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

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of macroeconomic uncertainty on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, capital expenditures including share repurchases, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.

We discuss many of these risks in Part II of this Quarterly Report on Form 10-Q in greater detail under the heading “Risk Factors” and in other filings we make from time to time with the Securities and Exchange Commission (the “SEC”). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.

Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2023, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

References to “Notes” are notes included in our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Overview

We offer a self-service, cloud-based ad-buying platform that empowers our clients to plan, manage, optimize and measure more expressive data-driven digital advertising campaigns. Our platform allows clients to execute integrated campaigns across ad formats and channels, including video (which includes connected television (“CTV”)), display, audio, digital-out-of-home, native and social, on a multitude of devices, such as computers, mobile devices, televisions and streaming devices. Our platform’s integrations with major inventory, publisher and data partners provide ad buyers reach and decisioning capabilities, and our enterprise application programming interfaces (“APIs”) enable our clients to customize and expand platform functionality.

Our clients are advertising agencies, advertisers and other service providers for agencies or advertisers, with whom we enter into ongoing master service agreements (“MSAs”). We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising. We also generate revenue from providing data and other value-added services and platform features.

Executive Summary

Highlights

			Three Months Ended March 31,
			Dollars												Change
			2024						2023						$						%
			(in thousands, except percentages)
Revenue			$	491,253					$	382,803					$	108,450					28		%
Net income			$	31,660					$	9,326					$	22,334					239		%

Trends, Opportunities and Challenges

The growing digitization of media and fragmentation of audiences has increased the complexity of advertising and thereby increased the need for automation in ad buying, which we provide on our platform. In order to grow, we will need to continue to develop our platform’s programmatic capabilities and expand our advertising inventory and data offerings. We believe that key opportunities include our ongoing global expansion, continuing development of our omnichannel ad inventory (including in channels such as video, including CTV, mobile, audio and others), adoption and utilization of retail media and continuing development and adoption of the data usage, measurement and targeting capabilities provided by our platform.

We believe that growth of the programmatic advertising market is important for our ability to grow our business. Adoption of programmatic advertising by advertisers allows us to acquire new clients and grow revenue from existing clients. Although our clients include some of the largest advertising agencies in the world, we believe there is significant room for us to further expand our relationships with existing clients and gain a larger amount of their advertising spend. We also believe that the industry trends noted above will lead to advertisers adopting programmatic advertising through platforms such as ours.

Similarly, the adoption of programmatic advertising by inventory owners and content providers allows us to expand the volume and type of advertising inventory we present to our clients. For example, we have expanded our CTV, mobile, native and audio advertising offerings through our integrations with supply-side partners.

We invest for long-term growth. We anticipate that our operating expenses will continue to increase in the foreseeable future as we invest in platform operations and technology and development to enhance our product features, including programmatic buying of CTV ad inventory, and in sales and marketing to acquire new clients and reinforce our relationships with existing clients. In addition, we expect to continue making investments in our infrastructure, including our information technology, financial and administrative systems and controls, to support our growing operations.

We believe the markets outside of the United States (“U.S.”), and in particular across Europe and Asia in markets such as the United Kingdom (“U.K.”), Germany, France, China, Japan, India and Australia, offer opportunities for growth. However, such markets may also pose challenges related to compliance with local laws and regulations, restrictions on foreign ownership or investment, uncertainty related to trade relations and a variety of additional risks. We intend to make additional investments in sales and marketing and product development to expand in international markets where we are making significant investments in our platform and growing our team.

We believe that these investments will contribute to our long-term growth, although they may negatively impact profitability in the near term.

Our business model has allowed us to grow significantly, and we believe that our operating leverage enables us to support future long-term growth profitably.

Macroeconomic Uncertainty

Rising interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. As a result of the current uncertainty in economic activity, we are unable to predict the size and duration of the impact on our revenue and our results of operations. The extent of the impact of these macroeconomic factors on our operational and financial performance will depend on a variety of factors, and the duration and extent of geopolitical and global economic disruption and their respective impacts on our clients, partners, industry and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Item 1A. Risk Factors” in Part II. Other Information for further discussion of the adverse impacts of macroeconomic uncertainty on our business.

Results of Operations for the Three Months Ended March 31, 2024 Compared with the Three Months Ended March 31, 2023

The following tables set forth our condensed consolidated results of operations for the periods presented.

			Three Months Ended March 31,
			2024												2023
			(in thousands)						(% of Revenue)						(in thousands)						(% of Revenue)
Revenue			$	491,253					100		%				$	382,803					100		%
Operating expenses:
Platform operations			103,630						21		%				84,867						22		%
Sales and marketing			121,725						25		%				97,222						25		%
Technology and development			107,686						22		%				93,710						24		%
General and administrative			129,555						26		%				130,312						34		%
Total operating expenses			462,596						94		%				406,111						106		%
Income (loss) from operations			28,657						6		%				(23,308)						(6)		%
Total other income, net			(17,376)						(4)		%				(13,700)						(4)		%
Income (loss) before income taxes			46,033						9		%				(9,608)						(3)		%
Provision for (benefit from) income taxes			14,373						3		%				(18,934)						(5)		%
Net income			$	31,660					6		%				$	9,326					2		%

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Note: Percentages may not sum due to rounding.

Revenue

Revenue increased by $108 million, or 28%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was primarily due to higher gross spend in the current year on our platform, which was primarily driven by more advertisers and more campaigns executed by existing clients.

Platform Operations

Platform operations expense increased by $19 million, or 22%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was primarily due to increases of $14 million in hosting costs and $4 million in personnel costs, which included a $2 million increase in stock-based compensation. The increase in hosting costs was primarily attributable to support costs related to the increased use of our platform by our clients, increased use of features by our technical teams in support of our platform and investment in new data centers to support our platform. The increase in personnel costs was primarily due to the increase in stock-based compensation driven by new equity grants, headcount growth and an increase in travel and employee engagement costs, including in-person events.

We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of media impressions through our platform and hire additional personnel to support our growth.

Sales and Marketing

Sales and marketing expense increased by $25 million, or 25%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was primarily due to an increase of $20 million in personnel costs, which included a $6 million increase in stock-based compensation, a $3 million increase in marketing costs and a $2 million increase in allocated facilities costs. The increase in personnel costs was primarily due to headcount growth to support our sales efforts and to continue to develop and maintain relationships with our clients; an increase in incentive compensation driven by headcount growth and gross spend growth; and an increase in travel and employee engagement costs, including in-person events. The increase in stock-based compensation was primarily due to new equity grants. The increase in marketing costs was primarily due to an increase in marketing campaigns, creatives, events, sponsorships and client engagement. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.

We expect sales and marketing expenses to increase in absolute dollars in future periods, as we focus on increasing the adoption of our platform with existing and new clients and expanding our international business.

Technology and Development

Technology and development expense increased by $14 million, or 15%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was primarily due to an increase of $13 million in personnel costs, which included a $7 million increase in stock-based compensation. The increase in personnel costs was primarily attributable to the increase in stock-based compensation driven by new equity grants, headcount growth to maintain and support further development of our platform and an increase in travel and employee engagement costs, including in-person events.

We expect technology and development expense to increase in absolute dollars as we continue to invest in the development of our platform to support additional features and functions, increase the number of advertising and data inventory suppliers and support the anticipated increase in volume of advertising spending by our clients on our platform. We also intend to invest in technology to further automate our business processes.

General and Administrative

General and administrative expense decreased by $1 million, or 1%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to an $18 million decrease in stock-based compensation, partially offset by increases of $9 million in personnel costs and $8 million in administrative costs. The decrease in stock-based compensation was primarily driven by a $24 million decrease in expense related to the CEO Performance Option driven by the graded-vesting attribution method, under which more expense is recognized earlier in the option’s life, partially offset by a $6 million increase in expense related to new equity grants. The increase in personnel costs was primarily attributable to increased headcount to support our growth and an increase in travel and employee engagement costs, including in-person events. The increase in administrative costs was primarily driven by increases in local business taxes and external professional fees.

Excluding the impact of the CEO Performance Option, we expect general and administrative expenses to increase primarily due to continued investment in corporate infrastructure to support growth.

Total Other Income, Net

Total other income, net increased by $4 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was primarily due to higher interest income on our cash and cash equivalents and short-term investments driven by rising interest rates as well as gains on foreign currency forwards, partially offset by foreign currency transaction losses, driven by changes in foreign currency exchange rates against the U.S. Dollar.

Provision for (Benefit from) Income Taxes

The U.S. federal statutory tax rate was 21% for the three months ended March 31, 2024 and 2023, respectively.

The provision for income taxes increased by $33 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was primarily due to higher pre-tax profitability coupled with a decrease in benefits associated with employee stock-based awards.

Liquidity and Capital Resources

As of March 31, 2024, we had working capital of $1,813 million, which included $918 million in cash and cash equivalents, $94 million of which was held by our international subsidiaries, and $501 million in short-term investments in marketable securities. Additionally, we had $443 million available under our Amended Credit Facility (refer to the “Credit Facility” section below). For the three months ended March 31, 2024, we generated $185 million in cash flows from operating activities.

We believe our existing cash and cash equivalents, cash flow from operations, and our undrawn available balance under our Amended Credit Facility will be sufficient to meet our working capital requirements for at least the next 12 months. We believe our existing cash and cash equivalents, short-term investments and cash flow from operations will be sufficient to fund our share repurchase program. Further, we have a shelf registration statement on Form S-3 on file with the SEC (the “Shelf Registration”), which permits us to issue equity securities and equity-linked securities from time to time, subject to certain limitations. The Shelf Registration is intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in *“*Item 1A. Risk Factors” within this Quarterly Report on Form 10-Q.

In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt-financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by incurring additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.

There can be no assurance that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. We are closely monitoring the effect that current macroeconomic factors may have on our working capital requirements.

Credit Facility

On June 15, 2021, we and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). The Credit Facility consists of a $450 million revolving loan facility, with a $20 million sublimit for swingline borrowings and a $15 million sublimit for the issuance of letters of credit. Under certain circumstances, we have the right to increase the Credit Facility by an amount not to exceed $300 million.

On December 17, 2021, we amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars. On February 9, 2023, we further amended the Credit Facility (as amended, the “Amended Credit Facility”) to transition from a variable interest rate based on the London Interbank Offered Rate to a variable interest rate based on the secured overnight financing rate (“SOFR”).

As of March 31, 2024, we did not have an outstanding debt balance under the Amended Credit Facility. Availability under the Amended Credit Facility was $443 million as of March 31, 2024, which is net of outstanding letters of credit of $7 million. The Amended Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026. As of March 31, 2024, we were in compliance with all covenants.

For additional information regarding the Amended Credit Facility, refer to Note 6—Debt.

Share Repurchase Program

In February 2023, our board of directors approved a share repurchase program with authorization to purchase up to $700 million of our Class A common stock. As of December 31, 2023, $53 million remained available and authorized for repurchases. In February 2024, an additional $647 million was authorized under this program, bringing the total amount available for future repurchases back to $700 million. The share repurchase program, which has no expiration date, is designed to help offset the impact of future share dilution from employee stock issuances. Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases determined at our discretion, depending on market conditions and corporate needs. Open market repurchases are structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. This program does not obligate us to acquire any particular amount of Class A common stock, and may be modified, suspended or terminated at any time at the discretion of our board of directors.

During the three months ended March 31, 2024, we repurchased and subsequently retired 1.5 million shares of our Class A common stock for an aggregate repurchase amount of $125 million. The repurchase amount for the three months ended March 31, 2024 included an immaterial amount related to the 1% excise tax on net share repurchases as a result of the Inflation Reduction Act of 2022 (“IRA”). As of March 31, 2024, $575 million remained available and authorized for repurchases.

Cash Flows

The following table summarizes our cash flows for the periods presented:

			Three Months Ended March 31,
			2024						2023
			(in thousands)
Net cash provided by operating activities			$	185,472					$	187,573
Net cash used in investing activities			$	(21,119)					$	(28,613)
Net cash used in financing activities			$	(141,282)					$	(296,764)

Operating Activities

Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our clients and related payments to our suppliers for advertising inventory and data. We typically pay suppliers in advance of collections from our clients. Our collection and payment cycles can vary from period to period. In addition, we expect seasonality to impact cash flows from operating activities on a sequential quarterly basis during the year.

For the three months ended March 31, 2024, cash provided by operating activities of $185 million resulted primarily from net income adjusted for noncash items of $178 million and a net increase in our operating assets and liabilities of $8 million. The net increase in our operating assets and liabilities was primarily due to a $238 million decrease in accounts receivable, partially offset by a $220 million decrease in accounts payable and a $14 million decrease in operating lease liabilities. The decrease in accounts receivable was due to the timing and seasonality of cash receipts from clients. The decrease in accounts payable was due to the timing and seasonality of payments to suppliers for the cost of advertising inventory, data and add-on features. The decrease in operating lease liabilities was due primarily to rent payments.

For the three months ended March 31, 2023, cash provided by operating activities of $188 million resulted primarily from net income adjusted for noncash items of $153 million, and a net increase in our operating assets and liabilities of $35 million. The net increase in our operating assets and liabilities was primarily due to a $258 million decrease in accounts receivable, partially offset by a $201 million decrease in accounts payable and a $13 million decrease in operating lease liabilities. The decrease in accounts receivable was due to seasonality and the timing of cash receipts from clients. The decrease in accounts payable was due to seasonality and the timing of payments to suppliers for the cost of advertising inventory, data and add-on features. The decrease in operating lease liabilities was due primarily to rent payments.

Investing Activities

Our primary investing activities consist of investing in short-term marketable securities, purchases of property and equipment for the expansion of our new facilities in support of our expanding headcount as a result of our growth and capital expenditures to develop our software in support of enhancing our technology platform. As our business grows, our capital expenditures and our investment activity may increase.

For the three months ended March 31, 2024, we used $21 million of cash in investing activities, consisting of $12 million of net purchases of short-term investments, $7 million to purchase property and equipment and $2 million of investments in capitalized software.

For the three months ended March 31, 2023, we used $29 million of cash in investing activities, consisting of $18 million of net purchases of short-term investments, $9 million to purchase property and equipment and nearly $2 million of investments in capitalized software.

Financing Activities

For the three months ended March 31, 2024, we used $141 million of cash in financing activities, consisting of $125 million of cash paid for repurchases of our Class A common stock and $27 million of taxes paid for restricted stock award settlements, partially offset by $11 million of proceeds from stock option exercises.

For the three months ended March 31, 2023, we used $297 million of cash in financing activities, consisting of $292 million of cash paid for repurchases of Class A common stock and $16 million of taxes paid for restricted stock award settlements, partially offset by $10 million of proceeds from stock option exercises.

Off-Balance Sheet Arrangements

We do not have any relationships with other entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We did not have any other off-balance sheet arrangements at March 31, 2024 other than the indemnification agreements described below.

Contractual Obligations

Our principal commitments consist of non-cancelable operating leases for our various office facilities and other contractual commitments consisting of obligations to our hosting services and hardware providers and providers of software as a service. In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis.

The following table summarizes our non-cancelable contractual obligations as of March 31, 2024 (in thousands):

			Payments Due by Period
			Remainder of 2024									2025 and Thereafter						Total
Operating lease commitments			$	49,259								$	271,499					$	320,758
Other contractual commitments			142,726									267,035						409,761
Total			$	191,985								$	538,534					$	730,519

In May 2024, we entered into an agreement related to the expansion of an existing office facility located in the United States, which is expected to commence in 2026 and expire in 2037. The total commitment under the lease is estimated to be approximately $214 million.

In the ordinary course of business, we enter into agreements in which we may agree to indemnify clients, suppliers, vendors, lessors, business partners, lenders, stockholders and other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages to property or persons, business losses or other liabilities. Generally, these indemnity and defense obligations relate to our own business operations, obligations and acts or omissions. However, under some circumstances, we agree to indemnify and defend contract counterparties against losses resulting from their own business operations, obligations and acts or omissions, or the

business operations, obligations and acts or omissions of third parties. These indemnity provisions generally survive termination or expiration of the agreements in which they appear. In addition, we have entered into indemnification agreements with our directors, executive officers and other officers that will require us to indemnify them against liabilities that may arise by reason of their status or service as directors, officers or employees. In the ordinary course of business, demands have been made upon us to provide indemnification under such agreements, but we are not aware of any claims that could have a material effect on our balance sheet, statement of operations or statement of cash flows. Accordingly, no amounts for any obligation have been recorded at March 31, 2024.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the assumptions and estimates associated with the evaluation of revenue recognition criteria, including the determination of revenue recognition as net versus gross in our revenue arrangements, stock-based compensation expense and income taxes have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

Recently Issued Accounting Pronouncements

Refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies of our condensed consolidated financial statements.