have obligated the Company to transfer assets to the preferred stockholders. The preferred stock warrants were recorded at fair value at each balance sheet date and changes in the fair value of the preferred stock warrants during each reporting period were recorded in the Company’s consolidated statements of operations until the earlier of the exercise or expiration of the warrants or the warrants’ conversion to warrants to purchase common stock, at which time any remaining liability was reclassified to additional paid-in capital. Immediately prior to the completion of the Company’s IPO, all of the Company’s then-outstanding convertible preferred stock warrants were remeasured to fair value and automatically converted and reclassified into Class B common stock warrants and all remaining warrants were net exercised.

Fair Value of Financial Instruments

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 principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value measurements are based on a fair value hierarchy, based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted market prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3—Unobservable inputs.

Observable inputs are based on market data obtained from independent sources.

The carrying amounts of accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair value due to the short-term nature of these instruments. The carrying value of the line of credit and term loans approximates fair value based on borrowing rates currently available to the Company for financing with similar terms and were determined to be Level 2.

The Company’s convertible preferred stock warrants were measured using unobservable inputs that required a high level of judgment to determine fair value, and were thus classified as Level 3.

Certain long lived assets including capitalized software development costs are also subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review. To date, no material impairments have been recorded on those assets.

Concentration of Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with financial institutions and its cash levels exceed the Federal Deposit Insurance Corporation (FDIC) federally insured limits.

For 2015, two clients each accounted for 12% of Gross Billings. For 2016, three clients accounted for 15%, 13% and 11%, respectively, of Gross Billings. For 2017, three clients accounted for 22%, 11% and 10%, respectively, of Gross Billings.

As of December 31, 2016, three clients accounted for 27%, 13% and 12%, respectively, of consolidated accounts receivable. As of December 31, 2017, three clients accounted for 33%, 14% and 11%, respectively, of consolidated accounts receivable.

As of December 31, 2016, one supplier accounted for 10% of consolidated accounts payable. As of December 31, 2017, one supplier accounted for 12% of consolidated accounts payable.

Foreign Currency Transactions and Translation

The Company has entities operating in various countries. Each of these entities’ functional currency is the U.S. Dollar. Transactions in foreign currencies are translated into U.S. Dollars at the rates of exchange in effect at the date of the transaction. Net transaction losses were approximately $1.0 million, $1.2 million, and $3.9 million for the years ended December 31, 2015, 2016 and 2017, respectively, and are included in foreign currency exchange loss, net in the accompanying consolidated statements of operations.

Commencing in 2015 the Company entered into forward contracts to hedge foreign currency exposures related primarily to the Company’s foreign currency denominated accounts receivable. The Company does not designate the foreign exchange forward contracts as hedges for accounting purposes and changes in the fair value of the foreign exchange forward contracts are recorded in foreign exchange loss, net in the accompanying consolidated statements of operations. As of December 31, 2016 and 2017, the Company had open forward contracts with aggregate notional amounts of $27.1 million and $58.4 million, respectively. The fair value of the open forward contracts was not material. The Company’s forward contracts generally have terms of 30-210 days.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB approved the deferral of the new standard by one year, which defers the effective date of ASU 2014-09 by one year. In 2016, the FASB issued additional amendments to the new revenue guidance. This guidance is effective for annual reporting periods beginning after December 31, 2017, including interim periods within that reporting period. The guidance permits the use of either the retrospective or cumulative effect transition method. The Company used the modified retrospective approach transition method to adopt this guidance on January 1, 2018 and has determined that adoption of this guidance does not have an impact on its consolidated results of operations, financial position or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. The guidance offers specific accounting guidance for a lessee, lessor, and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the income statement. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. Although the Company is currently evaluating the impact of this guidance on its consolidated financial statements, the Company expects that most of its operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption of the new guidance.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, including adoption in an interim period. If adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes such interim period. The adoption of ASU 2016-15 should be applied using a retrospective transition method to each period presented, unless impracticable to do so. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated statement of cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation: Scope of Modification Accounting, which provides guidance on the types of changes to the terms or conditions of a share-based payment award to which an entity would be required to apply modification accounting in FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

Note 3—Net Income (Loss) Per Share Attributable to Common Stockholders

The Company has two classes of common stock, Class A and Class B. Basic and diluted net income (loss) per share attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights.

The computations of the numerators and denominators of the basic and diluted net income (loss) per share attributable to common stockholders are as follows (in thousands, except per share amounts):

		Year Ended December 31,
		2015				2016				2017
Net income (loss) per share attributable to common stockholders—basic:
Numerator:
Net income		$	15,929			$	20,482			$	50,798
Less: Income attributable to convertible preferred stock			(10,958	)			—				—
Add: Preferred stock modification			3,793				—				—
Less: Premium on repurchase of convertible preferred stock			—				(47,209	)			—
Net income (loss) attributable to common stockholders		$	8,764			$	(26,727	)		$	50,798
Denominator:
Weighted-average shares outstanding			10,290				18,280				40,262
Net income (loss) per share attributable to common stockholders—basic		$	0.85			$	(1.46	)		$	1.26
Net income (loss) per share attributable to common stockholders—diluted:
Numerator:
Net income (loss) attributable to common stockholders—basic		$	8,764			$	(26,727	)		$	50,798
Add: Income attributable to dilutive convertible preferred stock			1,624				—				—
Less: Preferred stock modification			(3,793	)			—				—
Net income (loss) attributable to common stockholders—diluted		$	6,595			$	(26,727	)		$	50,798
Denominator:
Weighted-average shares outstanding			10,290				18,280				40,262
Dilutive convertible preferred stock			2,790				—				—
Options to purchase common stock			3,699								3,415
Employee stock purchase plan shares			—				—				268
Restricted stock			—				—				111
Weighted-average shares outstanding—diluted			16,779				18,280				44,056
Net income (loss) per share attributable to common stockholders—diluted		$	0.39			$	(1.46	)		$	1.15

The following table presents the anti-dilutive shares excluded from the calculation of diluted net income (loss) per share attributable to common stockholders (in thousands):

		Year Ended December 31,
		2015				2016				2017
Anti-dilutive equity awards under stock-based award plans			248				6,069				1,246
Common shares issuable upon conversion of convertible preferred stock			19,320				—				—
Common shares issuable upon conversion of preferred stock warrants			547				—				—
Total shares excluded from net income (loss) per share attributable to common stockholders—diluted			20,115				6,069				1,246

Note 4—Property and Equipment, Net

Major classes of property and equipment were as follows (in thousands):

		As of December 31,
		2016				2017
Computer equipment		$	2,542			$	4,520
Purchased software			6,686				7,735
Furniture and fixtures			2,563				4,306
Construction in progress			2,319				102
Leasehold improvements			4,374				9,645
			18,484				26,308
Less: Accumulated depreciation			(3,705	)			(8,903	)
		$	14,779			$	17,405

Depreciation expense for 2015, 2016 and 2017 was $1.0 million, $2.4 million and $5.3 million respectively.

The Company has purchased software under a financing arrangement where the Company makes installment payments over a four-year period. The Company has taken possession of the software and runs the software on its own equipment. As of December 31, 2016 and 2017, the software had a cost basis of $1.8 million. Accumulated depreciation on this software as of December 31, 2016 and 2017 was $0.9 million and $1.2 million, respectively. Depreciation expense on this software was $0.4 million for 2015, 2016 and 2017.

To date, there have been no impairment charges to property and equipment.

Note 5—Capitalized Software Development Costs

Capitalized software development costs, included in other assets, non-current, were as follows (in thousands):

		As of December 31,
		2016				2017
Capitalized software development costs, gross		$	4,280			$	6,133
Less: Accumulated amortization			(1,520	)			(1,734	)
Capitalized software development costs, net		$	2,760			$	4,399

The Company capitalized $1.8 million, $2.4 million and $3.5 million of software development costs in 2015, 2016 and 2017, respectively. Amortization expense was $0.9 million, $1.4 million and $1.9 million for 2015, 2016 and 2017, respectively. Based on the Company’s capitalized software development costs ready for intended use as of December 31, 2017, estimated amortization expense of $1.9 million and $0.8 million is expected to be recognized in 2018 and 2019, respectively. Amortization has not started on $1.7 million of capitalized software development costs that are not yet ready for intended use as of December 31, 2017.

Note 6—Fair Value Measurements

At December 31, 2017, cash equivalents of $5.0 million consisted of money market funds, which were classified as Level 1 of the fair value hierarchy and are valued using quoted market prices in active markets. The Company had no cash equivalents at December 31, 2016. The Company had no other material financial instruments that were measured at fair value at December 31, 2016 and 2017.

The Company’s preferred stock warrants are recorded at fair value and were determined to be Level 3 fair value items. The changes in the fair value of preferred stock warrants are summarized below (in thousands):

		Year Ended December 31,
		2015				2016
Beginning balance		$	966			$	6,927
Change in value of preferred stock warrants recorded in other expense, net			5,961				9,458
Reclassification to convertible preferred stock upon net exercise of Series Seed warrant in February 2016			—				(3,789	)
Conversion of preferred stock warrants to common stock warrants upon the closing of the Company’s IPO on September 26, 2016			—				(12,596	)
Ending balance		$	6,927			$	—

In connection with the IPO, outstanding warrants exercisable for 1,382,505 shares of convertible preferred stock were automatically converted into warrants exercisable for 460,834 shares of Class B common stock and net exercised resulting in the issuance of 448,545 shares of Class B common stock based on the IPO price of $18.00 per share and taking into account the 1-for-3 reverse stock split. The aggregate fair value of these warrants upon the closing of the IPO was $12.6 million, which was reclassified from liabilities to additional paid-in capital.

The Company determined the fair value of the preferred stock warrants utilizing the Black-Scholes model with the following assumptions:

		Series Seed								Series A-3
		As of								As of
		Dec 31, 2015				Sept 26, 2016				Dec 31, 2015				Sept 26, 2016
Contractual term (years)			5.7				4.9				7.2				6.5
Expected volatility			60.3	%			59.1	%			61.3	%			59.1	%
Risk-free interest rate			1.84	%			1.12	%			2.09	%			1.34	%
Estimated dividend yield			—	%			—	%			—	%			—	%

Note 7—Accounts Payable

Accounts payable included the following (in thousands):

		As of December 31,
		2016				2017
Accounts payable–media and data		$	307,018			$	477,716
Accounts payable–other			14,145				12,661
Total		$	321,163			$	490,377

Note 8—Debt

Amended Revolving Credit Agreement

On May 9, 2017, the Company, a syndicate of banks, led by Citibank, N.A., and Citibank, N.A., as agent, entered into an amended and restated loan and security agreement (the “Amended Revolving Credit Agreement”). Among other things, the Amended Revolving Credit Agreement provides for an increase of $75.0 million in the aggregate principal amount of commitments available under the Company’s senior secured asset-based revolving credit facility (the “Revolving Credit Facility”) and provides the Company with greater flexibility with respect to working capital, acquisitions and general corporate purposes. Available funding commitments to the Company under the Revolving Credit Facility, subject to certain conditions, total up to $200.0 million, with a $20.0 million sublimit for swingline borrowings and a $15.0 million sublimit for the issuance of letters of credit. Under certain circumstances and subject to certain conditions, the Company has the right to increase the Revolving Credit Facility by an additional amount not to exceed $100.0 million. Any borrowings under the Revolving Credit Facility are due in full in May 2022. The Company may prepay the borrowings without penalty at any time. The Amended Revolving Credit Agreement is collateralized by substantially all of the Company’s assets, including a pledge of certain of the Company’s accounts receivable, deposit accounts, intellectual property, investment property, and equipment. Availability under the Revolving Credit Facility was $168.1 million at December 31, 2017, and is based on a percentage of eligible accounts receivable, as reduced by certain reserves.

Loans under the Revolving Credit Facility bear interest through maturity at a variable rate based upon, at the Company’s option, an annual rate of either a Base Rate or a LIBOR rate, plus an applicable margin (“Base Rate Borrowings” and “LIBOR Rate Borrowings”). The Base Rate is defined as a fluctuating interest rate equal to the greatest of (1) the federal funds rate plus 0.50%, (2) Citibank, N.A.’s prime rate, and (3) one month LIBOR rate plus 2.0%. The applicable margin is defined as a rate between 1.0% to 1.5% for Base Rate Borrowings and between 2.0% and 2.5% for LIBOR Rate Borrowings, depending on the amount of average excess availability on the Revolving Credit Facility. The fee for undrawn amounts ranges from 0.325% to 0.375%. Interest is payable either (a) monthly for Base Rate Borrowings or (b) for LIBOR Rate Borrowings, on the earlier of (1) the last day of the interest period which can be one, two, three or six months as selected by the Company or (2) the last day of each three month interval. The Company will also be required to pay customary letter of credit fees, as necessary.

The Amended Revolving Credit Agreement contains customary conditions to borrowings, events of default and covenants, including covenants that restrict the Company’s ability to sell assets, make changes to the nature of its business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of subordinated debt. The Amended Revolving Credit Agreement also requires that if the Company’s excess availability is less than the greater of (a) $15.0 million and (b) 12.5% of the lesser of (1) the borrowing base then in effect and (2) the commitments under the Revolving Credit Facility then in effect, the Company will maintain a consolidated fixed charge coverage ratio of at least 1.15 to 1.00. As of December 31, 2017, the Company was in compliance with all covenants.

The Revolving Credit Facility matures and all outstanding amounts become due and payable on May 9, 2022. Under the Revolving Credit Facility, the Company had an outstanding debt, net balance of $27.0 million that bore interest at weighted average rate of 3.6% as of December 31, 2017. In January 2018, the Company repaid the outstanding principal and accrued interest in the aggregate amount of $27.1 million.

In connection with the Company’s prior debt facility, the Company was required to pay a fee of $0.8 million upon the occurrence of the IPO. This liquidation fee was paid upon the completion of the IPO and recorded as a component of interest expense in the consolidated statements of operations for the year ended December 31, 2016.

Note 9—Capitalization

In September 2016, and in preparation of the IPO and the establishment of two classes of common stock, each share of the then outstanding common stock was reclassified to Class B common stock. The Company sold Class A common stock in the IPO. The Class A and Class B have the same rights and preferences including rights to dividends, except the Class B is entitled to ten votes per share and the Class A is entitled to one vote per share. Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, except for certain transfers described in the Company’s restated certificate of incorporation, including, without limitation, certain transfers for tax and estate planning purposes. During the period from September 2016 through December 2016, 4.2 million shares of Class B common stock were converted to Class A common stock, and during the year ended December 31, 2017, 21.8 million shares of Class B common stock were converted to Class A common stock. In addition, upon the earlier of (1) the date on which the outstanding shares of Class B common stock represent less than 10% of the aggregate number of the then outstanding shares of Class A common stock and Class B common stock and (2) the affirmative vote or written consent of the holders of at least 66 2 ⁄ 3 % of the outstanding shares of Class B common stock, all outstanding shares of Class B common stock will convert automatically into Class A common stock, and no additional shares of Class B common stock will be issued. Prior to the reclassification of existing common stock to Class B common stock, the existing common stock was entitled to one vote per share.

As of December 31, 2017, the Company is authorized to issue 1,095,000,000 shares of common stock, par value $0.000001 per share, and 100,000,000 shares of preferred stock, par value, $0.000001 per share. The authorized common stock consists of 1,000,000,000 shares of Class A common stock and 95,000,000 shares of Class B common stock.

No shares of preferred stock are outstanding as of December 31, 2016 and 2017. The Company’s board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.

Initial Public Offering

On September 26, 2016, the Company completed its IPO whereby 4,666,667 shares of Class A common stock were issued and sold by the Company and 700,000 shares of Class A common stock were sold by selling stockholders, pursuant to the underwriters’ exercise of their over-allotment option, at the IPO price of $18.00 per share. The Company received net proceeds from the offering of approximately $78.1 million after deducting underwriting discounts and commissions of $5.9 million, but before deducting offering costs of $4.5 million. The Company did not receive any proceeds from the sales of shares by the selling stockholders. In connection with the Company’s IPO: (1) all shares of the Company’s outstanding Series Seed, A-1, A-2, A-3, B and C convertible preferred stock automatically converted into an aggregate 22,078,637 shares of Class B common stock on a one for one-third basis and (2) warrants exercisable for 1,382,505 shares of convertible preferred stock were automatically converted into warrants exercisable for 460,834 shares of Class B common stock and net exercised resulting in the issuance of 448,545 shares of Class B common stock based on the IPO price of $18.00 per share and taking into account the 1-for-3 reverse stock split.

In addition, upon completion of the IPO, costs associated with the IPO of $4.5 million were reclassified from other assets, non-current to additional paid-in capital.

Secondary Offerings

In March 2017, the Company completed a secondary offering (the “March 2017 Offering”) in which a total of 7,281,789 shares of Class A common stock were sold by certain selling stockholders to the public at a price of $35.50 per share, including 949,798 shares of Class A common stock sold to the underwriters pursuant to an option to purchase additional shares granted to them.

In June 2017, the Company completed another secondary offering (the “June 2017 Offering”) in which a total of 4,846,600 shares of Class A common stock were sold by certain selling stockholders to the public at a price of $52.00 per share, including 530,148 shares of Class A common stock sold to the underwriters pursuant to an option to purchase additional shares granted to them.

The Company did not receive any proceeds from either the March 2017 Offering or the June 2017 Offering. The Company incurred $0.9 million and $0.6 million in offering costs related to the March 2017 Offering and the June 2017 Offering, respectively, and these costs were included within general and administrative expenses in the condensed consolidated statements of operations during the first and second quarters of 2017, respectively.

Convertible Preferred Stock

In February 2016, the Company issued 11,500,587 shares of Series C convertible preferred stock for $60.0 million and used $54.0 million of the proceeds to repurchase 3,897,928 and 8,485,350 shares of Series Seed preferred stock (including shares issued upon exercise of warrant described below) and Series A preferred stock (comprising shares of Series A-1, A-2 and A-3), respectively, each at 80% of the Series C offering price per share of $5.22, and 188,786 shares of common stock at a price per share of $12.51. Warrants to purchase 808,135 shares of Seed preferred stock were net exercised, resulting in the issuance of 788,755 shares of Series Seed preferred stock of which 614,052 shares were then repurchased.

The repurchase price of the convertible preferred stock, including legal costs, of $51.8 million exceeded the carrying value of $4.6 million at the date of repurchase. The repurchase price in excess of the then carrying value of the preferred stock of $47.2 million was recorded as a reduction to additional paid-in capital of $1.2 million and a reduction to retained earnings of $46.0 million. For the computation of net loss per share attributable to common stockholders for the year ended December 31, 2016, the repurchase price in excess of the then carrying value of the preferred stock of $47.2 million was recorded as a reduction to net income in computing net loss attributable to common stockholders.

All shares of the Company’s outstanding Series Seed, A-1, A-2, A-3, B and C convertible preferred stock automatically converted into an aggregate 22,078,637 shares of Class B common stock on a one for one-third basis upon the completion of the Company’s IPO.

Modification of Series B Preferred Stock

In 2015, the Series B preferred stockholders agreed to modify the then liquidation rights and preference of the Series B preferred stock. The Company recorded the modification as an extinguishment as the fair value of the Series B preferred stock immediately before and immediately after the modification were substantially different (i.e., more than10%). The Company recorded the difference between the carrying value of the Series B preferred stock and the fair value after the modification, of $3.8 million, as a reduction to the carrying value of the Series B preferred stock and a reduction to accumulated deficit. The $3.8 million has been recorded as an adjustment to the net income attributable to common stockholders in accordance with ASC 260, Earnings per Share.

Rights and Preferences of Convertible Preferred Stock

Prior to the Company’s IPO, the Company’s convertible preferred stock had voting rights that allowed the holder to vote the number of common stock equal to which such shares of preferred stock could be converted; entitled the preferred stockholders to certain dividend right; entitled the holders to preference in payment upon a liquidation event, including upon a change in control, prior to the common stock holders equal to the greater of the original purchase price plus any dividends or such amount per share as would have been payable had all shares of the preferred stock been converted into common stock; and were convertible at the option of the holder at any time or automatically upon a qualified IPO.

Note 10—Stock-Based Compensation

Total stock-based compensation expense, by operating expense category, recorded in the consolidated statements of operations was as follows (in thousands):

		Year Ended December 31,
		2015				2016				2017
Platform operations		$	71			$	756			$	2,674
Sales and marketing			127				1,707				6,261
Technology and development			85				1,513				6,661
General and administrative			91				1,080				5,721
Total		$	374			$	5,056			$	21,317

Stock-Based Award Plans

The Company is authorized to issue stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based and cash-based awards under its 2016 Incentive Award Plan. As of December 31, 2017, 3.5 million shares remained available for grant under the Company’s 2016 Incentive Award Plan. The number of shares authorized for grant is subject to increase each year on January 1, equal to the lesser of (a) 4% of the common stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by the board of directors.

Stock options granted under the Company’s stock incentive plans generally vest over four years, subject to the holder’s continued service through the vesting date, and expire no later than 10 years from the date of grant. Restricted stock awards and units, which are referred to collectively as restricted stock, generally vest over four years, subject to the holder’s continued service through the vesting date.

Stock Option Information

The following summarizes stock option activity:

		Shares Under Option (in thousands)				Weighted- Average Exercise Price				Weighted-Average Contractual Life (years)				Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2016 (1)			5,429			$	4.94
Granted			1,473				44.20
Exercised			(1,932	)			1.33
Cancelled			(225	)			18.49
Outstanding as of December 31, 2017 (2)			4,745			$	17.96				7.4			$	136,085
Exercisable as of December 31, 2017			2,242			$	4.81				5.9			$	91,829

(1)	Includes options to purchase 389 and 5,040 shares of Class A and Class B common stock, respectively.

(2)	Includes options to purchase 1,780 and 2,965 shares of Class A and Class B common stock, respectively.

The fair value of options on the date of grant is estimated based on the Black-Scholes option pricing model. The weighted average assumptions used to value options granted to employees for the periods presented were as follows:

		Year Ended December 31,
		2015				2016				2017
Expected term (years)			6.0				6.0				6.0
Expected volatility			64.5	%			58.1	%			52.6	%
Risk-free interest rate			1.62	%			1.62	%			2.03	%
Estimated dividend yield			—	%			—	%			—	%

The weighted average grant date fair value per share of stock options granted for the years ended December 31, 2015, 2016 and 2017 and were $1.12, $11.61 and $22.48, respectively. The total intrinsic value of options exercised during the years ended December 31, 2015, 2016 and 2017 were $1.9 million, $13.7 million and $84.8 million, respectively.

Stock-based compensation expense related to stock options was $0.4 million, $1.7 million and $7.9 million for the years ended December 31, 2015, 2016 and 2017, respectively. At December 31, 2017, the Company had unrecognized employee stock-based compensation relating to stock options of approximately $36.7 million, which is expected to be recognized over a weighted-average period of 2.8 years.

On January 1, 2018, the number of shares authorized for grant under the Company’s 2016 Incentive Award Plan was increased by 1.7 million shares in accordance with plan provisions.

Restricted Stock and Restricted Stock Units

The following summarizes restricted stock activity:

		Shares (in thousands)				Weighted- Average Grant Date Fair Value Per Share
Unvested as of December 31, 2016			193			$	29.65
Granted			307				43.76
Vested			(54	)			30.06
Forfeited			(28	)			29.97
Unvested as of December 31, 2017			418			$	39.95

Stock-based compensation expense related to restricted stock was $0.1 million and $2.7 million for the years ended December 31, 2016 and 2017, respectively. At December 31, 2017, the Company had unrecognized employee stock-based compensation relating to restricted stock of approximately $15.6 million, which is expected to be recognized over a weighted-average period of 3.4 years.

Employee Stock Purchase Plan

In September 2016, the Company established an ESPP with 800,000 shares of Class A common stock available for issuance. As of December 31, 2017, 0.5 million shares remained available for grant under this plan. The number of shares authorized for grant is subject to increase each year on January 1, equal to the lesser of (a) 800,000 shares, (b) 1% of the common stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year, and (c) such smaller number of shares as determined by the Company’s board of directors.

Under the ESPP, all eligible employees were auto-enrolled upon the IPO and each eligible employee was then permitted to authorize payroll deductions of up to 100% of their compensation to purchase shares of Class A common stock, subject to applicable ESPP and statutory limits. The ESPP provides for offering periods generally up to two years, with purchases occurring and new offering periods commencing generally every six months. The first ESPP purchase (pursuant to a truncated purchase period starting on the Company’s IPO) occurred on December 29, 2016, and subsequent purchases will generally occur on May 15th and November 15th each year. At each purchase date, employees are able to purchase shares at 85% of the lower of (1) the closing market price per share of Class A common stock on the employee’s enrollment into the applicable offering period and (2) the closing market price per share of Class A common stock on the purchase date. The ESPP has an automatic reset feature, whereby the offering period resets if the fair value of the Company’s common stock on a purchase date is less than that on the original offering date.

The fair value of ESPP shares was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

		Year ended December 31,
		2016				2017
Expected term (years)			0.8				0.9
Expected volatility			48.9	%			45.9	%
Risk-free interest rate			0.69	%			1.22	%
Estimated dividend yield			—	%			—	%

The first offering period allowed for cash contributions in addition to payroll deductions, and as a result, stock-based compensation expense for this offering period was marked-to-market. On December 14, 2016, the cash contribution feature was removed and the final mark-to-market adjustment was recorded as of this date. The ESPP has a six month holding period (12 months for the first offering period) with respect to common stock purchases. Due to the holding period, the Company applies a discount to reflect the non-transferability of the shares. Stock-based compensation expense related to ESPP totaled $3.3 million and $10.7 million for the years ended December 31, 2016 and 2017, respectively, and stock-based compensation related to the first offering period was $3.3 million and $10.1 million for the years ended December 31, 2016 and 2017, respectively. The first offering period is scheduled to expire immediately following the November 15, 2018 purchase date. At December 31, 2017, the Company had unrecognized employee stock-based compensation relating to ESPP awards of approximately $6.6 million, which is expected to be recognized over a weighted-average period of 0.7 years.

On January 1, 2018, the number of shares available for issuance under the Company’s Employee Stock Purchase Plan was increased by 0.4 million shares in accordance with plan provisions.

Note 11—Income Taxes

The following are the domestic and foreign components of the Company’s income (loss) before income taxes (in thousands):

		Year Ended December 31,
		2015				2016				2017
Domestic		$	29,224			$	45,904			$	66,148
International			631				(2,070	)			(2,523	)
Income before income taxes		$	29,855			$	43,834			$	63,625

The following are the components of the provision for (benefit from) income taxes (in thousands):

		Year Ended December 31,
		2015				2016				2017
Current:
Federal		$	11,123			$	18,300			$	9,944
State and local			2,325				5,595				3,906
Foreign			140				64				558
Total current provision			13,588				23,959				14,408
Deferred:
Federal			197				(68	)			(172	)
State and local			141				(539	)			(1,382	)
Foreign			—				—				(27	)
Total deferred (benefit) provision			338				(607	)			(1,581	)
Total provision for income taxes		$	13,926			$	23,352			$	12,827

A reconciliation of the statutory tax rate to the effective tax rate for the periods presented is as follows:

		Year Ended December 31,
		2015				2016				2017
U.S. federal statutory income tax rate			35.0	%			35.0	%			35.0	%
State and local income taxes, net of federal benefit			5.4				7.5				2.6
Foreign income at other than U.S. rates			(0.3	)			1.1				2.7
Stock-based compensation			0.4				3.8				(19.0	)
Meals and entertainment			0.2				0.3				0.4
Change in value of preferred stock warrant liabilities			7.0				7.6				—
Research and development credit			(1.0	)			(3.1	)			(2.8	)
Federal deferred tax asset revaluation			—				—				0.9
Other permanent items			(0.1	)			0.4				0.9
Change in valuation allowance			—				0.7				(0.5	)
Effective income tax rate			46.6	%			53.3	%			20.2	%

Set forth below are the tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities (in thousands):

		As of December 31,
		2016				2017
Deferred tax assets (liabilities):
Reserves and allowances		$	1,774			$	1,804
Accrued expenses			2,651				1,810
Net operating losses			326				—
Research and development tax credit			280				774
Stock-based compensation			126				1,722
Other			760				971
Prepaid expenses			(484	)			(580	)
Property and equipment			(2,254	)			(2,026	)
Capitalized software development costs			(1,075	)			(1,116	)
Valuation allowance			(326	)			—
Total deferred tax assets, net		$	1,778			$	3,359

As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. During 2016, management recorded a valuation allowance of $0.3 million against its U.K. net deferred tax assets, based on the previous history of cumulative losses and the conclusion that future taxable profit may not be available for the utilization of the deferred tax assets for U.K. income tax purposes. During 2017, management released the valuation allowance due to, among other reasons, three years of cumulative pre-tax income. Management determined that sufficient positive evidence existed to conclude that it is more likely than not there will be full utilization of the deferred tax assets in the U.K.; therefore, the entire valuation allowance of $0.3 million was released during 2017.

As of December 31, 2017, the Company had state research and development tax credits of approximately $1.3 million, which carry forward indefinitely.

As of December 31, 2017, unremitted earnings of the subsidiaries outside of the U.S. were approximately $4.8 million, on which no state taxes have been paid. The Company’s intention is to indefinitely reinvest these earnings outside the U.S. Upon distribution of those earnings in the form of a dividend or otherwise, the Company would be subject to both state income taxes and withholding taxes payable to various foreign countries. The amounts of such tax liabilities that might be payable upon repatriation of foreign earnings are not material.

As of December 31, 2016 and 2017, the Company had gross unrecognized tax benefits of approximately $1.0 million and $3.1 million, respectively, which would affect the Company’s effective tax rate if recognized. The Company classifies liabilities for unrecognized tax benefits in other liabilities, non-current.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows (in thousands):

Balance at December 31, 2015		$	—
Increases related to current year tax positions			605
Increases related to prior year tax positions			402
Balance at December 31, 2016			1,007
Increases related to current year tax positions			1,971
Increases related to prior year tax positions			123
Balance at December 31, 2017		$	3,101

Interest and penalties related to the Company’s unrecognized tax benefits accrued as of December 31, 2017 were not material.

The Company is currently under examination by the Internal Revenue Service for the years ended December 31, 2014 and 2015. The examination is in the preliminary stage and therefore, the Company does not expect significant changes to the unrecognized tax benefits during the next twelve months.

The Company is subject to examination by taxing authorities in the U.S. federal, state and various foreign jurisdictions. For federal and state income taxes, the Company remains subject to examination for 2010 and subsequent years. The majority of the Company’s foreign subsidiaries remain subject to examination by the local taxing authorities for 2013 and subsequent periods.

Note 12—Segment and Geographic Information

The Company has determined that it operates as one operating segment. The Company’s chief operating decision maker reviews financial information on a consolidated basis, together with certain operating and performance measures principally to make decisions about how to allocate resources and measure performance.

Gross Billings, based on the billing address of the clients or client affiliates, were as follows (in thousands):

		Year Ended December 31,
		2015				2016				2017
US		$	477,585			$	868,877			$	1,270,116
International			52,390				121,684				221,626
Total		$	529,975			$	990,561			$	1,491,742

The Company’s property and equipment, net located outside the U.S. was $2.5 million and $3.6 million as of December 31, 2016 and 2017, respectively.

Note 13—Commitments and Contingencies

The Company has various non-cancelable operating leases primarily for its corporate and international offices. As of December 31, 2017, the Company’s non-cancelable minimum lease commitments were as follows (in thousands):

Year		Amount
2018		$	7,570
2019			7,724
2020			7,387
2021			6,309
2022			2,552
Thereafter			211
		$	31,753

Rent expense for non-cancelable operating leases was $2.2 million, $4.8 million and $8.2 million for the years ended December 31, 2015, 2016 and 2017, respectively.

As of December 31, 2017, the Company has non-cancelable commitments to its hosting services providers, marketing contracts and commitments to providers of software as a service. As of December 31, 2017, the Company’s purchase obligations were as follows (in thousands):

Year		Amount
2018		$	27,914
2019			8,871
2020			214
		$	36,999

Guarantees and Indemnification

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to clients, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus there are no claims that the Company is aware of that could have a material effect on the Company’s balance sheet, statement of operations or statement of cash flows. Accordingly, no amounts for any obligation have been recorded as of December 31, 2016 and 2017.

Litigation

From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, management does not believe that any of these proceedings or other claims will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

Employment Contracts

The Company has entered into agreements with severance terms with certain employees and officers, all of whom are employed on an at-will basis, subject to certain severance obligations in the event of certain involuntary terminations. The Company may be required to accelerate the vesting of certain stock options in the event of changes in control, as defined and involuntary terminations.

Note 14—Related Party Transactions

From January to May 2015, the Company processed $0.2 million of spend through its platform with Falk Technologies GmbH. Thomas Falk, one of the Company’s directors, was previously the chief executive officer of Falk Technologies GmbH during such period.