Rubicon Project Annual Report 2016

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549__________________FORM 10-K__________________ (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _____________ to _____________ Commission File Number: 001-36384__________________THE RUBICON PROJECT, INC.(Exact name of registrant as specified in its charter) __________________Delaware 20-8881738(State or other jurisdiction of incorporation ororganization) (I.R.S. Employer Identification No.) 12181 Bluff Creek Drive, 4th FloorLos Angeles, CA 90094(Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (310) 207-0272 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $0.00001 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None __________________Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and willnot be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See thedefinitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x NoAs of June 30, 2016, the aggregate market value of shares held by non-affiliates of the registrant (based on the closing sales price of such shares on the NewYork Stock Exchange on June 30, 2016) was approximately $420.7 million. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.Class Outstanding as of March 6, 2017Common Stock, $0.00001 par value 49,444,228DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's Proxy Statement for the 2017 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this AnnualReport on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of theregistrant's fiscal year ended December 31, 2016.Table of ContentsTHE RUBICON PROJECT, INC.FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2016TABLE OF CONTENTS PageNo.Special Note About Forward-Looking Statements3 Part I Item 1.Business4Item 1A.Risk Factors15Item 1B.Unresolved Staff Comments46Item 2.Properties46Item 3.Legal Proceedings46Item 4.Mine Safety Disclosures46 Part II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities46Item 6.Selected Financial Data48Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations50Item 7A.Quantitative and Qualitative Disclosures About Market Risk74Item 8.Financial Statements and Supplementary Data75Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure116Item 9A.Controls and Procedures116Item 9B.Other Information117 Part III Item 10.Directors, Executive Officers and Corporate Governance118Item 11.Executive Compensation118Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters118Item 13.Certain Relationships and Related Transactions, and Director Independence118Item 14.Principal Accounting Fees and Services118 Part IV Item 15.Exhibits, Financial Statement Schedules118Signatures 1192Table of ContentsSPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K and related statements by the Company contain forward-looking statements, including statements based upon orrelating to our expectations, assumptions, estimates, and projections. In some cases, you can identify forward-looking statements by terms such as "may,""might," "will," "objective," "intend," "should," "could," "can," "would," "expect," "believe," "design," "anticipate," "estimate," "predict," "potential," "plan" orthe negative of these terms, and similar expressions. Forward-looking statements may include, but are not limited to, statements concerning our anticipatedfinancial performance, including, without limitation, revenue, advertising spend, non-GAAP net revenue, profitability, net income (loss), Adjusted EBITDA,earnings per share, and cash flow; strategic objectives, including focus on header bidding, mobile, video, and Orders opportunities, and implementation ofsolutions to improve the advertising experience of consumers; investments in our business; development of our technology; introduction of new offerings;scope and duration of client relationships; the fees we may charge in the future; business mix and expansion of our mobile, video, and Orders offerings;sales growth; client utilization of our offerings; our competitive differentiation; our leadership position in the industry; market conditions, trends, andopportunities; user reach; certain statements regarding future operational performance measures including take rate, paid impressions, and average CPM;and factors that could affect these and other aspects of our business. These statements are not guarantees of future performance; they reflect our currentviews with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties and other factorsthat may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements. These risks include, but are not limited to:•our ability to grow and to manage our growth effectively;•our ability to develop innovative new technologies and remain a market leader;•our ability to attract and retain buyers and sellers and increase our business with them;•our vulnerability to loss of, or reduction in spending by, buyers;•our ability to maintain a supply of advertising inventory from sellers;•the effect on the advertising market and our business from difficult economic conditions;•the freedom of buyers and sellers to direct their spending and inventory to competing sources of inventory and demand;•our ability to use our solution to purchase and sell higher value advertising and to expand the use of our solution by buyers and sellers utilizingevolving digital media platforms;•our ability to introduce new offerings and bring them to market in a timely manner in response to client demands and industry trends, includingshifts in digital advertising growth from display to mobile channels;•our ability to implement solutions to improve the advertising experience of consumers;•the increased prevalence of header bidding and its effect on our competitive position;•our header bidding solution not resulting in revenue growth and causing infrastructure strain and added cost;•uncertainty of our estimates and expectations associated with new offerings, including header bidding, private marketplace, mobile, Orders, video,and guaranteed audience solutions;•uncertainty of our estimates and assumptions about the mix of gross and net reported transactions;•declining fees and take rate, including as a result of implementation of alternative pricing models, and the need to grow through advertising spendincreases rather than fee increases;•our limited operating history and history of losses;•our ability to continue to expand into new geographic markets;•our ability to adapt effectively to shifts in digital advertising to mobile and video channels;•increased prevalence of ad blocking technologies;•the slowing growth rate of online digital display advertising;•the growing percentage of online and mobile advertising spending captured by owned and operated sites (such as Facebook and Google);•the effects of increased competition in our market and increasing concentration of advertising spending, including mobile spending, in a smallnumber of very large competitors;•acts of competitors and other third parties that can adversely affect our business;•our ability to differentiate our offerings, compete effectively and to maintain our pricing and take rate in a market trending increasingly towardcommodification, transparency, and disintermediation;Table of Contents•requests from buyers and sellers for discounts, fee concessions or revisions, rebates, refunds and greater levels of pricing transparency andspecificity;•potential adverse effects of malicious activity such as fraudulent inventory and malware;•the effects of seasonal trends on our results of operations;•costs associated with defending intellectual property infringement and other claims;•our ability to attract and retain qualified employees and key personnel;•our ability to identify future acquisitions of or investments in complementary companies or technologies and our ability to consummate theacquisitions and integrate such companies or technologies;•our ability to comply with, and the effect on our business of, evolving legal standards and regulations, particularly concerning data protectionand consumer privacy and evolving labor standards; andWe discuss many of these risks and additional factors that could cause actual results to differ materially from those anticipated by our forward-looking statements under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," andelsewhere in this report and in other filings we have made and will make from time to time with the Securities and Exchange Commission, or SEC. Theseforward-looking statements represent our estimates and assumptions only as of the date of this report. Unless required by federal securities laws, we assumeno obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, toreflect circumstances or events that occur after the statements are made. Without limiting the foregoing, any guidance we may provide will generally begiven only in connection with quarterly and annual earnings announcements, without interim updates, and we may appear at industry conferences or makeother public statements without disclosing material nonpublic information in our possession. Given these uncertainties, investors should not place unduereliance on these forward-looking statements.Investors should read this Annual Report on Form 10-K and the documents that we reference in this report and have filed or will file with the SECcompletely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-lookingstatements by these cautionary statements.PART IItem 1. Business OverviewWe provide a technology solution to automate the purchase and sale of advertising for buyers and sellers. We believe our highly scalable platformreaches approximately one billion Internet users globally on some of the world’s leading websites and mobile applications. We help increase the volume andeffectiveness of advertising, improving revenue for sellers and return on advertising investment for buyers. Advertising takes different forms, referred to as advertising units, and is purchased and sold through different transactional methodologies, referredto as inventory types. Finally, it is presented to users through different channels. Our solution enables buyers and sellers to purchase and sell:•a comprehensive range of advertising units, including display and video;•utilizing various inventory types, including (i) direct sale of premium inventory, which we refer to as Orders, on a guaranteed, or fullyreserved basis, as well as on a non-guaranteed basis; and (ii) real-time bidding, or RTB;•across digital channels, including mobile web, mobile application, and desktop, as well as across various out of home channels, such asdigital billboards, that are in the early stages of leveraging our advertising automation platform.Our platform features applications and services for digital advertising sellers, including websites, mobile applications and other digital mediaproperties, to sell their advertising inventory; applications and services for buyers, including advertisers, agencies, agency trading desks, demand sideplatforms, or DSPs, and ad networks, to buy advertising inventory; and a marketplace over which such transactions are executed. Together, these featurespower and enhance a comprehensive, transparent, independent advertising marketplace that brings buyers and sellers together and facilitates intelligentdecision-making and automated transaction execution for the advertising inventory we manage on our platform.Sellers of digital advertising use our platform to improve revenue by accessing a global market of buyers representing top advertiser brands tomonetize their advertising inventory across transaction types, advertising units, and channels. We also help sellers decrease costs and protect their brands anduser experience.At the same time, buyers leverage our platform to manage their advertising spending and reach their target audience across transaction types,advertising units, and channels, simplify order management and campaign tracking, obtain actionable insights intoTable of Contentsaudiences for their advertising, and access impression-level purchasing from hundreds of sellers. We believe buyers use our platform because of our powerfulsolution and our direct relationships and integrations with some of the world’s largest sellers.Our platform incorporates proprietary machine-learning algorithms, sophisticated data processing, high-volume storage, robust analyticscapabilities, and a distributed infrastructure. We analyze billions of data points in real time to enable our solution to make approximately 300 data-drivendecisions per transaction in milliseconds, and over 15 trillion bid requests per month. Our solution is constantly improving based on our systems’ ability toanalyze and learn from vast volumes of data.During the early stages of our business following our incorporation in April 2007, our solution helped sellers to automate their existing advertisingnetwork relationships to match the right buyer with each impression, as well as increase their revenue and decrease their costs. Between 2008 and 2009, wedeveloped direct relationships with buyers and created applications to assist buyers to increase their return on investment. During 2010, we added real-timebidding, or RTB capabilities, allowing sellers’ inventory to be sold in an auction to buyers, creating a real time unified auction where buyers compete topurchase sellers’ advertising inventory. During 2012, we launched our private marketplace orders application, which allows sellers to connect directly withpre-approved buyers to execute direct sales of previously unsold advertising inventory.In 2014, we introduced the first-generation of our solution to automate the buying and selling of premium digital inventory on a fully reserved, orguaranteed, basis. In late 2014, we further expanded our orders automation technology and further increased our capabilities in the automated guaranteedmarket with the acquisition of two companies, iSocket, Inc., or iSocket, and Shiny Inc., or Shiny. The addition of iSocket and Shiny provided additionalsolutions to automate the buying and selling of direct-sold and guaranteed deals. Combined with our pre-existing orders technology, these acquisitionsenabled us in 2015 to create a fully integrated solution for automating, streamlining, and managing the processes of direct buying and selling of guaranteedand non-guaranteed advertising.In April 2015, we acquired Chango Inc. or Chango, an intent marketing technology company and integrated its operations into the operations of theCompany. In the first quarter of 2017, we ceased operating the intent marketing solution that had derived from the acquisition.In 2015, we also significantly advanced our mobile capabilities through a combination of internal product development, strategic customer wins,driving increased revenue from existing buyer and seller customers, and international expansion. Part of this growth was due to the development and roll outof our Exchange API (xAPI) solution, one of the first commercially available server-to-server header bidding solutions, which allows us to connect directlywith seller ad servers to view and bid on every impression in their marketplace. Sellers have embraced header bidding, a technology solution by whichimpressions that would previously have been exposed to different potential sources of demand in a sequence dictated by ad server placement are insteadavailable for concurrent competitive bidding by demand sources that use header bidding tags that the seller accepts.In 2016, we entered the header bidding space with our FastLane solution, which grew rapidly. In addition, we began to focus further on developmentof our video solution, helping grow our product footprint to allow our sellers to sell video advertising across desktop or mobile platforms, and includeinstream, outstream and mobile-specific formats such as interstitials. This growth was due to a combination of product development and expansion ofexisting display customer relationships to include video inventory, both domestically and internationally.We operate our business on a worldwide basis, with an established operating presence in North America and Europe and a developing presence inAsia, Australia, and South America. Substantially all of our assets are U.S. assets. Our non-U.S. subsidiaries and operations perform primarily sales, marketing,and service functions.Our IndustryContinued Shift Towards Digital AdvertisingThe advertising industry is shifting from traditional advertising in analog and print media, such as newspapers, magazines, broadcast radio, andtelevision, to digital advertising. This decades-long shift has resulted in content being increasingly delivered to users over the Internet, mobile networks, anddigital television, creating an opportunity for buyers to target audiences more accurately using data-driven strategies and deliver more relevant advertising inreal time on multiple screens. Buyers are able to utilize various technologies to analyze data relating to return on investment, demographics, user behavior,location, and other attributes that enable them to create and deliver targeted advertisements to users, which helps achieve specific advertising goals. As aresult, digital advertising has the potential to drive return on advertising investment significantly higher than traditional print, broadcast radio, andtelevision. Technological advances have also enabled sellers to sell their inventory on an impression-by-impression basis, as well as in bulk, making it easierfor sellers to enhance the monetization of their inventory.5Table of ContentsComplicated and Manual Workflow for Direct Buying and Selling of Digital AdvertisingDue to the size and complexity of the advertising ecosystem and purchasing process, manual processes cannot effectively manage digitaladvertising at scale. In addition, both buyers and sellers are demanding more transparency, better controls and more relevant insights from their advertisingpurchases and sales. Buyers and sellers benefit from a platform that enables them to leverage the targeting capabilities of their proprietary data assets. Thishas created a need to automate the digital advertising industry and to simplify the process of buying and selling advertising.A variety of factors make the digital advertising ecosystem highly complex and challenging to automate:•Perishable Inventory. An Internet user’s visit to a website or mobile application creates a unique opportunity to reach the user by insertingadvertisements into one or more of the impressions designed into the website or mobile application. In order to generate revenue for a sellerthese impressions must be filled before the page content loads.•Complex Impression-Level Matching. Sellers aim to sell impressions in order to grow revenue while enhancing the users’ experience andpreserving the sellers’ brand. Buyers seek to purchase impression-level inventory to improve targeting of specific audiences and return oninvestment for their advertising spending.•Large Multi-Variate Datasets. Trillions of data points relating to browsing behavior, geographic information, user preferences, engagementwith an advertisement, and effectiveness of an advertisement are created as users visit sellers’ websites and mobile applications. Each pieceof data represents a valuable piece of information that can facilitate and improve current and subsequent targeting and monetization ofimpressions.•Fragmented Buyer and Seller Base. There is an enormous number and variety of buyers and sellers of digital advertising.•Brand Security and Inventory Quality Concerns. Buyers want to avoid buying fraudulent inventory or being associated with content theyconsider inappropriate, competitive, or inconsistent with their advertising themes. Sellers want to prevent advertisements that areinappropriate, competitively sensitive, or otherwise do not comport with their brand image from appearing on their websites or mobileapplications.•Consumer Experience Concerns. Consumers prefer digital advertising experiences that are relevant to their personal interests, non-intrusive, and do not detract from or slow down their enjoyment of digital content.•Large and Highly Unpredictable Traffic Volumes. The scale of user traffic and the dollar value of digital advertisements is growing anddifficult to manage efficiently. A large seller may have tens of millions of users per month, creating hundreds of millions of monthlyimpressions. The volume of traffic for any given seller is extremely difficult to predict and requires a technology infrastructure that is largeenough to handle variable volumes. As more advertising shifts to digital and digital advertising technologies evolve, larger and morediverse data processing capabilities are required.•Lack of Standardized Ad Formats and Data. An available advertising impression can vary based on a number of factors, such as seller, adformat, screen size, pricing mechanism, content type, and audience demographic. It is challenging for buyers to efficiently evaluate and bidon trillions of impressions that are based on hundreds of ad formats in the context of millions of highly customized data fields.•Diverse Technology Demands. Even as advertising is shifting from traditional to digital media, a shift is underway within the digitaladvertising ecosystem from desktop to mobile channels. Desktop and mobile digital advertising involve different challenges and rely upondifferent technologies, requiring significant technological capabilities and innovation.Rubicon Project: Competitive Strengths of Our Platform in the Digital Advertising MarketplaceRubicon Project was founded to address the inherent challenges associated with the digital advertising ecosystem and to enable a marketplace wherebuyers and sellers can transact in a highly efficient and safe manner.Our technology platform creates and powers a marketplace for large numbers of buyers and sellers to readily buy and sell advertising at scale. Buyerscan direct their spending towards the impressions that are of most value to them based on demographics, pricing, timing, and other targeting objectives.Sellers can improve revenue per impression, while adhering to their own specific rules around advertising that is permissible on their websites and mobileapplications. Our platform enables the real-time exchange of high volumes of information in a transparent marketplace that in turn enables sellers to matchbuyers’ advertising campaigns with their available advertising inventory.Serving a Broad Universe of Buyers and Sellers Across a Full Spectrum of Inventory Types, Advertising Units, and Channels6Table of ContentsAdvertising takes different forms, referred to as advertising units, and is purchased and sold through different transaction types. It is presented tousers through different channels. The following are the three main transaction types available through our platform:Guaranteed Orders—automates one-to-one guaranteed inventory purchases between buyers and sellers.Non-Guaranteed Orders—automates one-to-one non-guaranteed inventory purchases arranged directly between specific buyers and sellers on theplatform.Real-Time Bidding—enables the sale and purchase of inventory on an impression-by-impression basis. Buyers are able to leverage our platform toselect individual impressions that meet their targeting criteria and sellers are able to leverage our platform to auction their inventory on an impression-by-impression basis to increase revenue.Buyers and sellers can use these different transaction types to purchase and sell diverse advertising units, including display, video, and audioappearing through different digital channels, including desktop, mobile, and web applications, as well as out-of-home channels such as digital billboards. Byaccommodating a full spectrum of digital advertising inventory through various transaction types, our solution provides greater coverage of websites andmobile applications owned by a range of sellers, and attracts all types of buyers, thereby giving buyers the ability to fulfill their audience needs in a cost-effective manner and increasing the price at which sellers’ inventory is sold.Private Marketplace Solutions Provide Unique Access to Quality Supply and Facilitate TransactionsA significant portion of premium inventory is purchased and sold through private marketplaces, both on a guaranteed and non-guaranteed basis.Some sellers will continue to rely on their own sales forces for sales of premium inventory, but will benefit from automation to better price, match, and placecampaigns, and to automate manual operations such as ad trafficking, quality assurance, and billing and collections. We have invested in workflowcapabilities and automation of premium inventory transactions to enable sales teams to increase their productivity and process more sales of inventory atoptimal prices. Workflow capabilities enable buyers and sellers to communicate directly and use shared data to execute campaigns. These capabilitiessupport sales functions rather than replacing them, enhancing their adoption without friction. Buyers and sellers can also leverage their first-party data assetsand third-party data assets in our platform to increase the value of the seller’s inventory and precision of the buyer’s targeting efforts. In addition, we believethat our guaranteed orders capabilities will help to position us to automate the purchase and sale of television advertising.Big Data Analytics and Machine-Learning AlgorithmsA core aspect of our value proposition is our big data and machine-learning platform that is able to discover unique insights from our massive datarepositories containing proprietary information on trillions of bid requests and served advertisements. Our systems collect and analyze non-personallyidentifiable information such as pricing of advertisements, historical clearing prices, bid responses, what types of ads are allowed on a particular website,which sellers’ websites a buyer prefers, what ad formats are available to be served, advertisement size and location, where a user is located, which users abuyer wants to target, how many ads the user has seen, browser or device information, and sellers’ proprietary data about users. We have developedproprietary machine-learning algorithms that analyze billions of these data points to enable our solution to make approximately 300 data-driven decisionsper transaction in real time and to execute approximately 15 trillion bid requests per month.Dual Network Effects Drive an Efficient and Self-Improving MarketplaceThrough our solution, sellers gain instant access to the world’s largest automated digital advertising buyers, including hundreds of DSPs and adnetworks. Our platform offers sellers significant flexibility by enabling them to sell their advertising inventory in an automated fashion on an impression-by-impression basis, such as with RTB, in bulk, or in Orders pursuant to arrangements directly between the seller and the buyer. We bring value to both buyersand sellers through the dual network effects created by our solution—large volumes of data lead to better matching, which attracts more buyers and sellers,leading to more data. We have one of the largest digital advertising data repositories in the world, which puts us in a unique position to developdifferentiated insights to help both buyers and sellers. Our solution is constantly self-improving as we process more volume in the form of bid requests, uservisits, events, and transactions, we accumulate more data, which in turn helps make our machine-learning algorithms more intelligent and leads to higher-quality matching between buyers and sellers. Higher quality matching improves return on investment for buyers and revenue for sellers, which in turn attractsmore buyers and sellers to our platform. We believe this self-reinforcing dynamic creates a strong platform for growth.7Table of ContentsHeader Bidding SolutionWe offer a "header bidding" solution that integrates technology directly on a publisher website or mobile application to enable us to sit much higherin the publisher’s ad stack. We also integrate with other providers of header bidding solutions. These capabilities allow the strength and scale of our buyerdemand to compete for many more seller impressions.IndependenceUnlike large industry participants, we do not have our own media properties that compete for ad spending with our sellers. Our independence givesour customers an important alternative to monetize and acquire inventory without subsidizing their competitors. Platform ApplicationsTo enhance the value our technology platform brings to the marketplace, we offer a number of applications to address the critical needs of buyersand sellers.Applications for Sellers. We have direct relationships and integrations with the sellers on our platform. Our solution includes applicationsto help them increase their digital advertising revenue, reduce costs, protect their brands and user experience, and reach more buyers efficiently toincrease digital advertising revenue by monetizing their full variety and volume of inventory. Our platform offers sellers many capabilities andbenefits, including the following:•xAPI Technology That Allows Sellers to Easily Access Our Demand. Publishers normally face numerous technical challenges in accessingadvertising demand. They either have to modify their web pages by adding cumbersome "ad tags," or they have to integrate monetizationcode into their mobile applications. Both of these methods create technical risk and are time consuming to implement. xAPI technologyeliminates these requirements and makes it easy and fast with no impact to the web pages or apps of the publisher to access demand and fillad slots.•Integrated Solution for Digital Advertising Needs. We provide sellers with a single web-based interface that serves as their central locationto manage, analyze, and enhance digital advertising spending from hundreds of different buyers.•Inventory Allocation. We offer a solution that helps sellers to increase revenue across advertising types and sales channels by allocatinginventory efficiently between direct and indirect demand.•Significantly Streamlined Sales, Operations, and Finance Workflow. Our platform streamlines the management of digital advertisementsales by aggregating demand and providing a suite of software applications that automate the process of making inventory available forsale.•Security for Brand and User Experience. Our platform is designed to ensure that advertisements shown on a seller website or mobileapplication conform to the seller’s guidelines, which specify what advertisers, type of product, or type of advertisement may not be shownon the seller’s website or mobile application.•Advanced Reporting and Analytics and Actionable Insights. We have developed a robust set of reporting features that sellers can accessand use to analyze the vast array of data we collect for them.•Consolidated Payments. We provide consolidated billing and collection for sellers who would otherwise be required to dedicate additionalresources to cost-effectively manage financial relationships with a large base of buyers.•Protective Screening. We protect sellers and users from malware (software that can infect computers with malicious software), checkadvertisements delivered through our solution for the presence of any malicious or questionable activity or characteristics, screen forunsanctioned advertisements, and reduce recurrence.•AdCheq. We review and categorize advertisement creative so that our systems can automatically enforce each seller’s specificadvertisement quality policy.•Vantage. We provide an extension for Web browsers that lets sellers monitor ads served in context on their sites, providing insight,diagnostic applications, and ad-quality controls.•Creative Approval API.Our platform includes a programmatic interface that sellers can use to retrieve a comprehensive set of individualadvertising creatives that have bid or served on their sites, and instruct our delivery systems to approve or reject those creatives for futureimpressions.Applications for Buyers. Buyers leverage our applications to access a large audience and execute highly automated campaigns that takeadvantage of unique targeting data and technology as provided by our platform to purchase advertising inventory based on buyers' keydemographic, economic, and timing criteria. These applications help streamline8Table of Contentsa buyer’s purchasing operations and increase the efficiency of its spending and the effectiveness of its advertising campaigns. Our platform offersbuyers many capabilities and benefits, including the following:•Direct Access to a Global Audience and Hundreds of Premium Sellers. By leveraging our platform, we believe buyers can reachapproximately one billion Internet users globally, including through many of the world's largest and most premium sellers. Furthermore,unlike many organizations in the digital advertising industry, we have direct relationships with sellers and can enable buyers to circumventa multi-step, expensive, and inefficient process to connect to the seller.•Flexible Access to Inventory. Our platform allows buyers to purchase advertising inventory in their preferred manner, whether by RTB orOrders. Our solution also has the flexibility to allow buyers to integrate their purchases on our platform through their existing buyingtechnologies or to buy directly through our platform.•Ability to Automate the Direct Purchase of Fully Reserved Inventory Through our Orders Platform. Our direct orders capability enablesbuyers to significantly streamline the workflow associated with purchasing fully reserved inventory through our Orders platform, whileleveraging their first-party data assets.•Simplified Order Management and Campaign Tracking. By eliminating most manual steps, our applications enable buyers to efficientlymanage their digital campaigns and significantly reduce the time it would otherwise take to effectively execute their digital advertisingprograms.•Transparency and Control Over Advertising Spending. Our platform is designed to let buyers know and control where their dollars arebeing spent. Buyers can easily navigate through our interface to choose the list of sellers they want to purchase inventory from and see anindicative price range that they should expect to pay.•Inventory Quality. We provide systems and processes to detect and minimize questionable inventory, such as non-human traffic. We alsoensure that inventory made available for sale is transparently labeled, allowing buyers to make their own decisions about what meets thespecific standards of campaigns they are running.•PubCheq. We maintain a comprehensive database of all inventory reviewed by internal systems and teams that powers a global blacklistthat blocks fraudulent or otherwise problematic seller properties and users from entering the Rubicon Project marketplace and identifiesnon-human traffic that is fraudulently consuming ad spend.Growth StrategiesWe intend to build upon our current technology and extend our market leadership through innovation and by enhancing our capabilities in thefollowing key growth areas:•Mobile: We believe we can significantly expand the penetration of our mobile offerings among existing buyer and seller customers bycreating and introducing new mobile ad formats, extending mobile advertising to brands by providing better signaling and decisioningdata, and leveraging header bidding to improve returns for developers.•Orders: We believe we can develop technology to enable buyers and sellers to safely leverage their first-party data assets and third-partydata assets in our platform to increase the value of the seller’s inventory and precision of the buyer’s targeting efforts, and to drive moreprecise matching of buyer demand to seller inventory.•Header Bidding: We will invest in continued improvement in our header bidding capabilities, including through support of open-sourcewrapper technologies that eliminate exchange bias, broad integrations to maximize access to inventory supply, and development ofenhanced customer service capabilities.•xAPI: We have an industry-leading server-to-server technology in exchange API, which we will leverage to improve our inventory positionand increase ad request volume on our platform.•Video. We plan to expand our video presence by providing turnkey monetization services for over-the-top content providers as theyemerge, as well as continuing to video-enable our existing publishers with new formats and stronger measurement and targetingcapabilities.•Bringing Automation to Additional Media. Historically, our solution has focused on display advertising. We believe, however, thattelevision and other analog and print media will eventually converge with existing digital channels, creating opportunities for us to expandour solution beyond digital media to analog and print media, such as television, radio, and magazines, as well as further expand in out-of-home media like billboards. We intend to extend our solution to track this convergence and support increasingly complex volumes ofadvertisements spanning multiple media. In addition to platform expansion, we intend to extend beyond our current capabilities fordisplay, video, and engagement to other forms of advertising units as they may arise.Our Technology9Table of ContentsTo support our solution, we have developed a network of remote servers hosted on the Internet that run our proprietary software, including analyticsand decision-making algorithms, and store, manage, and process rules set by buyers and sellers and data about demographics, economics, timing, andpreferences. Our hardware provides significant scale and is programmed for high-frequency, low-latency trading. This infrastructure is supported by a real-time data pipeline, a system that quickly moves volumes of data generated by our business into reporting systems that allow usage both internally and bybuyers and sellers, and a 24-hour Network Operations Center, which provides failure protection by monitoring and rerouting traffic in the event of equipmentfailure or network performance issues between buyers and our marketplace.We estimate that our platform currently averages approximately 13 billion transactions per week. It utilizes over 70,000 central processing units,which read and execute our program instructions. In addition, our platform supports more than 140 gigabytes of data transfer per second and stores more than20 petabytes of data, backed by our globally distributed infrastructure hosted at data centers in the U.S., Europe, and Asia.Our infrastructure is distributed across leased commercial data center locations in the US, Europe, and Asia to reduce latency, and its massive scalesupports the volume, diversity, and complexity of buyers’ bids on sellers’ advertising inventory to increase market liquidity and achieves improved pricingusing our machine-learning algorithms. Our platform’s architecture allows for additional scale through enhancements and additions to the infrastructure,which enables us to better evolve and adapt to the demands of buyers and sellers and remain competitive in the marketplace.Our proprietary data-driven machine-learning algorithms enable our solution to make decisions that improve revenue for sellers and return oninvestment for buyers. These algorithms combine and analyze multiple types of data and enable our systems to execute over 90 million decisions per second,all in time to allow transactions to be executed in milliseconds.Auction and security algorithms use matchmaking algorithms with both historical and real-time data to drive automated decision-making processes.Bid efficiency algorithms provide bid prediction (which buyers are most likely to bid on a given impression) and throttling (the volume of bidrequests a given buyer can process), to improve infrastructure load and execute transactions in the most timely manner possible by only sending bid requeststo those buyers of advertising inventory who can handle the volume and are likely to respond. Technology and DevelopmentInnovation is key to our success. In addition to the substantial investments we make in improving and extending our technology, we havedeveloped a research and development center through which we invest in exploratory concepts, particularly focused on reaching consumers and making theiradvertising experience better. We are developing a consumer application that allows end users to create advertising taste profiles based on their interests,likes and dislikes. If we are successful, our buyer and seller clients will be able to use this data to target more effectively, thereby increasing the value ofadvertising impressions and improving the consumer experience.In addition, our core technology and development team is responsible for the design, development, maintenance, and operation of our platform. Ourtechnology and development process emphasizes frequent, iterative, and incremental development cycles. Within the technology and development team, wehave several highly aligned, independent sub-teams that focus on particular features of our platform. Each of these sub-teams includes engineers, qualityassurance specialists, and product developers responsible for the initial and ongoing development of each sub-team’s feature. In addition, the technology anddevelopment team includes our technical operations sub-team, which is responsible for the performance and capacity of our platform. While our sub-teamsoperate independently, the combined work is coordinated by our project management team, which manages dependencies and optimizes the schedule of theentire team towards common goals.Technology and development expenses are included in both cost of revenue and technology and development on our consolidated statements ofoperations. These combined expenses, excluding amounts paid to sellers, were $102.3 million, $79.4 million and $43.5 million for the years endedDecember 31, 2016, 2015 and 2014, respectively.We believe that continued investment in our platform, including its technologies and functionalities, is critical to our success and long-term growth.We therefore expect technology and development expenses to increase as we continue to invest in technology infrastructure to support an increased volumeof advertising spending on our platform and international expansion, as well as to expand our engineering and technology teams to maintain and support ourtechnology and development efforts. We also intend to invest in new and enhanced technologies and functionalities to enhance our platform and furtherautomate our business processes with the goal of enhancing our future profitability.Sales and Marketing10Table of ContentsWe sell our solution to buyers and sellers through our global direct sales team, which operates from various locations around the world. This teamleverages its market knowledge and expertise to demonstrate the benefits of advertising automation and our solution to buyers and sellers. We deploy aprofessional services team with each seller integration to assist sellers in extracting value from our solution. We are focused on managing our brand,increasing market awareness, and generating new advertising campaigns. To do so, we often present at industry conferences, create custom events, and investin public relations. In addition, our marketing team advertises online, in print, and in other forms of media, creates case studies, sponsors research, authorswhitepapers, publishes marketing collateral, generates blog posts, and undertakes customer research studies.Our CompetitionOur industry is highly competitive and fragmented. We compete for buyer spending against many digital media companies, including Google andFacebook. We compete for advertising inventory with supply side platforms, or SSPs, and advertising exchanges, also including Google. As we introducenew offerings, as our existing offerings evolve, or as other companies introduce new products and services, we may be subject to additional competition.We compete for advertising spending and seller inventory made available on our platform. Our offering must remain competitive in terms of scope,ease of use, scalability, speed, price, brand security, customer service, and other technological features that assist buyers in increasing the return on theiradvertising investment. We compete for digital advertising inventory based on our ability to monetize sellers’ inventory, provide the greatest array ofproduct components covering their various transaction types, and increase fill rates. We compete on the basis of our technology and the competitivestrengths described above, including our ability to enable buyers and sellers to purchase and sell a comprehensive range of advertising units (includingdisplay and video), utilizing various transaction types (including direct sale of premium inventory on a guaranteed or non-guaranteed basis and real-timebidding), and across digital channels (including mobile web, mobile application, desktop, and out-of-home). While our industry is evolving rapidly andbecoming increasingly competitive, we believe that our solution enables us to compete favorably on the factors described above. However, competitivedifferentiation is difficult to achieve, both in terms of capabilities and in terms of customer perception. We lack the scale of some of our competitors, whichmay have the ability to compete effectively with us on the basis of their capabilities or ability to offer more aggressive pricing. Other competitors withcapabilities inferior to ours may nevertheless compete effectively with us if customers do not perceive, or value, what we believe to be our competitiveadvantages. With the proliferation of header bidding, pricing has become a key competitive differentiator since the same advertising impression is availablethrough multiple exchanges.Our Team and CultureOur team consists of ad tech pioneers and veterans that draw from a broad spectrum of experience, including data science, artificial intelligence,machine-learning algorithms, auctions, infrastructure, and software development.We focus heavily upon developing and maintaining a company culture that supports our goals. We strive to make our company an exciting place towork, not just a “job.” We reward team and individual excellence and constantly strive to build a stronger, more innovative team and a consistent cultureacross all our locations.As of December 31, 2016, we had 572 full-time employees, of whom 426 were in the United States, 218 were in sales and marketing functions, 233were in technology and development, and 121 were in general and administrative functions. In addition to the United States, we have personnel andoperations in England, France, Australia, Germany, Italy, Japan, Singapore, and Brazil.Our Intellectual PropertyOur proprietary technologies are important and we rely upon trade secret, trademark, copyright, and patent laws in the United States and abroad toestablish and protect our intellectual property and protect our proprietary technologies.We have seven issued U.S. patents, as described below. Additionally, we have eight pending patent applications in the United States and twopending non-U.S. patent applications. We anticipate that one of the pending U.S. patent applications will go abandoned in 2017. None of these patents hasbeen litigated and we are not licensing any of the patents. Their importance to our business is uncertain and there are no guarantees that any of the patentswill serve as protection for our technology or market in the United States or any other country in which an application has been filed. Our seven issued U.S.patents include: U.S. Patent No. 8,472,728, titled System and Method for Identifying and Characterizing Content within Electronic Files Using Example Sets,issued on June 25, 2013; U.S. Patent No. 8,473,346, titled Ad Network Optimization System and Method Thereof, issued on June 25, 2013; U.S. PatentNo. 8,554,683, titled Content Security for Real-Time Bidding, issued on October 8, 2013; U.S. Patent No. 8,831,987, titled Managing Bids in a Real-TimeAuction for Advertisements, issued on September 9, 2014; U.S. Patent No. 9,076,151, titled Graphical Certifications of Online Advertisements Intended toImpact Click-Through Rates, issued on July 7, 2015; U.S. Patent No. 9,202,248, titled Ad Matching System and Method Thereof, issued on December 1,2015; and U.S. Patent No. 9,208,507, titled Ad Network Optimization System and Method, issued on December 8, 2015.11Table of ContentsWe register certain domain names, trademarks and service marks in the United States and in certain locations outside the United States. We also relyupon common law protection for certain trademarks. We generally enter into confidentiality and invention assignment agreements with our employees andcontractors, and confidentiality agreements with parties with whom we conduct business, in order to limit access to, and disclosure and use of, our proprietaryinformation. We also use measures designed to control access to our technology and proprietary information. We view our trade secrets and know-how as asignificant component of our intellectual property assets, which we believe differentiate us from our competitors.Any impairment of our intellectual property rights, or any unauthorized disclosure or use of our intellectual property or technology, could harm ourbusiness, our ability to compete and our operating results.Customer DynamicsWhile we serve many customers, certain buyers and sellers account for a large share of business transacted through our platform.On the buy-side of our business, while demand for advertising is diffuse, spending by advertisers on digital advertising has historically beenchanneled through intermediaries, including principally advertising agencies and DSPs, both of which are important to us. We have generated a majority ofour revenue through RTB, and most RTB inventory purchases are executed by a relatively small number of DSPs that have the bidding technologies, dataassets, and client bases necessary to enable them to execute RTB purchases at scale on behalf of their clients. We have relationships with almost all of thesemajor DSPs, but because there are relatively few of them, each of these relationships is important to us because it represents a source of demand that would bedifficult for us to replace. Similarly, the majority of spending to date on our Orders product has been by a relatively small number of advertising agencies.Creating new agency relationships and expanding our business with existing agency customers is important to our growth, and loss of any agency customerswould adversely affect our Orders business. We are working to develop relationships directly with advertisers, both to provide them with direct access toadvertising inventory to supplement their DSP and agency relationships, and also to encourage them to influence their DSPs and agencies to route theirspending through our platform.On the sell-side of our business, while we work with many customers, a relatively small number of them provide a large share of the unique useraudiences accessible by buyers. In addition, most of the application providers that make inventory available through our platform utilize SDKs and otherproprietary technology of third parties, such as aggregators, and it is those third parties, not the application providers themselves, that contract with us to helpmonetize the inventory. Termination or diminution of our relationships with these third parties could result in a material reduction of the amount of mobileinventory available through our platform. We encourage application developers to use our own SDK, but it is difficult to displace existing SDKs.Our contracts with buyers and sellers generally do not provide for any minimum volumes and may be terminated on relatively short notice. Buyerand seller needs and plans can change quickly, and buyers and sellers are free to terminate their arrangements with us or direct their spending and inventoryto competing sources of inventory and demand, quickly and without penalty. Loss of a major buyer would represent direct loss of fees charged to that buyerfor its spending, and loss of a major seller representing a unique audience would result in direct loss of fees charged to that seller for sale of that seller’sinventory. In addition, just as growth in the inventory strengthens buyer activity in a network effect, loss of unique inventory or substantial buyers coulddegrade our marketplace. Loss of major DSP sources of demand could adversely affect bid density or pricing in our RTB auctions, and reduction in seller feesif we are not able to redirect inventory to other demand sources. Loss of important unique inventory could reduce buyer fees from demand that cannot beshifted to other sellers.Because of these factors, we seek to expand and diversify our customer relationships. However, the number of large media buyers and sellers in themarket is finite, and it could be difficult for us to replace the losses from any buyers or sellers whose relationships with us diminish or terminate.Geographic Scope of Our OperationsIn addition to the United States, we have personnel and operations in England, France, Australia, Germany, Italy, Japan, Singapore, and Brazil. As ofDecember 31, 2016, 146 of our 572 employees were based outside the United States.Our international operations and expansion plans expose us to various risks. International operations require significant investment in developingthe technology infrastructure necessary to deliver our solution and establishing sales, delivery, support, and administrative capabilities in the countries wherewe operate. We face staffing challenges, including difficulty in recruiting, retaining, and managing a diverse and distributed workforce across time zones,cultures, and languages. We must also adapt our practices to satisfy local requirements and standards (including differing privacy requirements that aresometimes more stringent than in the U.S.), and manage the effects of global and regional recessions and economic and political instability. Transactionsdenominated in various non-U.S. currencies expose us to potentially unfavorable changes in exchange rates and added transaction costs. Foreign operationsexpose us to potentially adverse tax consequences in the United States and abroad and costs and restrictions affecting the repatriation of funds to the UnitedStates.12Table of ContentsIn the years ended December 31, 2016, 2015, and 2014, approximately 34%, 31%, and 42%, respectively, of our revenue was generated frominternational markets. Substantially all of our assets are U.S. assets. For detailed information regarding our revenues and property and equipment, net bygeographical region, see Note 17.User ReachIt is not practicable to determine the exact number of unique users we reach because we do not collect personally identifiable information. In orderto estimate our user reach, we start with data we track on devices we see through our platform in a given time period: for web browsers, we identify eachcombination of browser user agent and originating IP address, and for mobile application users, we identify unique device identifiers. The resultingaggregated total counts some devices more than once because the same device creates different user agent and IP address combinations by using differentbrowsers to access the internet and/or accessing the internet from locations with different IP addresses. We therefore make assumptions about the amount ofduplication, as well as assumptions about the average numbers of devices per person, which can vary by geography and over time, and apply theseassumptions to estimate of the number of users we reach. Following this methodology, we estimate that we reach approximately one billion users globallythrough our platform. This figure depends upon our assumptions and is therefore inherently imprecise and may differ from third-party estimates of our reach.RegulationInterest-based advertising, or the use of data to draw inferences about a user’s interests and deliver relevant advertising to that user, has come underincreasing scrutiny by legislative, regulatory, and self-regulatory bodies in the United States and abroad that focus on consumer protection or data privacy. Inparticular, this scrutiny has focused on the use of cookies and other technology to collect or aggregate information about Internet users’ online browsingactivity. Because we, and our customers, rely upon large volumes of such data collected primarily through cookies, it is essential that we monitordevelopments in this area domestically and globally, and engage in responsible privacy practices, including providing consumers with notice of the types ofdata we collect and how we use that data to provide our services.We provide this notice through our privacy policy, which can be found on our website at http://www.rubiconproject.com/privacy. As stated in ourprivacy policy, we do not collect information, such as name, address, or phone number, that can be used directly to identify a real person, and we take stepsnot to collect and store such personally identifiable information from any source. Instead, we rely on non-personally identifiable information about Internetusers and do not attempt to associate this data with other data that can be used to identify real people. However, we typically do collect and store IPaddresses, geo-location information, and persistent identifiers that are considered personal data in some jurisdictions or otherwise may be the subject of futurelegislation or regulation. The definition of personally identifiable information, or personal data, varies by country, and continues to evolve in ways that mayrequire us to adapt our practices to avoid violating laws or regulations related to the collection, storage, and use of consumer data. For example, someEuropean countries consider IP addresses or unique device identifiers to be personal data subject to heightened legal and regulatory requirements, whereasthe United States does not. As a result, our technology platform and business practices must be assessed regularly in each country in which we do business.There are also a number of specific laws and regulations governing the collection and use of certain types of consumer data relevant to our business.For example, the Children’s Online Privacy Protection Act, or COPPA, imposes restrictions on the collection and use of data about users of child-directedwebsites. To comply with COPPA, we have taken various steps to implement a system that: (i) flags seller-identified child-directed sites to buyers, (ii) limitsadvertisers’ ability to serve interest-based advertisements, (iii) helps limit the types of information that our advertisers have access to when placingadvertisements on child-directed sites, and (iv) limits the data that we collect and use on such child-directed sites.13Table of ContentsThe use and transfer of personal data in EU member states is currently governed under the EU Data Protection Directive, which generally prohibitsthe transfer of personal data of EU subjects outside of the EU, unless the party exporting the data from the EU implements a compliance mechanism designedto ensure that the receiving party will adequately protect such data. A recent opinion by the Court of Justice of the European Union concluded that the SafeHarbor Framework we previously relied upon is not sufficient to allow transfers of personal data of EU subjects to the United States. Therefore, we must relyon alternative compliance measures, which are complex, which may also be subject to legal challenge, and which, unlike the Safe Harbor Framework, directlysubject us to regulatory enforcement by data protection authorities located in the European Union. In addition, the European Union has finalized a GeneralData Protection Regulation, or GDPR, that will become effective in May 2018. The GDPR sets out higher potential liabilities for certain data protectionviolations, as well as a greater compliance burden for us in the course of delivering our solution in Europe; among other requirements, the GDPR obligatescompanies that process large amounts of personal data about EU residents to implement a number of formal processes and policies reviewing anddocumenting the privacy implications of the development, acquisition, or use of all new products, technologies, or types of data. Further, the EuropeanUnion is currently considering revising the EU Cookie Directive governing the use of technologies to collect consumer information.Additionally, our compliance with our privacy policy and our general consumer privacy practices are also subject to review by the Federal TradeCommission, which may bring enforcement actions to challenge allegedly unfair and deceptive trade practices, including the violation of privacy policiesand representations therein. Certain State Attorneys General may also bring enforcement actions based on comparable state laws or federal laws that permitstate-level enforcement. Outside of the United States, our privacy and data practices are subject to regulation by data protection authorities and otherregulators in the countries in which we do business.Beyond laws and regulations, we are also members of self-regulatory bodies that impose additional requirements related to the collection, use, anddisclosure of consumer data, including the Internet Advertising Bureau, or IAB, the Digital Advertising Alliance, the Network Advertising Initiative, and theEurope Interactive Digital Advertising Alliance. Under the requirements of these self-regulatory bodies, in addition to other compliance obligations, weprovide consumers with notice via our privacy policy about our use of cookies and other technologies to collect consumer data, and of our collection and useof consumer data to deliver interest-based advertisements. We also allow consumers to opt-out from the use of data we collect for purposes of interest-basedadvertising through a mechanism on our website, linked through our privacy policy.Business SeasonalityOur advertising spend, revenue, cash flow from operations, Adjusted EBITDA, operating results, and other key operating and financial measures mayvary from quarter to quarter due to the seasonal nature of buyer spending. For example, many buyers devote a disproportionate amount of their advertisingbudgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing. We expect our revenue, cash flow, operating results andother key operating and financial measures to fluctuate based on seasonal factors from period to period and expect these measures to be higher in the fourthquarters than in prior quarters.Working Capital RequirementsOur revenue is generated from advertising spend transacted on our platform using our technology solution. Generally, we invoice and collect frombuyers the full purchase price for impressions they have purchased, retain our fees (where applicable), and remit the balance to sellers. However, in somecases, we may be required to pay sellers for impressions delivered before we have collected, or even if we are unable to collect, from the buyer of thoseimpressions. There can be no assurances that we will not experience bad debt in the future. Any such write-offs for bad debt could have a materially negativeeffect on our results of operations for the periods in which the write-offs occur. In addition, we attempt to coordinate collections from our buyers so as to fundour payment obligations to our sellers. However, some buyers and sellers are beginning to require direct billing and collection arrangements betweenthemselves, particularly for our guaranteed orders solution. Further, growth and increased competitive pressure in the digital advertising industry is causingbrand spenders to become more demanding, resulting in overall increased focus by all industry participants on pricing, transparency, and cash and collectioncycles. Some buyers have experienced financial pressures that have motivated them to challenge some details of our invoices or to slow the timing of theirpayments to us. If buyers slow their payments to us or our cash collections are significantly diminished as a result of these dynamics, our revenue and/or cashflow could be adversely affected and we may need to use working capital to fund our accounts payable pending collection from the buyers. This may result inadditional costs and cause us to forego or defer other more productive uses of that working capital.14Table of ContentsAvailable InformationThe Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and accordinglyfiles Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and related amendments and otherinformation with the Securities and Exchange Commission, or the SEC, pursuant to Sections 13(a) and 15(d) of the Exchange Act. Information filed by theCompany with the SEC is available free of charge on the Company’s website at investor.rubiconproject.com as soon as reasonably practicable after suchmaterials are filed with or furnished to the SEC. The public may read and copy any materials filed by the Company with the SEC at the SEC’s PublicReference Room at 100 F Street, NE, Washington, DC 20549 on official business days during the hours of 10:00 am to 3:00 pm. The public may obtaininformation on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports,proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of thesewebsites are not incorporated into this Annual Report on Form 10-K or into any other report or document we file with the SEC, and any references to theURLs for these websites are intended to be inactive textual references only.Item 1A. Risk FactorsInvesting in our common stock involves a high degree of risk, including the risks described below, each of which may be relevant to decisionsregarding an investment in or ownership of our stock. The occurrence of any of these risks could have a significant adverse effect on our reputation,business, financial condition, revenue, results of operations, growth, or ability to accomplish our strategic objectives, and could cause the trading price ofour common stock to decline. You should carefully consider the risks set forth below and the other information contained in this report, including ourconsolidated financial statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations, beforemaking investment decisions related to our common stock. However, this report cannot anticipate and fully address all possible risks of investing in ourcommon stock, the risks of investing in our common stock may change over time, and additional risks and uncertainties that we are not aware of, or that wedo not consider to be material, may emerge. Accordingly, you are advised to consider additional sources of information and exercise your own judgment inaddition to the information we provide.Risks Relating to Our Business, Growth Prospects and Operating ResultsWe are testing alternative pricing models, which if implemented, would reduce our take rate and might affect our ability to maintain and grow revenueand profitability.In response to market trends and for strategic reasons, we are testing alternative pricing models and may determine that we should change the way wecharge clients. It is probable that implementation of such changes would result in reduction of our take rate and possibly unintended adverse consequences,and it is not certain whether we would be able to maintain and grow revenue and profitability through volume increases that compensate for any pricereductions.We must grow rapidly to remain a market leader and to accomplish our strategic objectives. If we fail to grow, or fail to manage our growth effectively, thevalue of our company may decline.The advertising technology market is dynamic, and our success depends upon the continued adoption of advertising automation and our ability todevelop innovative new technologies and solutions for the evolving needs of sellers of advertising, including websites, applications, and other digital mediaproperty owners, and buyers of advertising. We also need to grow significantly and expand the scope of our offering in order to keep pace with the growthand change in our market and to develop the market reach and scale necessary to compete effectively with large competitors. This growth depends to asignificant degree upon the quality of our strategic vision and planning. The advertising market is evolving rapidly, and if we make strategic errors, there is asignificant risk that we will lose our competitive position and be unable to recover and achieve our objectives. Our ability to grow requires access to, andprudent deployment of, capital for hiring, expansion of physical infrastructure to run our solution, acquisition of companies or technologies, anddevelopment and integration of supporting technical, sales, marketing, finance, administrative, and managerial infrastructure. Further, the rapid growth we arepursuing will itself strain the organization and our ability to continue that growth and to maintain the quality of our operations.In order to meet our growth objectives, we will need to rely upon our ability to innovate, the continued adoption of our solution by buyers and sellers forhigher value advertising inventory, the extension of the reach of our solution into evolving digital media, continued growth into new geographic markets,shift of our business mix to emphasize higher growth channels and ad units, and the implementation of new offerings.Historically, real-time bidding, or RTB, open-market transactions, particularly for desktop display advertising, have provided most of the activity onour platform. However, other transaction types, such as private marketplace and guaranteed transactions, other channels, such as mobile and out-of-home, andother advertising units, such as video, have begun or are expected to grow faster than open-market RTB desktop display. We expect our historical open-market RTB desktop display advertising business to continue to be an important source of revenue for us, but consistent with market trends, growth in ourRTB desktop15Table of Contentsdisplay business has decelerated significantly and our share of the RTB desktop display market has begun to diminish. Our RTB desktop display revenuemay decline over time as other transaction types and channels continue to absorb a greater share of advertising spend. Accordingly, our RTB desktop displaybusiness cannot be relied upon to drive growth, so in order for us to grow and compete effectively, we must continue to increase our business in other areas ofdigital advertising. We must build upon our early momentum in private marketplace and guaranteed transactions and mobile and out-of-home channels andexpand our business in other areas, particularly video. Our growth plans depend upon our ability to innovate, attract buyers and sellers to our solution forpurposes of buying and selling higher value inventory, expand the scope of our solution and its use by buyers and sellers utilizing other digital mediaplatforms and advertising units, many of which are outside the historical scope of business conducted by our large DSP buyer clients, and adapt the pricingand other terms we make available in response to changing market conditions. Our growth plans also depend on our ability to further increase ourinternational business in existing and new markets, significantly expand the use of our private marketplace offerings, and effectively drive increasingautomation in the advertising industry through implementation of new offerings. In order to innovate successfully, we must hire, train, motivate, and retaintalented engineers in a competitive recruiting environment, and we must deploy them based on the development priorities we establish in light of our view ofthe future of our industry. Mobile, video, and other emerging digital platforms require different technology and business expertise than display advertising,and also present other challenges that may be difficult for us to overcome, including inventory quality issues. Many of our competitors in these emergingplatforms have a significant head start in terms of technology, buyer or seller relationships, and the scope of their product offerings. Furthermore, a growingpercentage of online and mobile advertising spending is captured by owned and operated sites (such as Facebook and Google). Our business model may nottranslate well into higher-value advertising due to market resistance or other factors, and we may not be able to innovate quickly or successfully enough tocompete effectively on new platforms, or to adapt our solution and infrastructure to international markets. New offerings may not correctly anticipate marketdemand, may not address demand as effectively as competing offerings, and may not deliver the results we expect.Our technology development efforts may be inefficient or ineffective, which may impair our ability to attract buyers and sellers.Our future success will depend in part upon our ability to enhance our existing solution, to develop and introduce competing new solutions in atimely manner with features and pricing that meet changing client and market requirements, and to persuade buyers and sellers to adopt our new solutions.New elements of our offering must compete with established competitors and may require significant investment in development and marketing to achieveparity, and buyers and sellers may not be ready to adopt new solutions we acquire or develop. We schedule and prioritize these development effortsaccording to a variety of factors, including our perceptions of market trends, client requirements, and resource availability. We face intense competition inthe marketplace and are confronted by rapidly changing technology, evolving industry standards and consumer needs, and the frequent introduction of newsolutions by our competitors that we must adapt and respond to. Our solution is complex and can require a significant investment of time and resources todevelop, test, introduce into use, and enhance. These activities can take longer than we expect. We may encounter unanticipated difficulties that require us tore-direct or scale back our efforts and we may need to modify our plans in response to changes in buyer and seller requirements, market demands, resourceavailability, regulatory requirements or other factors. If development of our solution becomes significantly more expensive due to changes in regulatoryrequirements or industry practices, or other factors, we may find ourselves at a disadvantage to larger competitors with more resources to devote todevelopment. These factors place significant demands upon our engineering organization, require complex planning and decision making, and can result inacceleration of some initiatives and delay of others. If we do not manage our development efforts efficiently and effectively, we may fail to produce, or timelyproduce, solutions that respond appropriately to the needs of buyers and sellers, and competitors may develop offerings that more successfully anticipatemarket evolution and address market expectations. If our solution is not responsive and competitive, buyers and sellers can be expected to shift their businessto competing solutions. Buyers and sellers may also resist adopting our new solutions for various reasons, including reluctance to disrupt existingrelationships and business practices or to invest in necessary technological integration or preference for competitors' offerings or self-developed capabilities.The emergence of header bidding may reduce the amount or value of inventory available to us from sellers, and our header bidding solution may not resultin revenue growth and may cause infrastructure strain and added cost.Sellers have embraced header bidding, a technology solution by which impressions that would have previously been exposed to different potentialsources of demand in a sequence dictated by ad server placement are instead available for concurrent competitive bidding by demand sources that use headerbidding tags that the seller accepts. This can help sellers increase revenue by exposing their inventory to more bidders, thereby allocating more inventory todemand sources that value it most highly. However, the number of header bidding tags that sellers accept is limited because too many header bidding tagscan cause delays in the transaction execution process, and therefore we must compete with other demand sources for sellers' header bidding slots. With sellersthat accept our header bidding tags, we may be able to participate in improved demand dynamics by competing for impressions that would previously havebeen allocated first to demand sources prioritized above us in the seller's ad server, with accompanying potential for improved revenue. However, some sellersmay not accept our header bidding tags, and our opportunities with those sellers may be impaired as a result. Certain sources of demand with unique valuepropositions may be prioritized by16Table of Contentssellers in their allocation of available header bidding slots, leaving us to compete with other competitors for the remainder. Further, header bidding allowssmaller competitors with less demand and/or fewer established seller relationships to compete for higher-value impressions on a more even footing. Just asheader bidding allows us to compete with demand sources that would previously have been above us in sellers' ad server sequences, it exposes us toadditional competition by demand sources that, prior to the emergence of header bidding, might have been below us in the sellers' ad server sequences orotherwise unable to compete effectively for inventory. In order to compete more effectively for inventory in header bidding transactions, we may reduce ourfees in order to pass more money to sellers.We have increased the number of installations of our header bidding solution with sellers. However, while installations are a necessary first step,additional work is required to achieve the revenue acceleration potential of our expanded header bidding customer base. Like other providers of headerbidding solutions, the productivity of our implementations to date has varied among sellers as a result of factors over which we have limited control,including seller systems and capabilities, technical proficiency of seller implementations, and other third-party code that sellers load onto their pages. As aresult, many implementations require individualized adaptation and troubleshooting. Because header bidding typically relies on the consumer’s browser forexecution, header bidding auctions can fail if the consumer’s browser is not updated or if the consumer’s internet connection is slow, and mobile browserspresent additional difficulties. One alternative is to migrate functionality away from the client-side to the server-side, which is more highly controlled, butthis presents its own challenges, including difficulties in cookie syncing and resulting adverse effects on audience targeting. Because header biddingtechnology is new and is characterized by various inefficiencies that affect all providers, we expect the technology to continue to evolve to more uniformstandards. However, as we invest in development of next-generation header bidding technology, we must continue working to improve the efficiency andeffectiveness of our current header bidding solution and installations. Until we address these transitional issues, we will not fully offset the increasedinfrastructure costs associated with the higher volume of ad and bid requests we process as a result of header bidding; and we will not be able to takeadvantage of the near-term opportunities made available through current header bidding technology to access a larger addressable market and increase ourrevenue by capturing a greater share of higher value inventory. In addition, the expansion of header bidding exposes more inventory to competitive bidding,thereby potentially resulting in increased volatility of our operating results with little warning as a result of various factors, including evolution intechnology and changes in business practices such as competitors’ bidding tactics and sellers’ ad server integration and management.It is too early to predict what effect the emergence of header bidding will ultimately have on our business, but to date we have experienced somenegative results, including increased competition for some inventory that we would have been able to sell through our platform in the absence of headerbidding, with commensurate adverse revenue effects.We must scale our technology infrastructure to support our growth and transaction volumes. If we fail to do so, we may lose buyers, sellers, and revenuefrom transactions.When a user visits a website or uses an application where our auctions technology is integrated, our technology must process a transaction for thatseller and conduct an auction within milliseconds. Our technology must scale to process all the advertising impressions from the collection of all visitors ofall websites and applications offered on our platform. Additionally, for each individual advertising impression, our technology must be able to send bidrequests to appropriate and available buyers. It must perform these transactions end-to-end at speeds often faster than the page or application loads for theuser. The addition of new services, support of evolving advertising formats, handling and use of increasing amounts of data, and overall growth also placeincreasing demands upon our technology infrastructure. The growth of header bidding and mobile device usage is significantly increasing volume demandson our infrastructure. We must be able to continue to increase the capacity of our platform in order to support substantial increases in the number of buyersand sellers, to support an increasing variety of advertising formats and platforms and to maintain a stable service infrastructure and reliable service delivery,all to support the network effect of our solution. If we are unable, for cost or other reasons, to effectively increase the scale of our platform to support andmanage a substantial increase in the number of transactions, as well as a substantial increase in the amount of data we process, on a high-performance, cost-effective basis, the quality of our services could decline and our reputation and business could be seriously harmed. In addition, if we are not able to continueprocessing these transactions at fast enough speeds or if we are unable to support emerging advertising formats or services preferred by buyers, our revenuemay be adversely affected by the inability to obtain new buyers or sellers, loss of existing buyers or sellers, or failure to process auction transactions in atimely manner. We expect to continue to invest in our platform in order to meet increasing demand. Such investment may negatively affect our profitabilityand results of operations, or cause dilution to our stockholders.Our belief that there is significant and growing demand for private marketplaces and automated guaranteed solutions may be inaccurate, and we may notrealize a return from our investments in that area.We believe there is significant and growing demand for private marketplaces and automated guaranteed solutions, and we have made significantinvestments to meet that demand through internal development efforts and through acquisitions. The market for these solutions is new and unproven andmay not grow as we expect, or it could have slow adoption rates for various reasons, including reluctance of some sellers to substitute our solution fortransactions they have historically handled themselves through17Table of Contentsdirect dealings with buyers. It is our expectation that private marketplaces and automated guaranteed solutions may involve lower fees than we can charge forour real-time bidding services, which may not be fully offset by anticipated higher CPMs. In some cases, we have experienced fee pressure as we have builtout our private marketplace offering, and we expect this fee pressure to increase as more competitors, including new entrants as well as sellers themselves,build their own technology and infrastructure to enter this business. Even if the market for these solutions develops as we anticipate, buyers and sellers mightnot embrace our offerings to the degree we expect due to various factors. For example, we may not be successful in building out these offerings consistentwith our vision, or competitive offerings may be offered at lower prices or be perceived as having better features and functionality. Advertising agency buyersmay require that their use of our automated guaranteed solution to make inventory purchases take place through established workflow applications they ownor license from third parties, and if we are required to work with third parties to access agency demand, we will be required to pay them fees or share with themthe revenue generated by transactions processed through their applications, reducing the profitability of this business for us. If those third-party applicationsare not compatible with our technology, or providers of the applications demand unreasonable terms to integrate, our ability to transact automatedguaranteed purchases with those agencies may be limited, which could reduce the revenue we anticipate flowing through this solution. We may also beunable to scale our solution to markets outside of the United States due to local currency or other specific regulatory or operational requirements that we areunable to comply with. Even if the market for these solutions develops as we anticipate, and our buyers and sellers embrace our offerings, the positive effectof our private marketplace and automated guaranteed offerings on our results of operations may be negated by other adverse developments or by similarofferings from our competitors.Our expectations regarding the growth prospects of our buyer offerings may be incorrect, and we may not realize a return from our investments in thatarea.We compete for demand with well-established companies that have technological advantages stemming from their experience in the market, and wemust continue to adapt and improve our demand technology to compete effectively. Client demands for transparency and pricing concessions have increasedsignificantly, and more quickly than we previously expected, making it difficult for us to increase our business with some clients, causing others to reducetheir spending, reducing our take rate in some transactions with demand sources, requiring us to provide less expensive self-service offerings and moretransparent pricing alternatives. Buyers and sellers may not embrace our offering due to various factors, including the perception that competitors havesuperior technology or produce better results. We have invested heavily in our mobile technology, which poses additional risks that did not affect our legacy desktop display business. Mobile connecteddevices or any other devices, their operating systems, Internet browsers or content distribution channels, including those controlled by our competitors,may develop in ways that make it difficult for advertisements to be delivered to their users. Further, we rely upon relationships with third parties to provideour buyers with access to large numbers of mobile inventory sellers that utilize third-party technology to display ads. If our access to mobile inventory islimited by third-party technology or lack of direct relationships with mobile sellers, our ability to grow our business will be impaired.Due to increased usage of mobile devices and resulting migration of ad spending to mobile platforms, we have invested heavily in our mobiletechnology and are relying to a significant degree on our mobile offerings to fuel our continued growth. The mobile advertising market is growing andchanging quickly, and technological, market, or regulatory developments could render our solution less competitive. Because mobile advertising usesdifferent data-capture techniques and methods of recording payable transactions, caters to different buyer budgets, may require us to enter emerging marketsin which we have less experience, including China and India, and involves development challenges imposed by differing technological requirements andstandards, there can be no assurance that we will be successful in achieving our goals in this market. Moreover, buyers' spending to reach consumers throughmobile advertising may evolve more slowly than expected, or not grow to levels we anticipate. Our mobile investment has been focused on real-time biddingof mobile impressions, and that market may not grow as we expect. Our mobile revenue growth is largely dependent on the success of our xAPI technology,and there can be no assurance that this technology will continue to work as anticipated, without costly bugs or errors. Our success in the mobile channeldepends upon the ability of our technology solution to provide advertising for most mobile-connected devices, as well as the major operating systems orInternet browsers that run on them and the thousands of applications that are downloaded onto them. The design of mobile devices and operating systems,applications, or Internet browsers is controlled by third parties. These parties frequently introduce new devices and applications, and from time to time theymay introduce new operating systems or Internet browsers or modify existing ones in ways that may significantly affect our business, such as by providingad-blocking capabilities. Network carriers may also impact the ability to access specified content on mobile devices. If our solution is unable to work onthese devices, operating systems, applications, or Internet browsers for any reason, our ability to generate revenue through mobile advertising could besignificantly harmed.Our growth depends upon our ability to attract and retain buyers and sellers and increase business with them. Buyers and sellers are free to directtheir spending and inventory to competing sources of inventory and demand, and large competitors with direct mobile user relationships and proprietaryfirst-party user data have invested early and heavily in mobile advertising solutions,18Table of Contentshave many established relationships with mobile buyers and sellers that may be difficult for us to replicate, and may provide more compelling solutions thanwe do. Most of the application providers selling inventory through our platform utilize software development kits, or SDKs, and other proprietary technologyof third parties, such as aggregators, and it is those third parties, not the application providers themselves, that contract with us to provide exchange servicesto help monetize the inventory. Termination or diminution of our relationships with these third parties could result in rapid and significant reduction of theamount of mobile inventory available through our platform, which in turn would adversely affect our mobile advertising spend and growth prospects.Market pressure may result in a reduction in spending on our platform or a reduction in the fees or prices we charge, which could have a material adverseeffect on our business and reduce our take rate.A majority of our advertising spend comes from DSP buyers purchasing advertising inventory in RTB transactions on our platform. Our proprietaryauction algorithms include a buyer fee for use of our technology, and we have typically charged buyers a variable price for real-time bidding impressionswithout specifying the amount or method of determination of the fee that is included in the price. Like other industry participants, DSPs have come undergrowing pressure from their clients to reduce their fees and/or to provide fee transparency, and DSPs may in turn apply this pressure to us. Sellers sometimesalso question our buyer fees. We also charge fees to sellers for use of our technology, typically as a percentage of the cost of media. As is normal in mostindustries and companies, the introduction of new offerings requires different pricing rates or structures. Projecting a market's acceptance of a new price orstructure is imperfect and we may price too high or too low, both of which may carry adverse consequences. We experience requests from buyers and sellersfor discounts, fee concessions or revisions, rebates, refunds, and greater levels of pricing transparency and specificity—in some cases as a condition tomaintain the relationship. In addition, we may decide to offer discounts or other pricing concessions in order to attract more inventory or demand, or tocompete effectively with other providers that have different or lower pricing structures and may be able to undercut our pricing due to greater scale or otherfactors. Further, in light of increasing market trends toward transparency, commodification of intermediary services, and disintermediation, we mayvoluntarily reduce our fees in an effort to be more competitive in attracting demand and capturing inventory.If large buyers or sellers, or large numbers of small buyers or sellers, are able to compel us to charge lower fees or provide fee concessions or refunds,or to reveal or reduce our margins, we may not be able to maintain appropriate volumes of inventory supply and demand without agreeing to theseconcessions. We also may face the risk that, where a buyer is dissatisfied with the execution of a transaction on our platform, a buyer may request a refundfrom us of the advertising spend on the transaction notwithstanding that we have only collected a fee on the transaction and may not have the ability torecover the full amount of spending associated with the transaction from the counter-party. In addition, the fees we charge and margins we earn are likely tochange in response to evolution in the market, customer demands, market opportunities, new products, or competitive pressure. Our revenue, take rate, thevalue of our business, and the price of our stock could be adversely affected if we cannot maintain and grow our revenue and profitability through volumeincreases that compensate for any price reductions, or if we are forced to make significant fee concessions or refunds, or if buyers reduce spending with us orsellers reduce inventory available through our exchange due to fee disputes or pricing issues.We have a history of losses and we need to sustain and increase investment in our technology in order to be competitive, but we face many risks that mayprevent us from achieving or sustaining profitability in the future.We reported a net loss of $18.1 million and net income of $0.4 million during the years ended December 31, 2016 and 2015, respectively. Weincurred a net loss of $18.7 million during the year ended December 31, 2014. As of December 31, 2016, we had an accumulated deficit of $99.0 million.During 2016, we were not able to sustain the revenue growth we previously experienced, and revenue may decrease due to competitive pressures, maturationof our business, or other factors. While we have taken steps to reduce unnecessary expenses, we plan to redirect much of the spending to areas we expect toproduce higher growth, and we expect our expenses to continue to increase over time as we pursue expansion of our business, including by hiringengineering, sales, marketing, and related support employees, investing in our technology and infrastructure, and developing additional digital mediaplatforms, such as mobile and video.Notwithstanding such investments, we may not be able to achieve or sustain profitability in the future. If our revenue growth declines or ourexpenses exceed expectations, our financial performance will be adversely affected.We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly evolvingindustries, including allocating and making effective use of our limited resources; achieving market acceptance of our existing and future solutions;competing against companies with greater financial and technical resources; recruiting; integrating, motivating, and retaining qualified employees;developing relationships with buyers and sellers; developing new solutions; integrating new technologies or companies we acquire; and establishing andmaintaining our corporate infrastructure, including internal controls relating to our financial and information technology systems. We must improve ourcurrent operational infrastructure and technology to support significant growth and to respond to the evolution of our market and competitors' developments.Our business prospects depend in large part on our ability to:19Table of Contents•build and maintain our reputation for innovation and solutions that meet the evolving needs of buyers and sellers;•distinguish ourselves from the wide variety of solutions available in our industry;•maintain and expand our relationships with buyers and sellers;•respond to evolving industry standards and government regulations that impact our business, particularly in the areas of data collection andconsumer privacy;•prevent or otherwise mitigate failures or breaches of security or privacy;•attract, hire, integrate and retain qualified employees;•effectively execute upon our international expansion plans;•evaluate new acquisition targets, and successfully integrate acquired companies' businesses and technologies;•grow our share of online and mobile advertising spending and the supply of advertising impressions available to us notwithstanding thegrowing share of digital advertising that is controlled by owned and operated sites (such as Facebook and Google);•maintain our cloud-based technology solution continuously without interruption 24 hours a day, seven days a week; and•anticipate and respond to varying product life cycles and new advertising solutions such as header bidding, regularly enhance our existingadvertising solutions, and introduce new advertising solutions and pricing models on a timely basis, including by developing ourcapabilities in evolving areas of the business, such as mobile and video.As a result of various factors, our operating results may fluctuate significantly, be difficult to predict, and fall below analysts' and investors' expectations.Our operating results may be difficult to predict, particularly because we generally do not have long-term contracts with buyers or sellers. We haveexperienced significant variations in revenue and operating results from period to period, and operating results may continue to fluctuate and be difficult topredict due to a number of factors, including:•seasonality in demand for digital advertising;•changes in pricing of advertising inventory or pricing for our solution and our competitors' offerings, including potential reductions in ourpricing and overall take rate as a result of competitive pressure, changes in supply, improvements in technology and extension ofautomation to higher-value inventory, uncertainty regarding rate of adoption, changes in the allocation of demand spend by buyers, changesin revenue mix, auction dynamics, pricing discussions or negotiations with clients and potential clients, header bidding and other factors;•diversification of our revenue mix to include new services, some of which may have lower pricing than our historic lower-value inventorybusiness or may cannibalize existing business;•the addition or loss of buyers or sellers;•changes in the advertising strategies or budgets or financial condition of advertisers;•the performance of our technology and the cost, timeliness, and results of our technology innovation efforts;•advertising technology and digital media industry conditions and the overall demand for advertising, or changes and uncertainty in theregulatory environment for us or buyers or sellers, including with respect to privacy regulation;•the introduction of new technologies or service offerings by our competitors and market acceptance of such technologies or services;•our level of expenses, including investment required to support our technology development, scale our technology infrastructure andbusiness expansion efforts, including acquisitions, hiring and capital expenditures, or expenses related to litigation;•the impact of changes in our stock price on valuation of stock-based compensation or other instruments that are marked to market;•the effectiveness of our financial and information technology infrastructure and controls;•foreign exchange rate fluctuations; and•changes in accounting policies and principles and the significant judgments and estimates made by management in the application of thesepolicies and principles.20Table of ContentsBecause significant portions of our expenses are relatively fixed, variation in our quarterly revenue could cause significant variations in operatingresults and resulting stock price volatility from period to period. In order to minimize adverse effects of pricing pressure on revenue, we must increase ourscale and add more high-value inventory, which requires ongoing investment that can adversely affect earnings and might ultimately be unsuccessful.Period-to-period comparisons of our historical results of operations are not necessarily meaningful, and historical operating results may not be indicative offuture performance. If our revenue or operating results fall below the expectations of investors or securities analysts, or below any guidance we may provideto the market, the price of our common stock could decline substantially.Our revenue and operating results are highly dependent on the overall demand for advertising. Factors that affect the amount of advertising spending,such as economic downturns, can make it difficult to predict our revenue and could adversely affect our business.Our business depends on the overall demand for advertising and on the economic health of our current and prospective sellers and buyers. Ifadvertisers reduce their overall advertising spending, our revenue and results of operations are directly affected. Various macro factors could cause advertisersto reduce their advertising budgets, including adverse economic conditions and general uncertainty about economic recovery or growth, particularly inNorth America and Europe, where we do most of our business, instability in political or market conditions generally, and any changes in favorable taxtreatment of advertising expenses and the deductibility thereof. Reductions in inventory due to loss of sellers would make our solution less robust andattractive to buyers.Seasonal fluctuations in digital advertising activity could result in material fluctuations of our revenue, cash flows, operating results, and other keyperformance measures from period to period.Our revenue, advertising spend, cash flow from operations, operating results, and other key performance measures may vary from quarter to quarterdue to the seasonal nature of advertiser spending. For example, many advertisers devote a disproportionate amount of their advertising budgets to the fourthquarter of the calendar year to coincide with increased holiday purchasing, and advertising inventory in the fourth quarter may be more expensive due toincreased demand for advertising inventory. As a result, any events that reduce the amount of advertising spend during the fourth quarter, or reduce theamount of inventory available to buyers during that period, could have a disproportionate adverse effect on our revenue and operating results for that fiscalyear.Failure to maintain our culture and institutional knowledge could jeopardize our innovation and operation effectiveness.We have in the past added significant numbers of employees through direct hire and acquisitions, and we may continue to do so. We have also hadsignificant attrition, including through workforce reductions. Significant changes in our personnel may make it difficult for us to maintain our institutionalknowledge and corporate culture, which has contributed significantly to our success in the past. If our culture and knowledge base are negatively affected,our ability to support our growth and innovation may diminish.Risks Related to the Advertising Technology Industry, Market, and CompetitionThe digital advertising market is relatively new, dependent on growth in various digital advertising channels, and vulnerable to adverse public perceptionsand increased regulatory responses. If this market develops more slowly or differently than we expect, or if issues encountered by other participants or theindustry generally are imputed to or affect us, our business, growth prospects and financial condition would be adversely affected.While our core business of desktop display advertising has been used successfully for many years, marketing via new digital advertising channels,such as mobile and social media, out-of-home, and digital video advertising, are emerging and may evolve in unexpected ways, and our future growth will beconstrained if we are not able to adapt successfully to market evolution. In addition, the success of our efforts to advance new solutions for increasedadvertising automation will depend upon adoption of our solution by personnel at buyers and sellers in lieu of their traditional methods of order placement.It is difficult to predict adoption rates, demand for our solution, the future growth rate and size of the digital advertising solutions market or the entry ofcompetitive solutions.Further, the digital advertising industry is complex and evolving, and the relatively few publicly traded companies operating in the business tend tobe small and new to the public markets. Consequently, the digital advertising industry may not be as widely followed or understood in the financial marketsas more mature industries. The markets may not fully appreciate our particular place in the industry and our strengths and differentiating factors. Problemsexperienced by one industry participant (even private companies) or issues affecting a part of the industry have the potential to have adverse effects on otherparticipants in the industry or even the entire industry. Emerging understanding of how the digital advertising industry operates has spurred privacy concernsand misgivings about exploitation of consumer information and prompted regulatory responses that limit operational flexibility and impose compliancecosts upon industry participants.21Table of ContentsAny expansion of the market for digital advertising solutions depends on a number of factors, including social and regulatory acceptance, thegrowth of the overall digital advertising market and the growth of specific sectors including social, mobile, video, and out-of-home as well as the actual orperceived technological viability, quality, cost, performance and value associated with emerging digital advertising solutions. If demand for digital displayadvertising and adoption of automation does not continue to grow, or if digital advertising solutions or advertising automation do not achieve widespreadadoption, or there is a reduction in demand for digital advertising caused by weakening economic conditions, decreases in corporate spending, quality,viewability, malware issues or other issues associated with buyers, advertising channels or inventory, negative perceptions of digital advertising, additionalregulatory requirements, or other factors, or if we fail to develop or acquire capabilities to meet the evolving business and regulatory requirements and needsof buyers and sellers of multi-channel advertising, our competitive position will be weakened.We operate in an intensely competitive market that includes companies that have greater financial, technical and marketing resources than we do.We face intense competition in the marketplace. We are confronted by rapidly changing technology, evolving user needs and the frequentintroduction by our competitors of new and enhanced solutions. We compete for advertising spending against competitors that, in some cases, are also buyersand/or sellers on our platform. We also compete for supply of advertising inventory against a variety of competitors. Some of our existing and potentialcompetitors are better established, benefit from greater name recognition, may have offerings and technology that we do not have or that are more evolvedand established than ours, and have significantly more financial, technical, sales, and marketing resources than we do. In addition, some competitors,particularly those with greater scale or a more diversified revenue base and a broader offering, may have greater flexibility than we do to competeaggressively on the basis of price and other contract terms, or to compete with us by including in their product offerings services that we may not provide.Some competitors are able or willing to agree to contract terms that expose them to risks that might be more appropriately allocated to buyers or sellers ofadvertising (including inventory risk and the risk of having to pay sellers for unsold advertising impressions), and in order to compete effectively we mightneed to accommodate risks that could be difficult to manage or insure against. Some buyers that use our solution, and some potential buyers, have their ownrelationships with sellers and can directly connect advertisers with sellers, and many sellers are investing in capabilities that enable them to connect moreeffectively directly with buyers. Our business may suffer to the extent that buyers and sellers purchase and sell advertising inventory directly from oneanother or through other intermediaries other than us, reducing the amount of advertising spend on our platform. In addition, as a result of solutionsintroduced by us or our competitors, our marketplace will experience disruptions and changes in business models, which may result in our loss of buyers orsellers. Our innovation efforts may lead us to introduce new solutions that compete with our existing solutions. New or stronger competitors may emergethrough acquisitions and industry consolidation or through development of disruptive technologies. If our offerings are not perceived as competitivelydifferentiated, due to competition and growth in our industry or our failure to develop adequately to meet market evolution, we could lose clients and marketshare or be compelled to reduce our prices, making it more difficult to grow our business profitably.There has been rapid evolution and consolidation in the advertising technology industry, and we expect these trends to continue, thereby increasingthe capabilities and competitive posture of larger companies, particularly those that are already dominant in various ways, and enabling new or strongercompetitors to emerge. For example, while we are investing to participate in the shift of digital advertising spending to mobile channels, the mobileadvertising market is dominated by a relatively small number of large competitors with direct mobile user relationships and proprietary first-party user data.These competitors have invested early and heavily in mobile advertising solutions that may be more compelling than ours, and have many establishedrelationships with buyers and sellers that may be difficult for us to replicate. Similar dynamics can be expected as growth in digital video advertising bringsestablished broadcast and content companies into the digital advertising business.As technology continues to improve and market factors continue to attract investment by others in the business, competition and pricing pressuremay increase and market saturation may change the competitive landscape in favor of larger competitors with greater scale and broader offerings, includingthose that can afford to spend more than we can to grow more quickly and strengthen their competitive position through innovation, development andacquisitions. In order to compete effectively, we may need to innovate, further differentiate our offerings, and expand the scope of our operations morequickly than would be feasible through our own internal efforts. However, because some capabilities may reside only in a small number of companies, ourability to accomplish necessary expansion through acquisitions may be limited because available companies may not wish to be acquired or may be acquiredby larger competitors with the resources to outbid us, or we may need to pay substantial premiums to acquire those businesses. Our ability to make strategicacquisitions could also be hampered if the value of our stock, which we might seek to use as acquisition currency, is viewed negatively by an acquisitiontarget, and the lower our stock price, the more dilution we will incur as a result of stock-based acquisitions.Many buyers and sellers are large consolidated organizations that may need to acquire other companies in order to grow. Smaller buyers and sellersmay need to consolidate in order to compete effectively. There is a finite number of large buyers and sellers in our target markets, and any consolidation ofbuyers or sellers may give the resulting enterprises greater bargaining power22Table of Contentsor result in the loss of buyers and sellers that use our platform, and thus reduce our potential base of buyers and sellers, each of which would lead to erosion ofour revenue.Acts of competitors and other third parties can adversely affect our business.We do not control the spending or inventory on our platform, and our revenue is therefore vulnerable to acts by third parties that reduce the amountsof spending or inventory available to us. For example, the amount of inventory available to independent platforms like us could be reduced as a result ofdecisions by Facebook to emphasize content viewable through its site or to favor friends and family-type feeds over third-party properties, or decisions byGoogle to utilize its ad server advantages to outbid us and other competitors in open-market auctions. Similarly, decisions by buyers and sellers to transactdirectly rather than through us would tend to reduce both spending and inventory on our platform.Our business depends on our ability to collect and use data to deliver advertisements, and to disclose data relating to the performance of advertisements.Any limitation imposed on our collection, use or disclosure of this data could significantly diminish the value of our solution and cause us to lose sellers,buyers, and revenue.As we process transactions through our solution, we are able to collect significant amounts of information about advertisements, their buyers andsellers, and the transactions in which they are placed. This includes buyer and seller preferences and requirements for media and advertisement content andspecifications such as placement, size and format; pricing of advertisements; and auction activity such as price floors, bid response behavior, and clearingprices. We also are able to collect non-personally identifiable information about users, including browser or device location and characteristics; onlinebehavior; exposure to and interaction with advertisements; and inferential data about purchase intentions and preferences. We collect this data throughvarious means, including from our own systems, pixels that sellers allow us to place on their websites to track user visits, software development kits installedin mobile applications, and cookies (which are discussed below). Our sellers and buyers also may provide us with their proprietary data about users.We aggregate this data over trillions of advertising impressions and analyze it in order to enhance our services, including the pricing, placement andscheduling of advertisements purchased by buyers across the advertising inventory provided by sellers. We also share this data, or analyses based upon thedata, with clients as part of our services. Our ability to collect, use, and share data about advertising purchase and sale transactions and user behavior andinteraction with content is critical to the value of our services, and any limitation on our data practices could impair our ability to deliver effective solutionsthat meet the needs of sellers and buyers of advertising, resulting in loss of volume and reduced pricing.Much of the data we collect and use belongs to our buyers or sellers, and we use it with their consent. (Other data is subject to control by Internetusers, either as a result of regulation or through choices such as behavioral advertising opt-outs or use of ad blocking technologies, as discussed below). Weuse data related to our buyers and sellers and their transactional activity on our platform to facilitate our services, but we must exercise care not to use thisdata in ways that provide unfair advantages to, or adversely affect, buyers or sellers. Although our sellers and buyers generally permit us to aggregate and usedata from advertising placements, subject to certain restrictions, sellers or buyers might decide to restrict our collection or use of their data. There could bevarious reasons for this, including perceptions by buyers that their data can be used by sellers to extract higher prices for impressions, or perceptions bysellers that their data can be used by buyers to bid tactically to reduce pricing for impressions. As a result, for example, sellers might not agree to provide uswith data generated by interactions with the content on their properties, or buyers might not agree to allow us to analyze bid responses. Buyers and sellersmay also request that we discontinue using data obtained from their transactions that has already been aggregated with other data. It would be costly anddifficult, if not impossible, to comply with such requests. In addition, interruptions, failures, defects, or other challenges in our data collection, mining,analysis, and storage systems could also limit our ability to aggregate and analyze the data from transactions effected through our solution. As consumerscontinue to increase their use of digital technology and to incorporate multiple devices into their lives, linking and using data across such devices willbecome increasingly important. Various challenges affect our ability to link data relating to discrete devices, including different technologies used indifferent platforms, increased user awareness and sensitivity regarding use of data about their device usage, and evolving regulatory and self-regulatorystandards. These challenges may slow growth, and if we are not able to cope with these challenges as effectively as other companies, we will be competitivelydisadvantaged. Any limitation on our ability to collect data about user behavior and interaction with content could make it more difficult for us to delivereffective solutions that meet the needs of sellers and buyers.If the use of cookies is restricted or subject to unfavorable regulation, or cookies are replaced by alternative tracking mechanisms, our performance maydecline and we may lose buyers and revenue.We use "cookies," or small text files placed through an Internet browser on an Internet user's computer, to gather data to enable our solution to bemore effective. Our cookies record non-personally identifiable information, such as when an Internet user views or clicks on an advertisement, where a user islocated, how many advertisements the user has seen, and browser or device information. We may also receive information from cookies placed by buyers orother parties who give us permission to use their23Table of Contentscookies. We use data from cookies to help buyers decide whether to bid on, and how to price, an opportunity to place an advertisement in a certain location,at a given time, in front of a particular Internet user. Without cookie data, transactions occurring through our solution would be executed with less insightinto activity that has taken place through an Internet user's browser, reducing the accuracy of buyers' decisions about which inventory to purchase for anadvertising campaign. This could make placement of advertising through our solution less valuable, with commensurate reductions in pricing. If our abilityto use cookies is limited, we may be required to develop or obtain additional applications and technologies to compensate for the lack of cookie data, whichcould be time consuming to develop or costly to obtain, less effective than our current use of cookies, and subject to additional regulation.Cookies are an important component of our ability to provide a satisfactory offering to our customers, and our continued use of cookies isvulnerable to actions by sellers of inventory, consumers, and regulators. For example, the European Union, or EU, Cookie Directive directs EU member statesto ensure that Internet users consent to storing or accessing information on their devices, such as through a cookie. Because we lack a direct relationship withInternet users, we rely on our sellers to obtain such consent. Some EU member states have interpreted the Cookie Directive to require sellers to provideincreasingly granular data to end users about cookies placed in the course of delivering an advertisement, including cookies placed by us, or by buyers usingour technology, in order to obtain effective consent. Providing this granular level of data may be difficult, and in some cases where a buyer is non-responsiveor recalcitrant, may not be possible. Further, such disclosures may conflict with data provisions in our contracts with buyers and sellers designed to protectinformation the buyer deems to be confidential or proprietary, or may require us to impose additional contractual requirements on buyers or sellers. As aresult, these types of disclosure requirements, as well as any other limitations on our or our buyers' ability to place or use third party cookies, may impair ourability to provide services in certain jurisdictions.Separately, some prominent sellers have announced intentions to discontinue the use of cookies, and to develop alternative methods andmechanisms for tracking web users. It is possible that these companies may rely on proprietary algorithms or statistical methods to track web users withoutcookies, or may utilize log-in credentials entered by users into other web properties owned by these companies, such as their digital email services, to trackweb usage, including usage across multiple devices, without cookies. Alternatively, such companies may build different and potentially proprietary usertracking methods into their widely-used web browsers.If cookies are effectively replaced by proprietary alternatives, our continued reliance upon cookie-based methods may face negative consumersentiment and otherwise place us at a competitive disadvantage, compelling us to develop or license alternative proprietary tracking methodologies.Development would take time, potentially subjecting us to competitive disadvantages, and require substantial investment from us. Development also maynot be commercially feasible given our relatively small size, the fact that development of such technologies may require technical skills that differ from ourcore engineering competencies, and the likelihood that the market would adopt solutions developed by larger competitors. Licensing new proprietarytracking mechanisms and data from companies that have developed them may not be viable for us for various reasons; creators of such technology maycompete with us and may offer to provide the technology to us only on unfavorable terms or not at all, and if proprietary web tracking standards are owned bysellers or browser operators that have access to user information by virtue of their popular consumer-oriented websites or browsers and design theirtechnology for use in conjunction with the types of user information collected from their websites, we may still be at a competitive disadvantage even if welicense their technology.If cookies are effectively replaced by open industry-wide tracking standards rather than proprietary standards, we may still incur substantial re-engineering costs to replace cookies with these new tracking technologies. This may also diminish the quality or value of our services to buyers if such newweb-tracking technologies do not provide us with the quality or timeliness of the tracking data that we currently generate from cookies.If the use of "third-party cookies" or digital advertising generally is rejected by Internet users, through opt-out or ad-blocking technologies or othermeans, or if other consumer choice mechanisms like "Do Not Track" and "Limit Ad Tracking" inhibit our ability to collect and use data about end users,our performance may decline and we may lose buyers and revenue.Internet users can, with increasing ease, implement practices or technologies that may limit our ability to collect and use data to deliveradvertisements, or otherwise inhibit the effectiveness of our solution. First, cookies may easily be deleted or blocked by Internet users. All of the mostcommonly used Internet browsers allow Internet users to modify their browser settings to block first-party cookies (placed directly by the publisher or websiteowner that the user intends to interact with) or third-party cookies (placed by parties, like Rubicon Project, that have no direct relationship with the user), andsome browsers, such as Safari, may block third-party cookies by default. Most browsers also now support temporary privacy modes that allow the user tosuspend, with a single click, the placement of new cookies or reading or updates of existing cookies. Many applications and other devices allow users toavoid receiving advertisements by paying for subscriptions or other downloads. Mobile devices based upon the Android and iOS operating systems limit theability of cookies to track users while they are using applications other than their web browser on24Table of Contentstheir device. As a consequence, fewer of our cookies or sellers' cookies may be set in browsers or be accessible in mobile devices, which adversely affects ourbusiness.Second, some Internet users also download free or paid "ad blocking" software, not only for privacy reasons, such as a desire to avoid being targetedfor ads based upon location or online activity, but also to counteract the adverse effect advertisements can have on users' experience, including increasedload times, data consumption, and screen overcrowding. Similar ad-blocking technology has also recently emerged for mobile devices. Such ad-blockingtechnology may prevent certain third-party cookies, or other tracking technologies, from being stored on a user's computer or mobile device. If more Internetusers adopt these measures, our business could be harmed. Ad-blocking technologies could have an adverse effect on our business if it reduces the volume oreffectiveness (and therefore value) of advertising. In addition, some ad blocking technologies block only ads that are targeted through use of third-party data,while allowing ads based on first-party data (i.e. data owned by the provider of the website or application being viewed). These ad blockers could place us ata disadvantage because we rely on third-party data, while large competitors have troves of first-party data they use to direct advertising. Other technologiesallow ads that are deemed "acceptable," which could be defined in ways that place us or our clients at a disadvantage, particularly if such technologies arecontrolled or influenced by our competitors. Even if ad blockers do not ultimately have a material impact on our business, investor concerns about adblockers could cause our stock price to decline.Increased prevalence of ad blocking has prompted examination of the effect of digital advertising industry practices upon the quality of userexperiences, and changes in industry practices may emerge as a result. Such changes could reduce the viability of our existing business model, place us at acompetitive disadvantage, or require us to invest significantly in developing new technologies and business practices.Third, current versions of the most widely used web browsers allow users to send "Do Not Track" signals to indicate that they do not wish to havetheir web usage tracked. However, there is currently no definition of "tracking" and no standards regarding how to respond to a "Do Not Track" preferencethat are accepted or standardized in the industry. The World Wide Web Consortium, or W3C, chartered a "Tracking Protection Working Group" in 2011 toconvene a multi-stakeholder group of academics, thought leaders, companies, industry groups and consumer advocacy organizations to create a voluntary"Do Not Track" standard for the web. The W3C is continuing to work on a policy specification that will provide guidance as to how websites and buyersshould respond to a "Do Not Track" signal. The W3C's current draft policy specification, which has not yet been finalized, allows first parties to continue totrack users, even if the users have enabled the "Do Not Track" signal in their web browser. At the same time, the draft policy specification would prevent thirdparties, like us, from any further tracking of such users across the Internet. If we are required to respond to "Do Not Track" signals as required by the W3C'scurrent draft policy specification, we may be placed at a significant competitive disadvantage compared to first-party data owners such as large websiteoperators, many of whom own or are developing or acquiring capabilities that compete with our solution.Even absent an industry standard, various government authorities have indicated an intent to implement some type of "Do Not Track" standard. Forexample, the Federal Trade Commission, or FTC, and the European Commission, which proposes legislation to the European Parliament, have previouslystated that they will pursue a legislative solution if the industry does not agree to a standard. Additionally, the "Do Not Track Online Act of 2015" wasrecently introduced in the U.S. Senate, and members of the U.S. House of Representatives have also issued public statements supporting the idea of alegislative solution. Such legislation or regulation may affect our ability to collect or use data collected through our platform when a user enables "Do NotTrack," and may also include a distinction between first-party and third party collection and usage of data, similar to the distinction in the W3C's current draftpolicy specification, which may impact our ability to compete in the marketplace.The California Online Privacy Protection Act of 2003 requires operators of websites or online services to disclose how the operator responds to "DoNot Track" signals regarding the collection of personally identifiable information about an individual consumer's online activities over time and across third-party websites or online services, as well as to disclose whether third parties may collect personally identifiable information about an individual consumer'sonline activities over time and across different websites or online services. It is possible that other states or the U.S. government could adopt similarlegislation. While we do not collect data that is traditionally considered personally identifiable information in the United States without user consent, wemay nonetheless elect to respond to such legislation by adopting a policy to discontinue profiling or web tracking in response to "Do Not Track" requests,and it is possible that we could in the future be prohibited from using non-personal consumer data by industry standards or state or federal legislation, whichmay diminish our ability to target and improve advertisements and the value of our services.Fourth, in addition to "Do Not Track" options, certain mobile devices allow users to "Limit Ad Tracking" on their devices. Like "Do Not Track,""Limit Ad Tracking" is a signal that is sent by particular mobile devices when a user chooses to send such a signal. While there is no clear guidance on howthird parties must respond upon receiving such a signal, it is possible that buyers, sellers, regulators, or future legislation may dictate a response that wouldlimit our access to data, and consequently negatively impact the effectiveness of our solution and the value of our services on mobile devices.25Table of ContentsLegislation and regulation of digital businesses, including privacy and data protection regimes, could create unexpected additional costs, subject us toenforcement actions for compliance failures, or cause us to change our technology solution or business model, which may have an adverse effect on thedemand for our solution.Many local, state, national, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and otherprocessing of data collected from and about consumers and devices, and the regulatory framework for privacy issues is evolving worldwide. Various U.S. andforeign governments, consumer agencies, self-regulatory bodies, and public advocacy groups have called for new regulation directed at the digitaladvertising industry in particular, and we expect to see an increase in legislation and regulation related to the collection and use of data to targetadvertisements and communicate with consumers, including mobile device and cross-device data, geo-location data, anonymous Internet user data andunique device identifiers, such as IP address or mobile advertising identifiers, and the collection of data from apps and websites that are directed to children.Such legislation or regulation could affect the costs of doing business online and may adversely affect the demand for or the effectiveness and value of oursolution. Some of our competitors may have more access to lobbyists or governmental officials and may use such access to effect statutory or regulatorychanges in a manner that commercially harms us while favoring their solutions.The U.S. government, including the FTC and the FCC, has announced that it is reviewing the need for greater regulation of the collection ofconsumer information, including regulation aimed at restricting some targeted advertising practices. For example, the U.S. Senate is currently consideringenacting the Location Privacy Protection Act, which would place significant restrictions on the collection and use of geo-location data, including foradvertising purposes. More recently, the FTC has announced that it plans to issue guidance on the tracking and delivery of targeted advertisements toconsumers across multiple devices. The FTC has also adopted revisions to the Children's Online Privacy Protection Act that expand liability for thecollection of information (including certain anonymous information such as persistent identifiers) by operators of websites and other online services that aredirected to children or that otherwise use (for certain purposes) information collected from or about children. In addition, the European Union has adopted aGeneral Data Protection Regulation, Regulation (EU) 2016/679 or the "GDPR," that will supersede the EU Data Protection Directive. The GDPR sets outhigher potential liabilities for certain data protection violations, as well as a greater compliance burden for us in the course of delivering our solution inEurope. Further, the European Union has indicated that it intends to propose reforms to the EU Cookie Directive governing the use of technologies to collectconsumer information. The UK decision to leave the European Union may add cost and complexity to our compliance efforts. The UK is an importantgeography for us and we have structured our EU privacy and data protection compliance in a UK-centric way by using our UK subsidiary as our EU datacontroller. If UK and EU privacy and data protection laws and regulations diverge, we will be required to implement alternative EU compliance mechanismsand adapt separately to any new UK requirements. Complying with any new regulatory requirements could force us to incur substantial costs or require us tochange our business practices in a manner that could reduce our revenue or compromise our ability to effectively pursue our growth strategy.Additionally, although we do not currently collect from consumers data that is traditionally considered personal data in the United States, such asnames, contact information, or financial or health data in the ordinary course of providing our solution (except to the limited extent personal data isvoluntarily submitted by a user or collected by us with the user's knowledge and consent), we typically do collect and store IP addresses, geo-locationinformation, and persistent identifiers. Some of this data is or may be considered personal data in some jurisdictions or otherwise may be the subject of futurelegislation or regulation. For example, some jurisdictions in the EU already regard IP addresses and unique device identifiers as personal data, and certainregulators, like the California Attorney General's Office and the FTC, have advocated for including IP addresses, GPS-level geolocation data, and uniquedevice identifiers as personal data under California and Federal law. Evolving definitions of personal data, within the European Union, the United States andelsewhere, especially relating to the classification of IP addresses, geo-location data, and persistent identifiers, may cause us in the future to change ourbusiness practices, diminish the quality of our data and the value of our solution, and hamper our ability to expand our offerings into the EU or otherjurisdictions outside of the United States. They might likewise result in additional regulatory, legislative or public scrutiny, including investigations.Further, many governments are restricting the storage of information about individuals beyond their national borders. Such restrictions could,depending upon their scope, limit our ability to utilize technology infrastructure consolidation, redundancy, and load-balancing techniques, resulting inincreased infrastructure costs, decreased operational efficiencies and performance, and increased the risk of system failure.These laws and regulations are continually evolving, not always clear, and not always consistent across the jurisdictions in which we do business.The measures we take to protect the security of information that we collect, use, and disclose in the operation of our business may not always be effective. Ourfailure to protect, and comply with applicable laws and regulations or industry standards applicable to, personal data or other data relating to consumerscould result in enforcement action against us, including fines, imprisonment of our officers, and public censure, claims for damages by consumers and otheraffected individuals, damage to our reputation, and loss of goodwill. This is particularly true given that the FTC, Attorneys General of various U.S. States andvarious international regulators (including numerous data protection authorities in the European Union), have specifically cited as26Table of Contentsenforcement priorities certain practices that relate to digital advertising. Even the perception of concerns relating to our collection, use, disclosure, andretention of data, including our security measures applicable to the data we collect, whether or not valid, may harm our reputation and inhibit adoption of oursolution by current and future buyers and sellers. We are aware of ongoing lawsuits filed against, or regulatory investigations into, companies in the digitaladvertising industry concerning various alleged violations of consumer protection, data protection, and computer crime laws, asserting various privacy-related theories. Any such proceedings brought against us could hurt our reputation, force us to spend significant amounts in defense of these proceedings,distract our management, increase our costs of doing business, adversely affect the demand for our services, and ultimately result in the imposition ofmonetary liability or restrictions on our ability to conduct our business. We may also be contractually liable to indemnify and hold harmless buyers or sellersfrom the costs or consequences of litigation or regulatory investigations resulting from using our services or from the disclosure of confidential information,which could damage our reputation among our current and potential sellers or buyers, require significant expenditures of capital and other resources andcause us to lose business and revenue.Further, privacy and other regulatory violations by other participants in the digital advertising ecosystem could lead to increased regulatory andenforcement activities, reductions in the growth of demand for digital advertising, and increased user requirements, all of which could have adverseconsequences and impose additional costs for all industry participants, including us.The European Union's recently finalized General Data Protection Regulation, which restricts the transfer of personal data of EU residents to the UnitedStates, as well as the Court of Justice of the European Union's recent opinion invalidating the EU-U.S. Safe Harbor, which previously allowed the transferof such personal data to the United States, could require us to adopt costly compliance mechanisms, subject us to increased regulatory scrutiny, andhamper our plans to expand our business in Europe.The use and transfer of personal data in EU member states is currently governed under Directive 95/46/EC (which is commonly referred to as theData Protection Directive) as well as legislation adopted in the member states to implement the Data Protection Directive. The Data Protection Directivegenerally prohibits the transfer of personal data of EU subjects outside of the European Union, unless the party exporting the data from the European Unionimplements a compliance mechanism designed to ensure that the receiving party will adequately protect such data. One such compliance mechanism was theprocess agreed to by the European Union and the United States known as the EU-U.S. Safe Harbor Framework, pursuant to which U.S. businesses certified thatthey treat the personal data of EU residents in accordance with privacy principles promulgated by the Data Protection Directive.We previously relied upon the Safe Harbor Framework to allow us to transfer certain personal data of EU subjects, including both data about ouremployees and consumer data that is collected and processed through our technology, to the United States. In 2015, however, the Court of Justice of theEuropean Union issued an opinion concluding that the Safe Harbor Framework is not sufficient to allow transfers of personal data of EU subjects to theUnited States. Therefore, we can no longer rely on the Safe Harbor Framework to justify the transfer of personal data of EU subjects to the United States.Instead, we must rely on alternative compliance measures, which are complex, which may also be subject to legal challenge, and which, unlike the SafeHarbor Framework, directly subject us to regulatory enforcement by data protection authorities located in the European Union. As a result, by relying onthese alternative compliance measures, we risk becoming the subject of regulatory investigations in any of the individual jurisdictions in which we operate.Each such investigation could cost us significant time and resources, and could potentially result in fines, criminal prosecution, or other penalties. Beingforced to rely on alternative compliance measures could also affect the market for our technology, as EU customers may choose to do business with EU-basedcompanies or other competitors that do not need to transfer personal data to the United States in order to avoid the above-identified risks and legal issues.Additionally, the European Union recently adopted the GDPR, which will supersede the Data Protection Directive in May 2018, or perhaps earlier insome jurisdictions. Among other requirements, the GDPR obligates companies that process large amounts of personal data about EU subjects to implement anumber of formal processes and policies reviewing and documenting the privacy implications of the development, acquisition, or use of all new products,technologies, or types of data. Implementing these policies before the GDPR takes effect will take considerable time and resources, and could result inslowing our ability to develop, acquire, or enter into agreements to use new products, technologies, or types of data. Further complicating this effort, theGDPR enables EU member states to enact jurisdiction-specific requirements in key areas, which could require us to modify our plans to comply with theGDPR, or otherwise to implement multiple policies unique to the jurisdictions in which we operate, which could make it more difficult and resource-intensive to continue to operate in the European Union.Changes in tax laws affecting us and other market participants could have a material adverse effect on our business.We are subject to taxation by various taxing authorities at the federal, state and local levels. The Trump Administration has made federalcorporate tax reform one of its priorities and the possibility of such reform is thought to be increased in light of the Republican-led Congress. Whilesuch reform is likely to be favorable to corporations generally, the structure of any such reform is27Table of Contentsunknown and a change in tax laws or rates could in fact adversely affect our results of operations, net income, financial condition and cash flows.Specifically, U.S. legislative proposals have been made that, if enacted, would limit or delay the deductibility of advertising costs for U.S. federalincome tax purposes. Any such proposals, if enacted, will likely cause advertisers to reduce their advertising spending in order to mitigate or offset any lossresulting from a change in the tax treatment of such costs. Any such changes would likely have a negative impact on the advertising industry and us byreducing the aggregate amount of money spent on advertising.Additionally, U.S. legislative and budget proposals have also included limits on the ability to defer taxation for U.S. federal income tax purposes ofearnings outside the United States until those earnings are repatriated, and immediate taxes on unremitted foreign earnings. Any changes in the taxation ofour non-U.S. earnings could increase our tax expense and harm our financial position and results of operations.We generally do not have contractual privity with Internet users who view advertisements that we place, and we may not be able to disclaim liabilities fromsuch Internet users or consumers.Potential sources of liability to Internet users include malicious activities, such as the introduction of malware into users' computers throughadvertisements served through our platform, and code that redirects users to sites other than the ones users sought to visit, potentially resulting in malwaredownloads or use charges from the redirect site. Sellers of advertisement space purchased through our solution often have terms of use in place with theirusers that disclaim or limit their potential liabilities to such users, or pursuant to which users waive rights to bring class-action lawsuits against the sellersrelated to advertisements. Certain of our competitors are also prominent sellers, and may be able to include protections in their website or application terms ofuse that also limit liability to users of their advertising services. We generally do not have terms of use in place with such users. As a consequence, wegenerally cannot disclaim or limit potential liabilities to such users through terms of use, which may expose us to greater liabilities than competingadvertising networks that are also prominent sellers.Changes in market standards applicable to our solution could require us to incur substantial additional development costs.Market forces, competitors' initiatives, regulatory authorities, industry organizations, seller integration revisions, and security protocols are causingthe emergence of demands and standards that are or could be applicable to our solution. We expect compliance with these kinds of standards to becomeincreasingly important to buyers and sellers, and conforming to these standards is expected to consume a substantial and increasing portion of ourdevelopment resources. If our solution is not consistent with emerging standards, our market position and sales could be impaired. If we make the wrongdecisions about compliance with these standards, or are late in conforming, or if despite our efforts our solution fails to conform, our offerings will be at adisadvantage in the market to the offerings of competitors that have complied.The evolving concept of viewability involves competitive uncertainty and may cause us to incur additional costs and liability risk.Viewability of digital advertising inventory is relevant to marketers because it represents a way of assessing the value of particular inventory as ameans to reach a target audience. However, there is no consensus definition of viewability. Some approaches focus on whether an advertisement can be seenat all, and others focus on whether an advertisement that can be seen is actually seen, in whole or part, or for how long. Low viewability can be caused byvarious factors, including technical issues (e.g. device screen size, browser functionality and settings, web site load times), media design (e.g. below-the-foldor sub-page placements), and user behavior (e.g. the decision whether to scroll down a website or click on an advertisement or how long to watch a video).Non-viewability is a separate issue and may result, for example, from stacking ads so the one in the back is obscured, or serving ads into a single pixel spacetoo small to be seen. Sometimes these two concepts of viewability are conflated, which tends to obscure analysis.Aside from non-viewable inventory, which is generally well understood, various vendors and other industry participants advocate definitions andmeasurements of low viewability that are consistent with their technology or interests. We cannot predict whether consensus views will emerge, or what theywill be. Nevertheless, some themes seem to have emerged:•Buyers of advertising inventory are increasingly using technology, often provided by third parties, to assess viewability of impressions foruse as a bidding or purchasing criterion, or to determine value for purposes of determining pricing.•Assessment of viewability is imperfect, but technology can be expected to improve as data providers, DSPs, and buyers themselves developviewability assessment tools and build viewability factors into their algorithms for bidding, purchasing, and pricing decisions.•Inventory viewability and value correlate. More viewable inventory is more valuable, and viewability of inventory increases in importancewith the price paid for that inventory.28Table of Contents•Viewability can be used as an inventory differentiator, by domain or on an impression level, with higher viewability generally associatedwith higher value and pricing, and lower viewability generally associated with lower value and pricing.These themes are relevant to our business of facilitating fully informed purchase and sale of advertising, and the evolution of viewability standardsmay represent an opportunity to refine matching of supply and demand. However, incorporating viewability concepts fully into our business as they evolvewill require us to incur additional costs to integrate relevant technologies and process additional information through our system. If we do not handleviewability well, we could be competitively disadvantaged.In addition, inventory that is well differentiated on the basis of viewability will also be differentiated on the basis of value, with less viewableinventory valued lower. In this context, if we are not positioned to transact the higher viewability inventory competitively, our revenue and profitabilitycould be adversely affected.Buyers could attempt to hold us responsible for impressions that do not satisfy their viewability requirements or expectations, and depending uponhow viewability evolves, market practice or emerging regulation may require us to incur compliance costs and assume some responsibility for viewability ofadvertisements transacted through our solution. Divergent views of how to measure viewability and imperfect measurement technology could lead todisagreement, increasing risk of disputes, demands for refunds, and reputational harm.Failure to comply with industry self-regulation could harm our brand, reputation and our business.In addition to compliance with government regulations, we voluntarily participate in trade associations and industry self-regulatory groups thatpromulgate best practices or codes of conduct addressing privacy and the provision of digital advertising. However, in the past, some of these guidelineshave not comported with our business practices, making them difficult for us to implement. If we encounter difficulties in the future, or our opt-outmechanisms fail to work as designed, or if digital media users misunderstand our technology or our commitments with respect to these principles, we may besubject to negative publicity, as well as investigation and litigation by governmental authorities, self-regulatory bodies or other accountability groups,buyers, sellers, or other private parties. Any such action against us could be costly and time consuming, require us to change our business practices, divertmanagement's attention and our resources, and be damaging to our reputation and our business. In addition, we could be adversely affected by new or alteredself-regulatory guidelines that are inconsistent with our practices or in conflict with applicable laws and regulations in the United States and other countrieswhere we do business. As a result of such inconsistencies or conflicts, or other business or legal considerations, we may choose not to comply with some self-regulatory guidelines. Additionally, as we expand geographically, we may begin to operate in jurisdictions that have self-regulatory groups in which we donot participate. If we fail to abide by or are perceived as not operating in accordance with applicable laws and regulations and industry best practices, or anyindustry guidelines or codes with regard to privacy or the provision of Internet advertising, our reputation may suffer and we could lose relationships withbuyers and sellers.Forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business may notgrow at similar rates, if at all.We have in the past provided, and may continue to provide, forecasts related to our market, including forecasts relating to the expected growth inthe digital advertising market and parts of that market as well as the forecasted trend towards automation of analog and print advertising markets. Growthforecasts are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. Moreover, the anticipation thatthe advertising industry will continue to shift from analog and print media to digital advertising at the rate forecasted, or the anticipation of the shift inadvertising spending from analog to digital, may not come to fruition. Further, even if the market grows, we may not succeed in our plans to enter or increaseour presence in various markets for various reasons, including possible shortfall or misallocation of resources or superior technology development ormarketing by competitors.Risks Related to Our Relationships with Buyers and Sellers and Other Strategic RelationshipsWe depend on owners of digital media properties for advertising inventory to deliver for advertising campaigns, and any decline in the supply ofadvertising inventory from these sellers could hurt our business.We depend on digital media properties to provide us with advertising inventory. The sellers that supply inventory to us typically do so on a non-exclusive basis and are not required to provide us with any minimum amounts or consistent supply of inventory; they are free to, and often do, maintainconcurrent relationships with various sources of demand that compete with us, and it is easy for sellers quickly to shift their advertising inventory amongthese concurrent demand sources, or shift inventory to new demand sources, without notice or accountability. Sellers may seek to change the terms at whichthey offer inventory to us, or allocate their advertising inventory to our competitors who offer advertisements to them on more favorable terms or whoseofferings are considered more beneficial. Sellers may also sell inventory directly to buyers through other channels. Sellers may allocate their availableinventory among channels according to various methodologies that often result in ranked prioritization in their ad servers.29Table of ContentsCompetitors ranked higher in priority see available impressions earlier and have more opportunity to acquire more inventory and more high value inventory.It is easy for sellers to change rankings in their ad servers, and we cannot control how sellers rank us, and to the extent that competitors have higher prioritythan us, our revenue and the quality of inventory available to our buyers can be adversely affected. Supply of advertising inventory is also limited for somesellers, such as special sites or new technologies, and sellers may request higher prices, fixed price arrangements or guarantees that we cannot provide aseffectively as our competitors, or that would reduce the profitability of that business. In addition, sellers sometimes place significant restrictions on the sale oftheir advertising inventory, such as strict security requirements, prohibitions on advertisements from specific advertisers or specific industries, andrestrictions on the use of specified creative content or format. In addition, sellers or competitors could pressure us to increase the prices for inventory, whichmay reduce our operating margins, or otherwise block our access to that inventory, without which we would be unable to deliver advertisements using oursolution. Finally, with the proliferation of header bidding, sellers' inventory could be available for buying through multiple exchanges simultaneously,thereby potentially reducing the number of ad impressions sold through our exchange even where we have historically had relationships with the seller, andincreasing prices paid to the seller.If sellers limit advertising inventory made available to us, increase the price of inventory, place significant restrictions on the sale of theiradvertising inventory, or implement header bidding solutions from our competitors, we may not be able to replace this with inventory from other sellers thatsatisfies our requirements in a timely and cost-effective manner. In addition, significant sellers in the industry may enter into exclusivity arrangements withour competitors, which could limit our access to a meaningful supply of advertising inventory. If any of this happens, the value of our solution to buyerscould decrease and our revenue could decline or our cost of acquiring inventory could increase, lowering our operating margins.Our contracts with buyers and sellers are generally not exclusive and generally do not require minimum volumes or long-term commitments. If buyers orsellers representing a significant portion of the demand or inventory in our marketplace decide to materially reduce the use of our solution, we couldexperience an immediate and significant decline in our revenue and profitability and harm to our business.Generally, our buyers and sellers are not obligated to provide us with any minimum volumes of business, may do business with our competitors aswell as with us, and may bypass us and transact directly with each other or through other intermediaries. Most of our business with buyers originates pursuantto arrangements that are limited in scope and can be reduced or canceled by the buyer without penalty. Similarly, sellers make inventory available to us on adiscretionary basis. Accordingly, our business is highly vulnerable to changes in the macro environment, price competition, and development of new or morecompelling offerings by our competitors, which could reduce business generally or motivate buyers or sellers to migrate to competitors' offerings. Further, ifour relationships with buyers or sellers become strained due to service failures or other reasons, including possible perceptions by our buyers that we competewith them, it might not be difficult for these clients to reduce or terminate their business with us. Because we do not have long-term contracts, our futurerevenue may be difficult to predict and there is no assurance that our current buyers and sellers will continue to use our solution or that we will be able toreplace lost buyers or sellers with new ones. If a buyer or group of buyers representing a significant portion of the demand in our marketplace, or a seller orgroup of sellers representing a significant portion of the inventory in our marketplace decides to materially reduce use of our solution, it could cause animmediate and significant decline in our revenue and profitability and harm to our business. Additionally, if we overestimate future usage, we may incuradditional expenses in adding infrastructure without a commensurate increase in revenue, which would harm our profitability and other operating results.Loss of business associated with large buyers or sellers could have significant negative impact on our results of operations and overall financial condition.We serve large numbers of buyers and sellers, but certain large buyers and sellers have accounted for and will continue to account for adisproportionate share of business transacted through our solution. Our contracts with buyers and sellers generally do not provide for any minimum volumesand may be terminated on relatively short notice. Buyer and seller needs and plans can change quickly, and buyers or sellers may reduce volumes orterminate their arrangements with us, quickly and without penalty, for a variety of reasons, including financial issues or other changes in circumstances;development or acquisition by buyers or sellers of their own technologies that reduce their reliance upon us; the new offerings by or strategic relationshipswith our competitors; change or removal of personnel with whom we traditionally had relationships; opportunities for buyers and sellers to bypass us anddeal directly with each other; change in control (including consolidations through mergers and acquisitions); adoption of header bidding solutions; ordeclining general economic conditions (including those resulting from dissolutions of companies). Technical issues affecting our systems or the systems ofour larger buyers or sellers could also cause a decline in spending. As is typical in our industry, some of the largest buyers and sellers on our platform are alsocompetitors, which could increase the risk that such companies could reduce their business with us.These factors make it important for us to expand and diversify our client relationships. The number of large media buyers and sellers in the market isfinite, and it could be difficult for us to replace revenue loss from any large buyers or sellers whose30Table of Contentsrelationships with us diminish or terminate. Just as growth in our inventory strengthens buyer activity in a network effect, loss of inventory or buyers couldhave the opposite effect. Loss of revenue from significant buyers or failure to collect accounts receivable, whether as a result of buyer payment default,contract termination or other factors, or significant reductions in inventory, could have a significant negative impact on our results of operation and overallfinancial condition.We must provide value to both buyers and sellers of advertising without being perceived as favoring one over the other or being perceived as competingwith them through our service offerings.Buyers and sellers have different interests, with each trying to enhance its value in their transactions through use of data, requests that we adapt oursolution to help them, and other means. We are interposed between buyers and sellers, and to be successful, we must continue to find ways of providing valueto both without being perceived as favoring one at the expense of the other. For example, our proprietary auction algorithms, which are designed to improveauction outcomes, influence the allocation and pricing of impressions and must do so in ways that add value to both buyers and sellers. Continuedtechnological evolution in our business results in the availability and use of more data more incisively to inform buying and selling decisions. Third-partydata analytics providers encourage this dynamic by offering products to buyers and sellers to attempt to swing transactional dynamics to their advantage atthe expense of the other. We come under pressure to provide raw data to fuel these products and to facilitate their use by buyers and sellers on our platform.Unlike some competitors, who focus on serving either buyers or sellers, we must serve the interests of both, meaning that we must exercise caution in use ofdata and may determine not to facilitate some data products, which could result in loss of business from clients that insist upon using such products.Furthermore, because new business models continue to emerge, we must constantly adapt our relationship with buyers and sellers and how we marketourselves to each. Further, consistent with our goal of connecting buyers and sellers, we inevitably grow closer to each, and we must take care that our deeperconnections with buyers, on the one hand, or sellers, on the other hand, do not come at the expense of the other's interests. In addition, as our own capabilitiesevolve, we may be perceived by clients, particularly buyers, as competing with them. If we fail to balance our clients' interests appropriately, our ability toprovide a full suite of services and our growth prospects may be compromised.We rely on buyers to use our solution to purchase advertising on behalf of advertisers. Such buyers may have or develop high-risk credit profiles or payslowly, which may result in credit risk to us or require additional working capital to fund our accounts payable. In addition, direct billing arrangementsbetween buyers and sellers may result in unfavorable fee dynamics and increased working capital demands.Our revenue is generated from advertising spending transacted over our platform using our technology solution. Generally, we invoice and collectfrom buyers the full purchase price for impressions they have purchased, retain our buyer and seller fees (where applicable), and remit the balance to sellers.However, in some cases, we may be required to pay sellers for impressions delivered before we have collected, or even if we are unable to collect, from thebuyer of those impressions. There can be no assurances that we will not experience bad debt in the future, and write-offs for bad debt could have a materiallynegative effect on our results of operations for the periods in which the write-offs occur. In addition, we attempt to coordinate collections from our buyers soas to fund our payment obligations to our sellers. However, some buyers and sellers are beginning to require direct billing and collection arrangementsbetween themselves, particularly for our guaranteed orders solution. When we collect from buyers and pay sellers, we are able to include our buyer fees incost of media billed and retain our buyer and seller fees from cash we collect before remitting balances to sellers. However, more buyers and sellers arebeginning to handle billing and collections directly, and if we do not manage collections and payments, we will need to invoice buyers and sellers for ourfees, which may increase visibility and result in pressure for more transparent or lower fees. Further, growth and increased competitive pressure in the digitaladvertising industry is causing brand spenders to become more demanding, resulting in overall increased focus by all industry participants on pricing,transparency, and cash and collection cycles. Some buyers have experienced financial pressures that have motivated them to pressure us to reduce our feesand/or limit our pricing flexibility, to challenge some details of our invoices, or to slow the timing of their payments to us. If buyers slow their payments to usor our cash collections are significantly diminished as a result of these dynamics, our revenue and/or cash flow could be adversely affected and we may needto use working capital to fund our accounts payable pending collection from the buyers. This may result in additional costs and cause us to forgo or deferother more productive uses of that working capital.Our sales efforts with buyers and sellers may require significant time and expense and may not yield the results we seek.Attracting new buyers and sellers and increasing our business with existing buyers and sellers involves substantial time and expense, and we maynot be successful in establishing new relationships or in maintaining or advancing our current relationships. We may spend substantial time and efforteducating buyers and sellers about our offerings, including providing demonstrations and comparisons against other available solutions. This process can becostly and time-consuming, and is complicated by us having to spend time integrating our solution with software of buyers and sellers. Because our solutionmay be less familiar in some markets outside the United States, the time and expense involved with attracting, educating and integrating buyers and sellers ininternational markets may be even greater than in the United States. If we are not successful in targeting, supporting and streamlining our sales processes, ourability to grow our business may be adversely affected. In addition, because of competitive market conditions and31Table of Contentsnegotiating leverage enjoyed by large buyers and sellers, we are sometimes forced to choose between loss of business or contracting on terms that allocatemore risk to us than we would prefer to accept.We rely on buyers and sellers to abide by contractual requirements and relevant laws, rules, and regulations when using our solution, and legal claims orenforcement actions resulting from the actions of buyers or sellers could expose us to liabilities, damage our reputation, and be costly to defend.The buyers and sellers engaging in transactions through our platform impose various requirements upon each other, and they and the underlyingadvertisers are subject to regulatory requirements by governments and standards bodies applicable to their activities. We assume responsibility for satisfyingor facilitating the satisfaction of some of these requirements through the contracts we enter into with buyers and sellers. In addition, we may haveresponsibility for some acts or omissions of buyers or sellers transacting business through our solution under applicable laws or regulations or as a result ofcommon law duties, even if we have not assumed responsibility contractually. These responsibilities could expose us to significant liabilities, perhapswithout the ability to impose effective mitigating controls upon, or to recover from, buyers and sellers. Moreover, for those third parties who are both a buyerand seller on our platform, it is feasible that they could use our platform to buy and sell advertisements in an effort to inflate their own revenue. We could besubject to litigation as a result of such actions, and, if we were sued, we would incur legal costs in our defense and cannot guarantee that a court would notattribute some liability to us.We contractually require our buyers and sellers to abide by relevant laws, rules and regulations, as well as restrictions by their counterparties, whentransacting on our platform, and we generally attempt to obtain representations from buyers that the advertising they place through our solution complieswith applicable laws and regulations and does not violate third-party intellectual property rights, and from sellers about the quality and characteristics of theimpressions they provide. We also generally receive representations from buyers and sellers about their privacy practices and compliance with applicablelaws and regulations, including their maintenance of adequate privacy policies that disclose and permit our data collection practices. Nonetheless, there aremany circumstances in which it is difficult or impossible for us to monitor or evaluate their compliance. For example, we cannot control the content of seller'smedia properties, and we are often unable to determine exactly what information a buyer collects after an ad has been placed, and how the buyer uses anysuch collected information. If buyers or sellers fail to abide by relevant laws, rules and regulations, or contract requirements, when transacting over ourplatform, or after such a transaction is completed, we could potentially face liability for such misuse. Similarly, if such misconduct results in enforcementaction by a regulatory body or other governmental authority, we could become involved in a potentially time-consuming and costly investigation or wecould be subject to some form of sanction or penalty. We may not have adequate indemnity to protect us against, and our policies of insurance may notcover, such claims and losses.Our business relationships expose us to risk of substantial liability for contract breach, violation of laws and regulations, intellectual propertyinfringement and other losses, and our contractual indemnities and limitations of liability may not protect us adequately.Our agreements with sellers, buyers and other third parties typically obligate us to provide indemnity and defense for losses resulting from claims ofintellectual property infringement, damages to property or persons, business losses or other liabilities. Generally, these indemnity and defense obligationsrelate to our own business operations, obligations and acts or omissions. However, under some circumstances, we agree to indemnify and defend contractcounterparties against losses resulting from their own business operations, obligations and acts or omissions, or the business operations, obligations and actsor omissions of third parties. For example, because our business interposes us between buyers and sellers in various ways, buyers often require us toindemnify them against acts and omissions of sellers, and sellers often require us to indemnify them against acts and omissions of buyers. In addition, ouragreements with sellers, buyers and other third parties typically include provisions limiting our liability to the counterparty and the counterparty's liability tous. These limits sometimes do not apply to certain liabilities, including indemnity obligations. These indemnity and limitation of liability provisionsgenerally survive termination or expiration of the agreements in which they appear.We have limited ability to control acts and omissions of buyers and sellers or other third parties that could trigger our indemnity obligations, andour policies of insurance may not cover us for acts and omissions of others. Because we contract with many buyers and sellers and those contracts areindividually negotiated with different scopes of indemnity and different limits of liability, it is possible that in any case our obligation to provide indemnityfor the acts or omissions of a third party such as a buyer or seller may exceed what we are able to recover from that party. Further, contractual limits on ourliability may not apply to our indemnity obligations, contractual limits on our counterparties' liability may limit what we can recover from them, and contractcounterparties may be unable to meet their obligations to indemnify and defend us as a result of insolvency or other factors. Large indemnity obligations, orobligations to third parties not adequately covered by the indemnity obligations of our contract counterparties, could expose us to significant costs.32Table of ContentsIn addition to the effects on indemnity described above, the limitation of liability provisions in our contracts may, depending upon thecircumstances, be too high to protect us from significant liability for our own acts or omissions, or so low as to prevent us from recovering fully for the acts oromissions of our counterparties.Our solution relies on third-party open source software components. Failure to comply with the terms of the underlying open source software licensescould expose us to liabilities, and the combination of certain open source software with code that we develop could compromise the proprietary nature ofour solution.Our solution utilizes software licensed to us by third-party authors under "open source" licenses. The use of open source software may entail greaterrisks than the use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regardinginfringement claims or the quality of the code. Some open source licenses contain requirements that we make available source code for modifications orderivative works we create based upon the type of open source software we use. If we combine our proprietary software with open source software in a certainmanner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow ourcompetitors to create similar solutions with lower development effort and time and ultimately put us at a competitive disadvantage.The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a waythat could impose unanticipated conditions or restrictions on us. Moreover, we cannot guarantee that our processes for controlling our use of open sourcesoftware will be effective. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third partiesto continue operating using our solution on terms that are not economically feasible, to re-engineer our solution or the supporting computationalinfrastructure to discontinue use of certain code, or to make generally available, in source code form, portions of our proprietary code.Risks Relating to Our OperationsOur reorganization and cost-control efforts might not assure profitability and may affect morale and make it difficult to retain employees or attract newones.We implemented a reduction in force affecting approximately 125 employees on November 3, 2016 and, in the first quarter of 2017, we exited theintent marketing business and reorganized our management team, eliminating some roles. These steps are part of a larger effort we began earlier in 2016 torealign our business to best reflect the needs of our customers and the evolving marketplace in which we operate, and to pursue our strategic priorities. Wehad previously scaled our organization in anticipation of continuing revenue growth in excess of our actual results, and the steps we have taken are intendedto reduce our costs to align our organization and cost structure more appropriately to our current revenue and scale and to position us better to expand ourinvestments in future growth areas including header bidding, mobile, video, and Orders. However, our cost reduction efforts do not assure our profitability.Additional cost reductions may be implemented in the future, and cost savings may be offset by future hiring or other costs to pursue strategic objectives. Thereduction in force and management reorganization could adversely affect morale in our organization and our reputation as an employer, which could lead tothe loss of valued employees and could make it more difficult for us to hire new employees in the future, and the reduction of our headcount could adverselyaffect our service delivery and make it more difficult for us to pursue new opportunities and initiatives in the future.Real or perceived errors or failures in the operation of our solution could damage our reputation and impair our sales.Our solution processes over 15 trillion bid requests per month and must operate without interruption to support the needs of sellers and buyers.Because our software is complex, undetected errors and failures may occur, especially when new versions or updates are made to our software or networkinfrastructure or changes are made to sellers' or buyers' software interfacing with our solution. Errors or bugs in our software, faulty algorithms, technical orinfrastructure problems, or updates to our systems could lead to an inability to effect transactions or process data to place advertisements or price inventoryeffectively, cause the inadvertent disclosure of proprietary data, or cause advertisements to display improperly or be placed in proximity to inappropriatecontent. Despite testing by us, errors or bugs in our software have in the past, and may in the future, not be found until the software is in our live operatingenvironment. For example, changes to our solution have in the past caused errors in the reporting and analytics applications for buyers, resulting in delays intheir spending on our platform. Errors or failures in our solution, even if caused by the implementation of changes by buyers or sellers to their systems, couldalso result in negative publicity, disclosure of confidential information, damage to our reputation, loss of or delay in market acceptance of our solution,increased costs or loss of revenue, loss of competitive position, or claims by advertisers for losses sustained by them.We may make errors in the measurement of transactions conducted through our solution, causing discrepancies with the measurements of buyers andsellers, which can lead to a lack of confidence in us and require us to reduce our fees or provide refunds to buyers and sellers. Alleviating problems resultingfrom errors in our software could require significant expenditures of capital and other resources and could cause interruptions, delays, or the cessation of ourbusiness.33Table of ContentsVarious risks could interrupt access to our network infrastructure or data, exposing us to significant costs and other liabilities.Our revenue depends on the technological ability of our solution to deliver and measure advertising impressions, and the operation of our exchangeand our ability to place impressions depend on the continuing and uninterrupted performance of our IT systems. Our platform operates on our data processingequipment that is housed in third-party commercial data centers that we do not control. In addition, our systems interact with systems of buyers and sellersand their contractors. All of these facilities and systems are vulnerable to interruption and/or damage from a number of sources, many of which are beyond ourcontrol, including, without limitation: (i) loss of adequate power or cooling and telecommunications failures; (ii) fire, flood, earthquake, hurricane, and othernatural disasters; (iii) software and hardware errors, failures, or crashes; (iv) financial insolvency; and (v) computer viruses, malware, hacking, terrorism, andsimilar disruptive problems. In particular, intentional cyber-attacks present a serious issue because they are difficult to prevent and remediate and can be usedto defraud our buyers and sellers and their customers and to steal confidential or proprietary data from us, our customers, or their users. Further, because ourLos Angeles headquarters and San Francisco offices and our California data center sites are in seismically active areas, earthquakes present a particularlyserious risk of business disruption. These vulnerabilities may increase with the complexity and scope of our systems and their interactions with buyer andseller systems.The steps we take to mitigate this risk may not protect against all problems, and our ability to mitigate risks to related third-party systems is limited.In addition, we rely to a significant degree upon security and business continuity measures of our data center operators, which may be ineffective. Ourdisaster recovery and business continuity plans rely upon third-party providers of related services, and if those vendors fail us, we could be unable to meet theneeds of buyers and sellers. Any steps we take to increase the reliability and redundancy of our systems may be expensive and may not be successful inpreventing system failures. Any failures with our solution or delays in the execution of transactions through our system may result in the loss of advertisingplacements on impressions and, as a result, the loss of revenue. Our facilities would be costly to repair or replace, and any such efforts would likely requiresubstantial time.Buyers may attribute to us any technical disruption or failure in the performance of advertisements on sellers' digital media properties, harming ourreputation and resulting in buyers seeking to avoid payment or demand future credits for disruptions or failures. If we are unable to operate our exchange anddeliver advertising impressions successfully, our ability to attract potential buyers and sellers and retain and expand business with existing buyers and sellerscould be harmed.Malfunction or failure of our systems, or other systems that interact with our systems, or inaccessibility or corruption of data, could disrupt ouroperations and negatively affect our business and results of operations to a level in excess of any applicable business interruption insurance, result inpotential liability to buyers and sellers, and negatively affect our reputation and ability to sell our solution.Any breach of our computer systems or confidential data in our possession could expose us to significant expense and liabilities and harm our reputation.We maintain our own confidential and proprietary information in our IT systems, and we control or have access to confidential, proprietary, andpersonal data belonging or related to sellers, buyers, and their clients, as well as vendors and business partners. Our clients and various third parties also haveaccess to our confidential and proprietary information. There is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that thirdparties will not gain unauthorized access to this data despite our efforts to protect this data.We are subject to ongoing security threats and breaches, computer malware, computer hacking attacks, and inadvertent transmission of computerviruses. Other harmful software code may occur on our systems or those of our clients, business partners, or information technology vendors. Securitymeasures undertaken by us, our vendors, and our buyers and sellers may be ineffective as a result of employee error, failure to implement appropriateprocesses and procedures, malfeasance, cyber-attacks, cyber-extortion or other intentional misconduct by computer hackers, "phishing" or other tactics toobtain illicit system access, or otherwise. Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are notidentified until they are launched against a target, and because we typically are not able to control the efficacy of security measures implemented by ourclients and vendors, we may be unable to anticipate these techniques or to implement adequate preventative or mitigation measures.Though it is difficult to determine what harm may directly result from any specific interruption or breach, any security incident could disruptcomputer systems or networks, interfere with services to our sellers, buyers, or their clients, and result in unauthorized access to personally identifiableinformation, intellectual property, and other confidential business information owned by us or our buyers, sellers, or vendors. As a result, we could beexposed to legal claims and litigation, indemnity obligations, regulatory fines and penalties, contractual obligations, other liabilities, significant costs forremediation and re-engineering to prevent future occurrences, significant distraction to our business, and damage to our reputation, our relationships withbuyers and sellers, and our ability to retain and attract new buyers and sellers. If personally identifiable information is compromised, we may be34Table of Contentsrequired to undertake notification and remediation procedures, provide indemnity, and undergo regulatory investigations and penalties, all of which can beextremely costly and result in adverse publicity.Failure to maintain the brand security features of our solution could harm our reputation and expose us to liabilities.Auction-based advertising is bought and sold through our solution in automated transactions that occur in milliseconds. It is important to sellersthat the advertising placed on their media not conflict with existing seller arrangements and be of high quality, consistent with applicable seller standardsand compliant with applicable legal and regulatory requirements. It is important to buyers that their advertisements are placed on appropriate media, inproximity with appropriate content, that the impressions for which they are charged are legitimate, and that their advertising campaigns yield their desiredresults. We use various measures, including proprietary technology, in an effort to store, manage and process rules set by buyers and sellers and to ensure thequality and integrity of the results delivered to sellers and buyers through our solution. If we fail to properly implement or honor rules established by buyersand sellers, or if our measures are not adequate, advertisements may be improperly placed through our platform, which can result in harm to our reputation aswell as the need to pay refunds and other potential legal liabilities.If we fail to detect or prevent fraud, intrusion of malware through our platform into the systems or devices of our clients and their customers, or otheractions that impact the integrity of our solution or advertisement performance, could cause sellers and buyers to lose confidence in our solution and wecould face legal claims, which would cause our business to suffer. If we terminate relationships with sellers as a result of our screening efforts, our volumeof paid impressions may decline.We have in the past, and may in the future, be subject to fraudulent and malicious activities undertaken by persons seeking to use our platform forimproper purposes, including to divert or artificially inflate the purchases by buyers through our platform, or to disrupt or divert the operation of the systemsand devices of our clients and their customers to misappropriate information, generate fraudulent billings, stage hostile attacks, or for other illicit purposes.Examples of such activities include the use of bots or other automated or manual mechanisms to generate fraudulent impressions that are delivered throughour platform, which could overstate the performance of advertising impressions. Such activities could also include the introduction of malware through ourplatform by persons seeking to commandeer, or gain access to information on, consumers' devices. We use proprietary technology to identify non-humaninventory and traffic, as well as malware, and we generally terminate relationships with parties that appear to be engaging in such activities, which may resultin fewer paid impressions in the year the relationships are terminated than would have otherwise occurred. Because buyers will frequently re-allocatecampaigns to other sellers, and there may be alternative sources of demand to replace any buyer, it is difficult to measure the precise impact on paidimpressions and revenue from the loss of these customers. Although we assess the quality and performance of advertising on sellers' digital media properties,it may be difficult to detect fraudulent or malicious activity because we do not own content and we rely in part on sellers and buyers for controls with respectto such activity. Further, perpetrators of fraudulent impressions and malware change their tactics and may become more sophisticated, requiring us to improveover time our processes for assessing the quality of sellers' inventory and controlling fraudulent activity. If we fail to detect or prevent fraudulent or othermalicious activity, we could face legal claims from customers and/or consumers and the affected advertisers may experience or perceive a reduced return ontheir investment or heightened risk associated with use of our solution, resulting in dissatisfaction with our solution, refusals to pay, refund demands, loss ofconfidence of buyers or sellers, or withdrawal of future business. We could experience similar consequences if inventory sold through our platform is notviewable by the consumer for technical or other reasons.Any acquisitions we undertake may disrupt our business, adversely affect operations, and dilute stockholders.Acquisitions have been an important element of our business strategy. We expect to continue to pursue acquisitions in an effort to increase revenue,expand our market position, add to our service offering and technological capabilities, respond to dynamic market conditions, or for other strategic orfinancial purposes. However, there is no assurance that we will identify suitable acquisition candidates or complete any acquisitions on favorable terms, or atall. Further, the acquisitions we do complete, would involve a number of risks, including the following:•The identification, acquisition, and integration of acquired businesses require substantial attention from management. The diversion ofmanagement's attention and any difficulties encountered in the transition process could hurt our business.•The identification, acquisition, and integration of acquired businesses requires significant investment, including to determine which newservice offerings we might wish to acquire, harmonize service offerings, expand management capabilities and market presence, and improveor increase development efforts and technology features and functions.•The anticipated benefits from the acquisition may not be achieved, including as a result of loss of customers or personnel of the target, otherdifficulties in supporting and transitioning the target's customers, the inability to realize expected synergies from an acquisition, or negativeculture effects arising from the integration of new personnel.35Table of Contents•We may face difficulties in integrating the personnel, technologies, solutions, operations, and existing contracts of the acquired business.•We may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired company, technology, or solution,including issues related to intellectual property, solution quality or architecture, income tax and other regulatory compliance practices,revenue recognition or other accounting practices, or employee or customer issues.•To pay for future acquisitions, we could issue additional shares of our common stock or pay cash. Issuance of shares would dilutestockholders. Use of cash reserves could diminish our ability to respond to other opportunities or challenges. Borrowing to fund any cashpurchase price would result in increased fixed obligations and could also include covenants or other restrictions that would impair our abilityto manage our operations.•Acquisitions expose us to the risk of assumed known and unknown liabilities including contract, tax, and other obligations incurred by theacquired business or fines or penalties, for which indemnity obligations, escrow arrangements or insurance may not be available or may not besufficient to provide coverage.•New business acquisitions can generate significant intangible assets that result in substantial related amortization charges and possibleimpairments.•The operations of acquired businesses, or our adaptation of those operations, may require that we apply revenue recognition or otheraccounting methodologies, assumptions, and estimates that are different from those we use in our current business, which could complicateour financial statements, expose us to additional accounting and audit costs, and increase the risk of accounting errors.•Acquired businesses may have insufficient internal controls that we must remediate, and the integration of acquired businesses may require usto modify or enhance our own internal controls, in each case resulting in increased administrative expense and risk that we fail to comply withthe requirements of Section 404 of the Sarbanes-Oxley Act of 2002 or that our independent registered public accounting firm is unable toexpress an opinion as to the effectiveness of our internal control over financial reporting, resulting in late filing of our periodic reports, loss ofinvestor confidence, regulatory investigations, and litigation.•Acquisition of businesses based outside the United States would require us to operate in foreign languages and manage non-U.S. currency,billing, and contracting needs, comply with laws and regulations, including labor laws and privacy laws that in some cases may be morerestrictive on our operations than laws applicable to our business in the United States.•Acquisitions can sometimes lead to disputes with the former owners of the acquired company, which can result in increased legal expenses,management distraction and the risk that we may suffer an adverse judgment if we are not the prevailing party in the dispute.The purchase price allocation for any acquisition we complete is generally not finalized until well after the closing of the acquisition, and any finaladjustment to the valuation could have a material change on what is reported as the fair value assigned to the assets and liabilities.The final purchase price allocation for any acquisition we complete depends upon the finalization of asset and liability valuations, among otherthings. The valuation studies necessary to estimate the fair values of acquired assets and assumed liabilities and the related allocation of purchase price maynot be finalized until well after the closing of the acquisition. Initially, we allocate the total estimated purchase price to the acquired assets and assumedliabilities based on preliminary estimates of their fair values. The final determination of these fair values is subsequently determined based upon the actualnet tangible and intangible assets that existed on the closing date of the acquisition. Any final adjustment could change the fair values assigned to the assetsand liabilities, resulting in a change to our consolidated financial statements, including a change to goodwill. Such change could be material.If we fail to attract, motivate, train, and retain highly qualified engineering, marketing, sales and management personnel, our ability to execute ourbusiness strategy could be impaired.Our success depends significantly upon our ability to recruit, train, motivate, and retain key technology, engineering, sales, and managementpersonnel. We are a technology-driven company and it is imperative that we have highly skilled mathematicians, computer scientists, engineers andengineering management to innovate and deliver our complex solutions. Increasing our base of buyers and sellers depends to a significant extent on ourability to expand our sales and marketing operations and activities, and our solution requires a sophisticated sales force with specific sales skills andspecialized technical knowledge that takes time to develop. Appropriately qualified personnel can be difficult to recruit and retain. In addition, ininternational markets, we encounter staffing challenges that are unique to a particular country or region, such as recruiting and retaining qualified personnelin foreign countries and difficulty managing such personnel and integrating them into our culture. In particular, it may be difficult to find qualified salespersonnel in international markets, or sales personnel with experience in emerging segments of the market. Skilled and experienced36Table of Contentsmanagement is critical to our ability to achieve revenue growth, execute against our strategic vision and maintain our performance through the growth andchange we anticipate. For certain of our key employees, a significant portion of their equity ownership is vested, and stock options are out of the money. As aresult, it may be more difficult, and require additional equity awards, for us to continue to retain and motivate these team members.Competition for employees with experience in our industry can be intense, particularly in California, New York and London, where our operationsand the operations of other digital media companies are concentrated and where other technology companies compete for management and engineeringtalent. Other employers may be able to provide better compensation, more diverse opportunities and better chances for career advancement. None of ourfounders, officers, or other key employees has an employment agreement for a specific term, and any of such individuals may terminate his or heremployment with us at any time.It can be difficult, time-consuming, and expensive to recruit personnel with the combination of skills and attributes required to execute our businessstrategy, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. Thesechallenges will increase as we grow. New hires require significant training and it may take significant time (often six months or more) before they achieve fullproductivity. As a result, we may incur significant costs to attract and retain employees, including significant expenditures related to salaries and benefits andcompensation expenses related to equity awards before new hires contribute to sales or productivity, and we may lose new employees to our competitors orother companies before we realize the benefit of our investment in recruiting and training. Moreover, new employees may not be or become as productive aswe expect, and we may face challenges in adequately or appropriately integrating them into our workforce and culture. At times we have experiencedelevated levels of unwanted attrition, and as our organization grows and changes and competition for talent increases, this type of attrition may increase.Our proprietary rights may be difficult to enforce, which could enable others to copy or use aspects of our solution without compensating us, therebyeroding our competitive advantages and harming our business.Our success depends, in part, on our ability to protect proprietary methods and technologies that we develop or otherwise acquire, so that we canprevent others from using our inventions and proprietary information. Establishing trade secret, copyright, trademark, domain name, and patent protection isdifficult and expensive. We rely on trademark, copyright, trade secret laws, confidentiality procedures and contractual provisions to protect our proprietarymethods and technologies. Our patent strategy is still in its early stages. While we have some issued patents and pending patent applications, valid patentsmay not be issued from our pending applications or we may choose to abandon applications, and the claims of our issued patents or the claims eventuallyallowed on any pending applications may not be sufficiently broad to protect our technology or offerings and services. Any issued patents may bechallenged, invalidated or circumvented, and any rights granted under these patents may not actually provide adequate defensive protection or competitiveadvantages to us. Additionally, the process of obtaining patent protection is expensive, time-consuming, and uncertain, and we may not be able to prosecuteall necessary or desirable patent applications to successful conclusion at a reasonable cost or in a timely manner. Accordingly, despite our efforts, we may beunable to obtain adequate patent protection, or to prevent third parties from infringing upon or misappropriating our intellectual property.Unauthorized parties may attempt to copy aspects of our technology or obtain and use information that we regard as proprietary, and the steps wetake to protect our proprietary information may not prevent misappropriation of our technology and proprietary information or infringement of ourintellectual property rights. Policing unauthorized use of our technology and intellectual property is difficult. We may be required to protect our intellectualproperty in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location. Ourcompetitors and others could attempt to capitalize on our brand recognition by using domain names or business names similar to ours, and we may be unableto prevent third parties from acquiring or using domain names and other trademarks that infringe on, are similar to, or otherwise decrease the value of ourbrands, trademarks or service marks. In addition, the laws of some foreign countries may not be as protective of intellectual property rights as those of theUnited States, and mechanisms for enforcement of our proprietary rights in such countries may be inadequate. Also, despite the steps we have taken to protectour proprietary rights, it may be possible for unauthorized third parties to copy or reverse engineer aspects of our technology or otherwise obtain and useinformation that we regard as proprietary, or to develop technologies similar or superior to our technology or design around our proprietary rights.From time to time, we may take legal action to enforce our intellectual property rights, protect our trade secrets, determine the validity and scope ofthe proprietary rights of others, or defend against claims of infringement. Such litigation could result in substantial costs and the diversion of limitedresources, and might not be successful. If we are unable to protect our proprietary rights (including aspects of our technology solution) we may find ourselvesat a competitive disadvantage.We may be subject to intellectual property rights claims by third parties, which are costly to defend, could require us to pay significant damages and couldlimit our ability to use certain technologies and intellectual property.37Table of ContentsThe digital advertising industry is characterized by the existence of large numbers of patents, copyrights, trademarks, trade secrets and otherintellectual property and proprietary rights. Companies in this industry are often required to defend against litigation claims that are based on allegations ofinfringement or other violations of intellectual property rights.Third parties may assert claims of infringement or misappropriation of intellectual property rights against us or buyers, sellers, or third parties withwhich we work; we cannot be certain that we are not infringing any third-party intellectual property rights, and we may have liability or indemnificationobligations as a result of such claims. As a result of the information disclosure in required public company filings our business and financial condition arevisible, which may result in threatened or actual litigation, including by competitors and other third parties.Regardless of whether claims that we are infringing patents or infringing or misappropriating other intellectual property rights have any merit, theseclaims are time-consuming and costly to evaluate and defend, and can impose a significant burden on management and employees. The outcome of anyclaim is inherently uncertain, and we may receive unfavorable interim or preliminary rulings in the course of litigation. There can be no assurances thatfavorable final outcomes will be obtained in all cases. We may decide to settle lawsuits and disputes on terms that are unfavorable to us. Some of ourcompetitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degreeand for longer periods of time than we could.Although third parties may offer a license to their technology or intellectual property, the terms of any offered license may not be acceptable and thefailure to obtain a license or the costs associated with any license could cause our business, results of operations or financial condition to be materially andadversely affected. In addition, some licenses may be non-exclusive, and therefore our competitors may have access to the same technology or intellectualproperty licensed to us. Alternatively, we may be required to develop non-infringing technology or to make other changes, such as to our branding, whichcould require significant effort and expense and ultimately may not be successful. Furthermore, a successful claimant could secure a judgment or we mayagree to a settlement that prevents us from distributing certain products or performing certain services or that requires us to pay substantial damages,including treble damages if we are found to have willfully infringed such claimant's patents or copyrights. Claims of intellectual property infringement ormisappropriation also could result in injunctive relief against us, or otherwise result in delays or stoppages in providing all or certain aspects of our solution.We are subject to government regulations concerning our employees, including wage-hour laws and taxes.We are subject to applicable rules and regulations relating to our relationship with our employees, including health benefits, sick days,unemployment and similar taxes, overtime and working conditions, equal pay, immigration status, and classification of employee benefits for tax purposes.Legislated increases in labor cost components, such as employee benefit costs, workers' compensation insurance rates, compliance costs and fines, as well asthe cost of litigation in connection with these regulations, would increase our labor costs. Many employers nationally have been subject to actions broughtby governmental agencies and private individuals under wage-hour laws on a variety of claims, such as improper classification of workers as exempt fromovertime pay requirements, failure to pay overtime wages properly, and failure to provide meal and rest breaks or pay for missed breaks, with such actionssometimes brought as class actions, and these actions can result in material liabilities and expenses. Federal and state standards for classifying employeesunder wage-hour laws differ and are often unclear or require application of judgment, and classification may need to be changed as employment dutiesevolve over time. We may mis-classify employees and be subject to liability as a result. If we become subject to employment litigation, such as actionsinvolving wage-hour, overtime, break and working time, it may distract our management from business matters and result in increased labor costs.Risks Related to Our International Business StrategyOur international operations and expansion plans require increased expenditures and impose additional risks and compliance imperatives, and failure tosuccessfully execute our international plans will adversely affect our growth and operating results.We have numerous operations outside of North America, in Northern and Southern Europe, Australia, Japan, Singapore, and Brazil, and we viewfurther international expansion as imperative. However, our experience operating outside the United States is still limited. Achievement of our internationalobjectives will require a significant amount of attention from our management, finance, legal, analytics, operations, sales, and engineering teams, as well assignificant investment in developing the technology infrastructure necessary to deliver our solution and establishing sales, delivery, support, andadministrative capabilities in the countries where we operate. Attracting new buyers and sellers outside the United States may require more time and expensethan in the United States, in part due to language barriers and the need to educate such buyers and sellers about our solution, and we may not be successful inestablishing and maintaining these relationships. The data center and telecommunications infrastructure in some overseas markets may not be as reliable as inNorth America and Europe, which could disrupt our operations. In addition, our international operations will require us to develop and administer ourinternal controls and legal and compliance practices in countries with different cultural norms, languages, currencies, legal requirements, and businesspractices than the United States.38Table of ContentsInternational operations also impose risks and challenges in addition to those faced in the United States, including management of a distributedworkforce; the need to adapt our offering to satisfy local requirements and standards (including differing privacy policies and labor laws that are sometimesmore stringent); laws and business practices that may favor local competitors; legal requirements or business expectations that agreements be drafted andnegotiated in the local language and disputes be resolved in local courts according to local laws; the need to enable transactions in local currencies; longeraccounts receivable payment cycles and other collection difficulties; the effect of global and regional recessions and economic and political instability;potentially adverse tax consequences in the United States and abroad; staffing challenges, including difficulty in recruiting and retaining qualified personnelas well as managing such a diversity in personnel; reduced or ineffective protection of our intellectual property rights in some countries; and costs andrestrictions affecting the repatriation of funds to the United States.One or more of these requirements and risks may make our international operations more difficult and expensive or less successful than we expect,and may preclude us from operating in some markets. There is no assurance that our international expansion efforts will be successful, and we may notgenerate sufficient revenue or margins from our international business to cover our expenses or contribute to our growth.Operating in multiple countries requires us to comply with different legal and regulatory requirements.Our international operations subject us to laws and regulations of multiple jurisdictions, as well as U.S. laws governing international operations,which are often evolving and sometimes conflict. For example, the Foreign Corrupt Practices Act, or FCPA, and comparable foreign laws and regulations(including the U.K. Bribery Act) prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. andother business entities for the purpose of obtaining or retaining business. Other laws and regulations prohibit bribery of private parties and other forms ofcorruption. As we expand our international operations, there is some risk of unauthorized payment or offers of payment or other inappropriate conduct by oneof our employees, consultants, agents, or other contractors, including by persons engaged or employed by a business we acquire, which could result inviolation by us of various laws, including the FCPA. Safeguards we implement to discourage these practices may prove to be ineffective and violations of theFCPA and other laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against us, including class action lawsuits andenforcement actions from the SEC, Department of Justice, and foreign regulators. Other laws applicable to our international business include localemployment, tax, privacy, data security, and intellectual property protection laws and regulations, including restrictions on movement of information aboutindividuals beyond national borders. In some cases, buyers and sellers operating in non-U.S. markets may impose additional requirements on our non-U.S.business in efforts to comply with their interpretation of their own or our legal obligations. These requirements may differ significantly from the requirementsapplicable to our business in the United States and may require engineering, infrastructure and other costly resources to accommodate, and may result indecreased operational efficiencies and performance. As these laws continue to evolve and we expand to more jurisdictions or acquire new businesses,compliance will become more complex and expensive, and the risk of non-compliance will increase.Compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing businessabroad, and violation of these laws or regulations may interfere with our ability to offer our solution competitively in one or more countries, expose us or ouremployees to fines and penalties, and result in the limitation or prohibition of our conduct of business. As we continue to grow, we will need to expand intonew geographies and learn the regulatory and business laws and customs of each new geography.We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.Our operations are subject to U.S. export controls, specifically the Export Administration Regulations and economic sanctions enforced by theOffice of Foreign Assets Control. These regulations limit and control export of encryption technology. Furthermore, U.S. export control laws and economicsanctions prohibit the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions. We incorporateencryption technology into the servers that operate our solution. As a result of locating some servers in data centers outside of the United States, we mustcomply with these export control laws.In addition, various countries regulate the import of certain encryption technology and have enacted laws that could limit our ability to deploy ourtechnology or our customers' ability to use our solution in those countries. Changes in our technology or changes in export and import regulations may delayintroduction of our solution or the deployment of our technology in international markets, prevent our customers with international operations from usingour solution globally or, in some cases, prevent the export or import of our technology to certain countries, governments or persons altogether. Any change inexport or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries,governments, persons, or technologies targeted by such regulations, could result in decreased use of our solution by, or in our decreased ability to export ourtechnology to, international markets.39Table of ContentsFluctuations in the exchange rates of foreign currencies could result in currency transaction losses.We currently have transactions denominated in various non-U.S. currencies, and may, in the future, have sales denominated in the currencies ofadditional countries. In addition, we incur a portion of our expenses in non-U.S. currencies, and to the extent we need to convert currency to pay expenses, weare exposed to potentially unfavorable changes in exchange rates and added transaction costs. We expect international transactions to become anincreasingly important part of our business, and such transactions may be subject to unexpected regulatory requirements and other barriers. Any fluctuationin relevant currency exchange rates may negatively impact our business, financial condition and results of operations. We have not previously engaged inforeign currency hedging, and any effort to hedge our foreign currency exposure may not be effective due to lack of experience, unreasonable costs orilliquid markets. In addition, hedging may not protect against all foreign currency fluctuations and can result in losses.Risks Related to Our Internal Controls and FinancesFailure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our commonstock. If our internal controls are not effective, we may not be able to accurately report our financial results or prevent fraud.Section 404 of the Sarbanes-Oxley Act of 2002 requires that we maintain internal control over financial reporting that meets applicable standardsand report on the effectiveness of our internal controls over financial reporting and any material weaknesses we identify. When we are no longer an "emerginggrowth company," we will also need to provide a statement that our independent registered public accounting firm has issued an opinion on our internalcontrol over financial reporting.We may err in the design or operation of our controls, and all internal control systems, no matter how well designed and operated, can provide onlyreasonable assurance that the objectives of the control system are met. Because there are inherent limitations in all control systems, there can be no absoluteassurance that all control issues have been or will be detected. We previously identified certain material weaknesses in our internal controls which wereremediated during 2014. However, completion of remediation does not provide assurance that our remediated controls will continue to operate properly orthat our financial statements will be free from error. There may be undetected material weaknesses in our internal control over financial reporting, as a resultof which we may not detect financial statement errors on a timely basis. Moreover, in the future we may implement new offerings and engage in businesstransactions, such as acquisitions, reorganizations, or implementation of new information systems that could require us to develop and implement newcontrols and could negatively affect our internal control over financial reporting and result in material weaknesses.If we identify new material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements ofSection 404 in a timely manner, or, once required, if our independent registered public accounting firm is unable to express an opinion as to the effectivenessof our internal control over financial reporting, we may be unable, or be perceived as unable, to produce timely and reliable financial reports, investors maylose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock could be negatively affected. As a resultof such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatoryauthorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition, or divert financial andmanagement resources from our core business.Impairment of intangible assets could increase our expenses.A portion of our assets consists of capitalized software development costs, as well as goodwill and other intangible assets acquired in connectionwith acquisitions. Current accounting standards require us to evaluate goodwill on an annual basis and other intangibles if certain triggering events occur,and adjust the carrying value of these assets to net realizable value when such testing reveals impairment of the assets. Various factors, including regulatoryor competitive changes, could affect the value of our intangible assets. If we are required to write down the value of our goodwill or intangible assets due toimpairment, our reported expenses will increase, resulting in a corresponding decrease in our reported profit.Our accounting is complex, and relies upon estimates or judgments relating to our critical accounting policies. If our accounting is erroneous or based onassumptions that change or prove to be incorrect, our operating results could fall below the expectations of securities analysts and investors, resulting in adecline in our stock price.The preparation of financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requiresmanagement to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes, and alsoto comply with many complex requirements and standards. Various factors contribute to complexity in our accounting. For example, the recognition of ourrevenue is governed by certain criteria that determine whether we report revenue either on a gross basis, as a principal, or net basis, as an agent, dependingupon the nature of the sales transaction. We have generally reported our revenue on a net basis because we are not the principal in our open market and orderstransactions40Table of Contentsas conducted to date. However, from April 2015 through January 2017, we conducted an intent marketing business that included transactions reported on agross basis, resulting in higher GAAP revenue and lower GAAP margins on a particular amount of advertising spend than for an equivalent level ofadvertising spend for which we report revenue on a net basis. We may have gross reporting for portions of our revenue in the future as a result of the evolutionof our existing business practices, development of new products, acquisitions, or changes in accounting standards or interpretations, that in any case result intransactions with characteristics that dictate gross reporting. It is also possible that revenue reporting for existing business may change from gross to net orvice versa as a result of changes in contract terms or transaction mechanics. We may experience significant fluctuations in revenue in future periodsdepending upon, in part, the nature of our sales and our reporting of such revenue and related accounting treatment, without proportionate correlation to ourunderlying activity or net income. Any combination of net and gross revenue reporting would require us to make estimates and assumptions about the mix ofgross and net-reported transactions based upon the volumes and characteristics of the transactions we think will make up the total mix of revenue in theperiod covered by the projection. Those estimates and assumptions may be inaccurate when made, or may be rendered inaccurate by subsequentcircumstances, such as changing the characteristics of our offerings or particular transactions in response to client demands, market developments, regulatorypressures, acquisitions, and other factors. Even apparently minor changes in transaction terms from those initially envisioned can result in differentaccounting conclusions from those foreseen. In addition, we may incorrectly extrapolate from revenue recognition treatment of prior transactions to futuretransactions that we believe are similar, but that ultimately are determined to have different characteristics that dictate different revenue reporting treatment.These factors may make our financial reporting more complex and difficult for investors to understand, may make comparison of our results of operations toprior periods or other companies more difficult, may make it more difficult for us to give accurate guidance, and could increase the potential for reportingerrors.Further, our acquisitions have imposed purchase accounting requirements, required us to integrate accounting personnel, systems, and processes,necessitated various consolidation and elimination adjustments, and imposed additional filing and audit requirements. Ongoing evolution of our business,and any future acquisitions, will compound these complexities. Our operating results may be adversely affected if we make accounting errors or ourjudgments prove to be wrong, assumptions change or actual circumstances differ from those in our assumptions, which could cause our operating results tofall below the expectations of securities analysts and investors or guidance we may have provided, resulting in a decline in our stock price and potential legalclaims. Significant judgments, assumptions and estimates used in preparing our consolidated financial statements include those related to revenuerecognition, stock-based compensation, purchase accounting, and income taxes.Our tax liabilities may be greater than anticipated.The U.S. and non-U.S. tax laws applicable to our business activities are subject to interpretation. We are subject to audit by the Internal RevenueService and by taxing authorities of the state, local, and foreign jurisdictions in which we operate. Our tax obligations are based in part on our corporateoperating structure, including the manner in which we develop, value, and use our intellectual property and sell our solution, the jurisdictions in which weoperate, how tax authorities assess revenue-based taxes such as sales and use taxes, the scope of our international operations, and the value we ascribe to ourintercompany transactions. Taxing authorities may challenge our tax positions and methodologies for valuing developed technology or intercompanyarrangements, as well as our positions regarding jurisdictions in which we are subject to certain taxes, which could expose us to additional taxes and increaseour worldwide effective tax rate. Any adverse outcomes of such challenges to our tax positions could result in additional taxes for prior periods, interest, andpenalties, as well as higher future taxes. In addition, our future tax expense could increase as a result of changes in tax laws, regulations, or accountingprinciples, or as a result of earning income in jurisdictions that have higher tax rates. An increase in our tax expense could have a negative effect on ourfinancial position and results of operations. Moreover, the determination of our provision (benefit) for income taxes and other tax liabilities requiressignificant estimates and judgment by management, and the tax treatment of certain transactions is uncertain. Although we believe we will make reasonableestimates and judgments, the ultimate outcome of any particular issue may differ from the amounts previously recorded in our financial statements and anysuch occurrence could materially affect our financial position and results of operations.Our ability to use our net operating losses and tax credit carryforwards to offset future taxable income may be subject to certain limitations, which couldresult in higher tax liabilities.Our ability to fully utilize our net operating loss and tax credit carryforwards to offset future taxable income may be limited. At December 31, 2016,we had U.S. federal net operating loss carryforwards, or NOLs, of approximately $37.9 million, state NOLs of approximately $57.2 million, foreign NOLs ofapproximately $23.2 million, federal research and development tax credit carryforwards, or credit carryforwards, of approximately $8.3 million, state creditcarryforwards of approximately $6.8 million, and foreign credit carryforwards of approximately $0.7 million. A lack of future taxable income wouldadversely affect our ability to utilize these NOLs and credit carryforwards. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, asamended, or the Code, and comparable state income tax laws, a corporation that undergoes an "ownership change" is subject to limitations on its ability toutilize its NOLs and credit carryforwards to offset future taxable income following the ownership change. As a result, future changes in our stock ownership,including because of issuance of shares of common stock in41Table of Contentsconnection with acquisitions or other direct or indirect changes in our ownership that may be outside of our control, could result in limitations on our abilityto fully utilize our NOLs and credit carryforwards. The Company had an ownership change on December 31, 2015 subjecting the federal and state NOLs to anannual limitation. Additionally, the Company had an ownership change in January 2008 and $2.3 million of federal and state NOLs are already subject tolimitation under Section 382 of the Code. Additionally, approximately $3.4 million of our federal NOLs and approximately $3.4 million of our state NOLswere generated during the pre-acquisition period by corporations that we acquired, and thus those NOLs already are subject to limitation under Section 382of the Code and comparable state income tax laws. Also, depending on the level of our taxable income, all or a portion of our NOLs and credit carryforwardsmay expire unutilized, which could prevent us from offsetting future taxable income by the entire amount of our current and future NOLs and creditcarryforwards. We have recorded a full valuation allowance related to our NOLs, credit carryforwards, and other net deferred tax assets due to the uncertaintyof the ultimate realization of the future benefits of those assets. To the extent we determine that all, or a portion of, our valuation allowance is no longernecessary, we will reverse the valuation allowance and recognize an income tax benefit in the reported financial statement earnings in that period. Once thevaluation allowance is eliminated or reduced, its reversal will no longer be available to offset our current financial statement tax provision in future periods.We believe that there is a possibility that, within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusionthat a significant portion of the domestic valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition ofcertain net deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of thevaluation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.We may require additional capital to support growth, and such capital might not be available on terms acceptable to us, if at all. Inability to obtainfinancing could limit our ability to conduct necessary operating activities and make strategic investments.We intend to continue to make investments in pursuit of our strategic objectives and to support our business growth. Various business challengesmay require additional funds, including the need to respond to competitive threats or market evolution by developing new solutions and improving ouroperating infrastructure, either through additional hiring or acquisition of complementary businesses or technologies, or both. In addition, we could incursignificant expenses or shortfalls in anticipated cash generated as a result of unanticipated events in our business or competitive, regulatory, or other changesin our market, or longer payment cycles required or imposed by our buyers.Our available cash and cash equivalents, any cash we may generate from operations, and our available line of credit under our credit facility may notbe adequate to meet our capital needs, and therefore we may need to engage in equity or debt financings to secure additional funds. We may not be able toobtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing on terms satisfactory to us when we require it, ourability to continue to support our business growth and respond to business challenges could be significantly impaired, and our business may be adverselyaffected.If we do raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significantdilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debtfinancing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters,including the ability to pay dividends. This may make it more difficult for us to obtain additional capital and to pursue business opportunities, includingpotential acquisitions. In addition, if we issue debt, the holders of that debt would have prior claims on the Company's assets, and in case of insolvency, theclaims of creditors would be satisfied before distribution of value to equity holders, which would result in significant reduction or total loss of the value ofour equity.Our credit facility subjects us to operating restrictions and financial covenants that impose risk of default and may restrict our business and financingactivities.We have a $40.0 million credit facility with Silicon Valley Bank. At December 31, 2016, we had no amounts outstanding under this facility.Borrowings are secured by substantially all of our tangible personal property assets and all of our intangible assets are subject to a negative pledge in favor ofSilicon Valley Bank. This credit facility is subject to certain financial ratio and liquidity covenants, as well as restrictions that limit our ability, among otherthings, to:•dispose of or sell our assets;•make material changes in our business or management;•acquire, consolidate or merge with other entities;•incur additional indebtedness;•create liens on our assets;•pay dividends;•make investments;42Table of Contents•enter into transactions with affiliates; and•pay off or redeem subordinated indebtedness.These covenants may restrict our ability to finance our operations and to pursue our business activities and strategies. Our ability to comply withthese covenants may be affected by events beyond our control. If a default were to occur and not be waived, such default could cause, among other remedies,all of the outstanding indebtedness under our loan and security agreement to become immediately due and payable. In such an event, our liquid assets mightnot be sufficient to meet our repayment obligations, and we might be forced to liquidate collateral assets at unfavorable prices or our assets may be foreclosedupon and sold at unfavorable valuations.Our ability to renew our existing credit facility, which matures in September 2018, or to enter into a new credit facility to replace or supplement theexisting facility may be limited due to various factors, including the status of our business, global credit market conditions, and perceptions of our businessor industry by sources of financing. In addition, if credit is available, lenders may seek more restrictive covenants and higher interest rates that may reduceour borrowing capacity, increase our costs, and reduce our operating flexibility.If we make borrowings under the facility and do not have or are unable to generate sufficient cash available to repay our debt obligations when theybecome due and payable, either upon maturity or in the event of a default, we may not be able to obtain additional debt or equity financing on favorableterms, if at all. Our inability to obtain financing may negatively impact our ability to operate and continue our business as a going concern.Risks Related to the Securities Markets and Ownership of our Common StockThe price of our common stock may be volatile and the value of an investment in our common stock could decline.Technology stocks have historically experienced high levels of volatility. The trading price of our common stock has fluctuated substantially andmay continue to do so. These fluctuations could result in significant decreases in the value of an investment in our common stock. Factors that could causefluctuations in the trading price of our common stock include the following:•announcements of new offerings, products, services or technologies, commercial relationships, acquisitions, or other events by us or ourcompetitors;•price and volume fluctuations in the overall stock market from time to time;•significant volatility in the market price and trading volume of technology companies in general and of companies in the digital advertisingindustry in particular;•fluctuations in the trading volume of our shares or the size of our public float;•actual or anticipated changes or fluctuations in our results of operations;•actual or anticipated changes in the expectations of investors or securities analysts, and whether our results of operations meet theseexpectations;•litigation involving us, our industry, or both;•regulatory developments in the United States, foreign countries, or both;•general economic conditions and trends;•major catastrophic events;•breaches or system outages;•departures of officers or other key employees; or•an adverse impact on the company resulting from other causes, including any of the other risks described in this report.In addition, if the market for technology stocks or the stock market, in general, experiences a loss of investor confidence, the trading price of ourcommon stock could decline for reasons unrelated to our business. The trading price of our common stock might also decline in reaction to events that affectother companies in our industry even if these events do not directly affect us. In the past, volatility in the market price of a company's securities has oftenresulted in securities litigation being brought against that company. Declines in the price of our common stock, even following increases, may result insecurities litigation against us, which would result in substantial costs and divert our management's attention and resources from our business.43Table of ContentsOur equity compensation and acquisition practices expose our stockholders to dilution.We have relied and may continue to rely heavily upon equity compensation, and consequently our outstanding unvested equity awards representsubstantial dilution to our stockholders. In addition, we have used our common stock as consideration for acquisitions of other companies, and we anticipateusing shares of our common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions,investments, or other transactions. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of ourcommon stock to decline. As of March 6, 2017, we had 49,444,228 shares of common stock outstanding, including 1,082,940 shares of unvested restrictedstock issued under our various equity incentive plans. At that date, we also had outstanding under our equity incentive plans 2,747,560 unvested restrictedstock units and 3,631,784 stock options, of which 2,722,879 were vested at a weighted-average exercise price of $10.38 per share and 908,905 wereunvested. All of these outstanding stock awards, together with an additional 3,571,824 shares of our common stock reserved for issuance under our equityincentive plans and 985,968 shares of common stock reserved under our 2014 Employee Stock Purchase Plan, and any increase in the shares availablepursuant to the plans' evergreen provisions (if applicable), are registered for offer and sale on Form S-8 under the Securities Act of 1933. We also intend toregister the offer and sale of all other shares of common stock that may be authorized under our current or future equity compensation plans, issued underequity plans we may assume in acquisitions, or issued as inducement awards under New York Stock Exchange rules. Shares registered under these registrationstatements on Form S-8 will be available for sale in the public market subject to vesting arrangements and exercise of options, our Insider Trading Policytrading blackouts, and the restrictions of Rule 144 in the case of our affiliates.Our public float is still relatively small, increasing the risk that sales by significant holders could adversely affect the market price for our stock.The average daily trading volume for our common stock during 2016 was 621,585 shares. In addition, we are relatively new to the public marketsand not well known to many analysts, investors, and others who could influence demand for our shares. Further, because we are a relatively small companywithout an established history of profitability, the range of investors willing to invest in our shares may be relatively limited. As a result of these factors, ourshares can be susceptible to sudden, rapid declines in price, especially when large blocks of shares are sold. Under our Insider Trading Policy, we imposetrading blackouts during the period beginning on or about the fifteenth day of the last month of each quarter and ending after two trading days following thefiling of our next Quarterly Report on Form 10‑Q or Annual Report on Form 10-K. All of our employees are limited to selling their equity incentive planshares during these open windows. In addition, our employee restricted stock and restricted stock unit awards typically vest each May 15 and November 15,and are subject to automatic sale arrangements at those dates to cover taxes accruing on vesting. Finally, shares we issue as consideration for acquisitionsmay be subject to lock-up arrangements that expire in large numbers on certain dates. These insider trading windows, restricted stock vesting mechanics, andacquisition stock arrangements tend to concentrate selling into certain periods, and the resulting sales pressure can cause the trading price of our commonstock to decline at those times. Sales of a substantial number of such shares, or the perception that such sales may occur, could cause our share price to fall ormake it more difficult for investors to sell our common stock at a time and price that they deem appropriate, and could also impair our ability to raise capitalthrough the sale of equity securities.Competition for investors could adversely affect the price of our stock.There are many companies in the advertising technology or "ad tech" space, but we are one of a relatively small portion of those companies that ispublicly traded. Some of the other publicly traded ad tech companies are substantially larger than us and have more diversified offerings, or may be perceivedby investors as having greater stability or growth potential. Others may be focused on parts of the business that investors may view as more appealing. Adtech or related advertising companies that are not yet public may become public, and publicly traded companies may enter the ad tech business throughacquisitions. Increase in the number of publicly traded companies available to investors wishing to invest in ad tech may result in a decrease in demand forour shares, either because overall demand for ad tech investment does not increase commensurately with the increase in public companies in the ad techspace, or because we are not perceived as competitively differentiated or offering superior value compared to other such companies. Decrease in demand forour shares would result in suppressed growth, or decrease, in the value of our stock.Our business could be negatively affected as a result of actions of activist stockholders.Campaigns by stockholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-termstockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entirecompany. If we are targeted by an activist stockholder in the future, the process could be costly and time-consuming, disrupt our operations and divert theattention of management and our employees from executing our strategic plan. Additionally, perceived uncertainties as to our future direction as a result ofstockholder activism or changes to the composition of our board of directors may lead to the perception of a change in the direction of our business,instability or lack of continuity, which may be exploited by our competitors, cause concern to current or potential buyers and sellers on our platform, whomay choose to transact with our competitors instead of us, and make it more difficult to attract and retain qualified personnel.44Table of ContentsIf securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research or reports about ourbusiness, our share price and trading volume could decline.The trading market for our common stock to some extent depends on the research and reports that securities or industry analysts publish about us.We do not control these analysts, and their reports or analyst consensus may not reflect our guidance, plans, or expectations. If one or more of the analystswho cover us downgrades our shares or expresses a negative opinion of our business prospects, our share price could decline. If one or more of these analystsdecreases or ceases coverage of our company, we could lose visibility in the financial markets, which could cause our share price or trading volume todecline.We do not intend to pay dividends for the foreseeable future and, consequently, investors' ability to achieve a return on their investment will depend onappreciation in the price of our common stock.We have never declared or paid any dividends and we do not anticipate paying any cash dividends in the foreseeable future. In addition, our creditfacility contains restrictions on our ability to pay dividends. As a result, investors may only receive a return on their investment in our common stock if themarket price of our common stock increases.Provisions of our charter documents and Delaware law may inhibit a potential acquisition of the company and limit the ability of stockholders to causechanges in company management.Our amended and restated certificate of incorporation and amended and restated bylaws include provisions, as described below, that could delay orprevent a change in control of the company, and make it difficult for stockholders to elect directors who are not nominated by the current members of ourboard of directors or take other actions to change company management.•Our certificate of incorporation gives our board of directors the authority to issue shares of preferred stock in one or more series, and toestablish the number of shares in each series and to fix the price, designations, powers, preferences and relative, participating, optional orother rights, if any, and the qualifications, limitations, or restrictions of each series of the preferred stock without any further vote or action bystockholders. The issuance of shares of preferred stock may discourage, delay or prevent a merger or acquisition of the company bysignificantly diluting the ownership of a hostile acquirer, resulting in the loss of voting power and reduced ability to cause a takeover oreffect other changes.•Our certificate of incorporation provides that our board of directors is classified, with only one of its three classes elected each year, anddirectors may be removed only for cause and only with the vote of 66 2/3% of the voting power of stock outstanding and entitled to votethereon. Further, the number of directors is determined solely by our board of directors, and because we do not allow for cumulative votingrights, holders of a majority of shares of common stock entitled to vote may elect all of the directors standing for election. These provisionscould delay the ability of stockholders to change the membership of a majority of our board of directors.•Under our bylaws, only the board of directors or a majority of remaining directors, even if less than a quorum, may fill vacancies resultingfrom an increase in the authorized number of directors or the resignation, death or removal of a director.•Our certificate of incorporation prohibits stockholder action by written consent, so any action by stockholders may only be taken at an annualor special meeting.•Our certificate of incorporation provides that a special meeting of stockholders may be called only by the board of directors. This could delayany effort by stockholders to force consideration of a proposal or to take action, including the removal of directors.•Under our bylaws, advance notice must be given to nominate directors or submit proposals for consideration at stockholders' meetings. Thisgives our board of directors time to defend against takeover attempts and could discourage or deter a potential acquirer from solicitingproxies or making proposals related to an unsolicited takeover attempt.•The provisions of our certificate of incorporation noted above may be amended only with the affirmative vote of holders of at least 66 2/3% ofthe voting power of all of the then-outstanding shares of the company's voting stock, voting together as a single class. The same two-thirdsvote is required to amend the provision of our certificate of incorporation imposing these supermajority voting requirements. Further, ourbylaws may be amended only by our board of directors or by the same percentage vote of stockholders noted above as required to amend ourcertificate of incorporation. These supermajority voting requirements may inhibit the ability of a potential acquirer to effect such amendmentsto facilitate an unsolicited takeover attempt.•Our board of directors may amend our bylaws by majority vote. This could allow the board to use bylaw amendments to delay or prevent anunsolicited takeover, and limits the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt.45Table of ContentsWe are also subject to Section 203 of the Delaware General Corporation Law, which prohibits us from engaging in any business combination with aninterested stockholder for a period of three years from the date the person became an interested stockholder, unless certain conditions are met. Theseprovisions make it more difficult for stockholders or potential acquirers to acquire the company without negotiation and may apply even if some of ourstockholders consider the proposed transaction beneficial to them. For example, these provisions might discourage a potential acquisition proposal or tenderoffer, even if the acquisition proposal or tender offer were to be at a premium over the then-current market price for our common stock. These provisionscould also limit the price that investors are willing to pay in the future for shares of our common stock.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesOur corporate headquarters are located in Los Angeles, California, where we occupy facilities totaling approximately 47,000 square feet under alease that expires in 2021. We use these facilities for our principal administration, sales and marketing, technology and development, and engineeringactivities. We also lease additional offices and maintain data centers in other North American locations, South America, Europe, Australia, and Asia. Webelieve that our current facilities are adequate to meet our current needs, and that, if we require additional space, we will be able to obtain additional facilitieson commercially reasonable terms.Item 3. Legal ProceedingsWe and our subsidiaries may from time to time be parties to legal or regulatory proceedings, lawsuits and other claims incident to our businessactivities and to our status as a public company. Such matters may include, among other things, assertions of contract breach or intellectual propertyinfringement, claims for indemnity arising in the course of our business, regulatory investigations or enforcement proceedings, and claims by persons whoseemployment has been terminated. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, we areunable to ascertain the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance or recoverable from third parties, or thefinancial impact with respect to such matters as of December 31, 2016. However, based on our knowledge as of December 31, 2016, we believe that the finalresolution of such matters pending at the time of this report, individually and in the aggregate, will not have a material adverse effect upon our consolidatedfinancial position, results of operations or cash flows.Item 4. Mine Safety DisclosuresNot applicable.PART IIItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock has been listed on the New York Stock Exchange, or the NYSE, since April 1, 2014, under the symbol "RUBI". Prior to our initialpublic offering, or IPO, there was no public market for our common stock. The following table sets forth, for the indicated periods, the high and low salesprices of our common stock as reported on the NYSE. High LowFiscal 2015 Quarters Ended: March 31, 2015 $20.59 $14.14June 30, 2015 $19.21 $14.78September 30, 2015 $18.59 $13.08December 31, 2015 $16.97 $13.53Fiscal 2016 Quarters Ended: March 31, 2016 $18.41 $11.72June 30, 2016 $20.37 $12.46September 30, 2016 $14.60 $8.04December 31, 2016 $8.55 $6.1246Table of ContentsHolders of RecordAs of March 6, 2017, there were approximately 99 holders of record of our common stock. The actual number of stockholders is greater than thisnumber of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. Thisnumber of holders also does not include stockholders whose shares may be held in trust by other entities.Dividend PolicyWe have never declared or paid any dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.We currently intend to retain any earnings to finance the operation and expansion of our business. Any future determination to pay dividends will be at thediscretion of our board of directors and will be dependent upon then-existing conditions, including our earnings, capital requirements, results of operations,financial condition, business prospects and other factors that our board of directors considers relevant. See Item 7 "Management’s Discussion and Analysis ofFinancial Condition and Results of Operations" for additional information regarding our financial condition. In addition, our credit facility containsrestrictions on our ability to pay dividends.Purchases of Equity Securities by the Issuer and Affiliated PurchasersWe presently have no publicly announced repurchase plan or program.Upon vesting of most restricted stock units or stock awards, we are required to deposit minimum statutory employee withholding taxes on behalf ofthe holders of the vested awards. As reimbursement for these tax deposits, we have the option to withhold from shares otherwise issuable upon vesting aportion of those shares with a fair market value equal to the amount of the deposits we paid. Withholding of shares in this manner is accounted for as arepurchase of common stock.Common stock repurchases during the quarter ended December 31, 2016 were as follows (in thousands, except per share amounts):Period Total Number of SharesPurchased Average Price Paid perShare Total Number of SharesPurchased as Part of aPublicly AnnouncedProgram Maximum Approximate DollarValue that May Yet bePurchased Under the Program October 1 – October 31, 2016 — $— — $—November 1 – November 30, 2016 152 $7.72 — $—December 1 – December 31, 2016 — $— — $—Use of ProceedsOn April 7, 2014, we closed our IPO, whereby we sold 6,432,445 shares of common stock (including 1,015,649 shares sold pursuant to theunderwriters' exercise of their over-allotment option), and the selling stockholders sold 1,354,199 shares of common stock. There has been no materialchange in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on April 2, 2014 pursuant to Rule 424(b) of theSecurities Act. Stock Performance GraphThis performance graph shall not be deemed "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act, orotherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of ours under the Securities Actof 1933, as amended, except as shall be expressly set forth by specific reference in such filing.The following graph compares the cumulative total stockholder return on an initial investment of $100 in our common stock between April 1, 2014(the date of our IPO) and December 31, 2016, with the comparative cumulative total returns of the S&P 500 Index and NYSE Composite Index over the sameperiod. As previously discussed, we have not paid any cash dividends and, therefore, the cumulative total return calculation for us is based solely upon stockprice appreciation (depreciation) and not reinvestment of cash dividends, whereas the data for the S&P 500 Index and NYSE Composite Index assumesreinvestments of dividends. The graph assumes our closing sales price on April 1, 2014 of $15.00 per share as the initial value of our common stock. Thereturns shown are based on historical results and are not necessarily indicative of, nor intended to forecast, future stock price.47Table of ContentsItem 6. Selected Financial DataThe following selected consolidated financial data should be read in conjunction with Item 7 "Management's Discussion and Analysis of FinancialCondition and Results of Operations" and our consolidated financial statements and the related notes appearing in Item 8. "Financial Statements andSupplementary Data" of this Annual Report on Form 10-K.The following table sets forth our selected consolidated historical financial data for the periods indicated. The consolidated statements of operationsdata for the years ended December 31, 2016, 2015 and 2014, and the consolidated balance sheet data as of December 31, 2016 and 2015 have been derivedfrom our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.Our business has evolved significantly since our founding, including through acquisitions, and we expect the business to continue to evolverapidly. Period-to-period comparisons of our historical results of operations are not necessarily meaningful, and historical operating results may not beindicative of future performance. See Note 7 to our consolidated financial statements for a discussion of the impacts of our recent acquisitions.48Table of Contents Year Ended December 31,2016 December 31,2015 December 31,2014 December 31,2013 December 31,2012 (in thousands, except per share data)Revenue $278,221 $248,484 $125,295 $83,830 $57,072Expenses: Cost of revenue(1) (2) 73,247 58,495 20,754 15,358 12,367Sales and marketing(1) (2) 83,328 83,333 43,203 25,811 20,458Technology and development(1) (2) 51,184 42,055 22,718 18,615 13,115General and administrative(1) (2) 68,570 70,199 57,398 27,926 12,331Restructuring and other exit costs 3,316 — — — —Impairment of intangible assets 23,473 — — — —Total expenses 303,118 254,082 144,073 87,710 58,271Loss from operations (24,897) (5,598) (18,778) (3,880) (1,199)Other (income) expense: (1,984) (1,459) (277) 5,122 1,029Loss before income taxes (22,913) (4,139) (18,501) (9,002) (2,228)Provision (benefit) for income taxes (4,860) (4,561) 172 247 134Net income (loss) (18,053) 422 (18,673) (9,249) (2,362)Cumulative preferred stock dividends(3) — — (1,116) (4,244) (4,255)Net income (loss) attributable to common stockholders $(18,053) $422 $(19,789) $(13,493) $(6,617)Net income (loss) per share attributable to commonstockholders(4) (5): Basic $(0.39) $0.01 $(0.70) $(1.17) $(0.60)Diluted $(0.39) $0.01 $(0.70) $(1.17) $(0.60)Weighted-average shares used to compute net income (loss)per share attributable to common stockholders(5): Basic 46,655 39,663 28,217 11,488 11,096Diluted 46,655 44,495 28,217 11,488 11,096(1) Stock-based compensation expense included in our expenses was as follows: Year Ended December 31,2016 December 31,2015 December 31,2014 December 31, 2013 December 31, 2012 (in thousands)Cost of revenue $344 $240 $166 $87 $78Sales and marketing 8,520 7,415 3,217 1,105 1,039Technology and development 5,788 4,963 2,228 1,645 828General and administrative 14,042 17,966 18,235 3,515 1,099Total $28,694 $30,584 $23,846 $6,352 $3,04449Table of Contents(2) Depreciation and amortization expense included in our expenses was as follows: Year Ended December 31,2016 December 31,2015 December 31,2014 December 31, 2013 December 31, 2012 (in thousands)Cost of revenue $28,853 $19,290 $10,494 $6,926 $5,809Sales and marketing 9,020 8,168 669 355 280Technology and development 2,759 1,815 802 796 502General and administrative 2,131 1,737 552 361 266Total $42,763 $31,010 $12,517 $8,438 $6,857(3) The holders of our convertible preferred stock were entitled to cumulative dividends prior and in preference to common stock. Because the holders ofour convertible preferred stock were entitled to participate in dividends, net income (loss) attributable to common stockholders is equal to net income(loss) adjusted for cumulative preferred stock dividends for the period. Immediately upon the closing of the initial public offering in April 2014, eachoutstanding share of convertible preferred stock was automatically converted into one-half of a share of our common stock and these holders were nolonger entitled to the cumulative dividends. See Note 12 to our consolidated financial statements for a description of our convertible preferred stock.(4) See Note 3 to our consolidated financial statements for a description of the method used to compute basic and diluted net income (loss) per shareattributable to common stockholders.(5) All share, per-share and related information has been retroactively adjusted, where applicable, to reflect the impact of a 1-for-2 reverse stock split,including an adjustment to the preferred stock conversion ratio, which was effected on March 18, 2014.Consolidated Balance Sheet Data At December 31 2016 2015 2014 2013 2012 (in thousands)Cash and cash equivalents $149,423 $116,499 $97,196 $29,956 $21,616Marketable securities, current and non-current $40,550 $36,732 $— $— $—Accounts receivable, net $192,064 $218,235 $133,267 $94,722 $67,335Property, equipment and internal use software developmentcosts, net $52,768 $39,332 $26,697 $15,916 $12,697Total assets $519,775 $536,736 $296,481 $149,887 $108,014Debt and capital lease obligations, current and non-current $— $— $105 $4,181 $5,215Total liabilities $220,262 $258,635 $167,729 $133,727 $90,005Convertible preferred stock $— $— $— $52,571 $52,571Common stockholders' equity (deficit) $299,513 $278,101 $128,752 $(36,411) $(34,562)Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidatedfinancial statements and the related notes to those statements included in Item 8 to this Annual Report on Form 10-K. In addition to historical financialinformation, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs, and expectations and that involve risksand uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors thatcould cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in "Item 1A.Risk Factors" and the "Special Note About Forward-Looking Statements."OverviewThe Company is a technology company with a mission to keep the Internet free and open and to fuel its growth by making it easy and safe to buyand sell advertising. The Company pioneered advertising automation technology to enable the world's leading brands, content creators, and applicationdevelopers to trade and protect trillions of advertising transactions each month and50Table of Contentsto improve the advertising experience of consumers. The Company offers a highly scalable platform that provides an automated advertising solution forbuyers and sellers of digital advertising.The Company delivers value to buyers and sellers of digital advertising through the Company’s proprietary advertising automation solution, whichprovides critical functionality to both buyers and sellers. The advertising automation solution consists of applications for sellers, including providers ofwebsites, mobile applications and other digital media properties, and their representatives, to sell their advertising inventory; applications for buyers,including advertisers, agencies, agency trading desks, demand side platforms, and ad networks, to buy advertising inventory; and a marketplace over whichsuch transactions are executed. This solution incorporates proprietary machine-learning algorithms, sophisticated data processing, high-volume storage,detailed analytics capabilities, and a distributed infrastructure. Together, these features form the basis for the Company’s automated advertising solution thatbrings buyers and sellers together and facilitates intelligent decision-making and automated transaction execution for the advertising inventory managed onthe Company's platform.Industry Trends and Trends in Our BusinessThe digital advertising market generally, and RTB specifically, continue to experience growth. In December 2016, International Data Corporation,or IDC, estimated RTB was a $10.7 billion global market in 2016 that will increase to $20.9 billion by 2020, and Orders was a $6.7 billion global market in2016 that will grow to $51.8 billion by 2020. The compound annual growth rate for these market opportunities is 43% on a combined basis.Another important trend in the digital advertising industry is the expansion of automated buying and selling of advertising through new channels,including mobile, which has market growth rates exceeding those of the desktop channel and is a critical area of operational focus for us. According to IDCestimates, mobile advertising was a $63.6 billion global market in 2016 that is expected to increase to $192.2 billion by 2020, a compound annual growthrate of 32%. We have significantly advanced our mobile capabilities through a combination of internal product development, strategic customer wins,increased mobile activity driven from existing buyer and seller customers, and international expansion, resulting in an increase in our mobile revenue of 36%during the year ended December 31, 2016 compared to the year ended December 31, 2015.The growth of automated buying and selling of advertising is also expanding into new geographic markets, and in some markets the rate of adoptionof automated digital advertising is greater than in the United States. Our revenue in international markets, based upon seller location, grew to approximately34% of total revenue during the year ended December 31, 2016 and to 31% of total revenue during the year ended December 31, 2015. We intend tocontinue to expand our international business.The impact of the slowdown in the rate of growth for traditional desktop display advertising was compounded for our business in 2016 by the faster-than-expected industry migration to header bidding in North America. Header bidding increased competition for some inventory that we would otherwisehave been able to sell through our platform and our decision to focus on other growth priorities and consequently not to invest earlier in our own headerbidding solution, called FastLane, resulted in adverse revenue effects for us. However, header bidding makes available to us premium inventory that we werepreviously unable to access and FastLane (which we launched in 2016) began producing more and more positive results in the fourth quarter of 2016, whichhave continued in early 2017. As a result, we believe that FastLane has the potential to improve our competitiveness in the traditional desktop displaymarket in 2017, however we must address certain technical and operational challenges, as described below under "Risk Factors," in order to fully realizeFastLane's potential.As a result of these rapid developments in the industry, advertising spend from our traditional desktop display business has declined and can nolonger be relied upon to drive the growth of our business. Our strategic focus is on growth areas—mobile, video, and Orders—that are expected to represent amajority of our advertising spend in 2017. However, despite our solid progress in mobile, our traditional desktop business accounted for approximately 67%and 74% of our advertising spend during the year ended December 31, 2016 and year ended December 31, 2015, respectively, and is expected to continue torepresent a significant part of our business in the near term. Therefore, the weight of our desktop business and its decreasing advertising spend trend willcontinue to have a significant effect on our growth until our advertising spend mix has shifted more fully to growth areas. Another factor impacting ourbusiness is that a large share of the growth in digital advertising spending worldwide is being captured by owned and operated sites, such as Facebook andGoogle.Although we believe our pricing is competitive, we experience requests from buyers and sellers for discounts, fee concessions or revisions, rebates,and greater levels of pricing transparency and specificity. Buyers on our platform have come under growing pressure from their clients to reduce their feesand/or to provide fee transparency, and sellers are also under revenue pressure, and these pressures may be increasingly conducted to us. In light of increasingmarket trends toward transparency, commodification of intermediary services, and disintermediation, we may reduce our fees in an effort to be morecompetitive in attracting demand and capturing inventory. While fee reductions could make us more competitive, it is not clear whether they would result inincreases in spending on our platform or whether any spending increases will compensate fully for the reduction in fees. Another factor that we expect tocontribute to declining take rate is an increase in Orders as a percentage of overall advertising51Table of Contentsspend because Orders carries lower fees. An increase in Orders as a percentage of our advertising spend could yield higher revenue despite lower fees due tothe higher CPMs typically associated with Orders transactions, but it is not certain that our Orders business will increase or this effect will be realized.Although our advertising spend and revenue has increased in prior years as a result of an increase in overall advertising spending in the market, increased useof our solution by buyers and sellers, and increases in take rate and average CPM, our growth slowed significantly in 2016 due to market and competitivepressures, deceleration in traditional desktop display spending, header bidding dynamics as described above and decreases in our fees. We expect thesedynamics to continue to affect us in 2017. Consequently, we have taken steps to reduce costs and relocate resources to growth areas. In the third quarter of2016, we terminated our static bidding offering, which accounted for only approximately 1% of total revenue in 2016 and was continuing to contract due toshifts in market spending from Static bidding to RTB. In the fourth quarter of 2016, we restructured our workforce, reducing our headcount by approximately125 persons. In the first quarter of 2017, we exited our intent marketing business, closed our Toronto office, and implemented a management restructuringinvolving the departure of seven senior leaders. These measures are intended to facilitate investment in market share growth, technology and R&D for growthareas including mobile, video, Orders, header bidding, and our consumer initiative.While we are confident that our restructuring and growth initiatives will yield positive results, industry dynamics are challenging and make itdifficult to predict with confidence the timing and net effect of our initiatives. Therefore, we expect lower year-over-year revenue, earnings and AdjustedEBITDA through the first quarter of 2017.Components of Our Results of OperationsWe report our financial results as one operating segment. Our consolidated operating results, together with non-GAAP financial measures and theoperational performance measures, are regularly reviewed by our chief operating decision maker, principally to make decisions about how we allocate ourresources and to measure our consolidated operating performance.RevenueWe generate revenue from buyers and sellers who use our solution for the purchase and sale of advertising inventory. Our solution enables buyersand sellers to purchase and sell advertising inventory, by matching buyers and sellers, and establishing rules and parameters for open and transparentauctions of advertising inventory. Buyers use our solution to reach their intended audiences by buying advertising inventory that we make available fromsellers through our platform. Sellers use our solution to monetize their inventory. We recognize revenue upon the fulfillment of our contractual obligations inconnection with a completed transaction, subject to satisfying all other revenue recognition criteriaOur revenue recognition policies are discussed in more detail below and in the notes to our consolidated financial statements presented in "Item 8.Financial Statements and Supplementary Data."ExpensesWe classify our expenses into the following six categories:Cost of Revenue. Our cost of revenue consists primarily of data center costs, bandwidth costs, depreciation and maintenance expense of hardwaresupporting our revenue-producing platform, amortization of software costs for the development of our revenue-producing platform, amortization expenseassociated with acquired developed technologies, personnel costs, facilities-related costs, and for transactions we report on a gross basis, the amounts we paysellers. Personnel costs included in cost of revenue include salaries, bonuses, stock-based compensation, and employee benefit costs, and are primarilyattributable to personnel in our network operations group who support our platform. We capitalize costs associated with software that is developed orobtained for internal use and amortize the costs associated with our revenue-producing platform in cost of revenue over their estimated useful lives. Weamortize acquired developed technologies over their estimated useful lives.Sales and Marketing. Our sales and marketing expenses consist primarily of personnel costs, including stock-based compensation and the salesbonuses paid to our sales organization, marketing expenses such as brand marketing, travel expenses, trade shows and marketing materials, professionalservices, and amortization expense associated with customer relationships and backlog from our business acquisitions, and to a lesser extent, facilities-relatedcosts and depreciation and amortization. Our sales organization focuses on increasing the adoption of our solution by existing and new buyers and sellers.We amortize acquired intangibles associated with customer relationships and backlog from our business acquisitions over their estimated useful lives.Technology and Development. Our technology and development expenses consist primarily of personnel costs, including stock-based compensationand bonuses, and professional services associated with the ongoing development and maintenance of our solution, and to a lesser extent, facilities-relatedcosts and depreciation and amortization, including amortization expense associated with acquired intangible assets from our business acquisitions that arerelated to technology and development functions. These expenses include costs incurred in the development, implementation, and maintenance of internaluse software, including platform and related infrastructure. Technology and development costs are expensed as incurred, except to the extent that such costsare52Table of Contentsassociated with internal use software development that qualifies for capitalization, which are then recorded as internal use software development costs, net,on our consolidated balance sheet. We amortize internal use software development costs that relate to our revenue-producing activities on our platform tocost of revenue and amortize other internal use software development costs to technology and development costs or general and administrative expenses,depending on the nature of the related project. We amortize acquired intangibles associated with technology and development functions from our businessacquisitions over their estimated useful lives.General and Administrative. Our general and administrative expenses consist primarily of personnel costs, including stock-based compensation andbonuses, associated with our executive, finance, legal, human resources, compliance, and other administrative personnel, as well as accounting and legalprofessional services fees, facilities-related costs and depreciation, and other corporate-related expenses. General and administrative expenses also includeamortization of internal use software development costs and acquired intangible assets from our business acquisitions over their estimated useful lives thatrelate to general and administrative functions and changes in fair value associated with the liability-classified contingent consideration related toacquisitions.Restructuring and other exit costs. Our restructuring and other exit costs are cash and non-cash charges consisting primarily of employeetermination costs, facility closure and relocation costs, and contract termination costs.Impairment of intangible assets. Our impairment charges are non-cash charges related to its intangible assets. Intangible assets are reviewed forimpairment annually in the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of the assets might not berecoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, asignificant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount ofan asset or group of assets may not be recoverable. For intangible assets used in operations, impairment losses are only recorded if the asset’s carrying amountis not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between thecarrying amount and estimated fair value. Intangible assets are considered held for sale when certain criteria are met, including when management hascommitted to a plan to sell the asset, the asset is available for sale in its immediate condition, and the sale is probable within one year of the reporting date.Assets held for sale are reported at the lower of cost or fair value less costs to sell. We had no assets held for sale as of December 31, 2016 and 2015.Other (Income), ExpenseInterest (Income) Expense Interest expense is mainly related to our credit facility. Interest income consists of interest earned on our cash equivalentsand marketable securities and was insignificant for the years ended December 31, 2016, 2015 and 2014.Other Income. Other income consists primarily of rental income from commercial office space we hold under lease and have sublet to other tenants.Change in Fair Value of Convertible Preferred Stock Warrant Liability. Prior to our initial public offering, or IPO, the convertible preferred stockwarrants were subject to re-measurement to fair value at each balance sheet date, and any change in fair value was recognized as a component of otherexpense, net. In connection with the closing of our IPO in April 2014, one warrant for 845,867 shares of convertible preferred stock was exercised on a netbasis, resulting in the issuance of 286,055 shares of common stock, and the remaining warrant for 25,174 shares of convertible preferred stock wasautomatically converted into a warrant exercisable for 12,587 shares of common stock. Following the closing of our IPO, we are no longer required to re-measure the converted common stock warrants to fair value and record any changes in the fair value of these liabilities in our consolidated statements ofoperations. The common stock warrant was net exercised in June 2014. As of December 31, 2016, we had no outstanding warrants.Foreign Currency Exchange (Gain) Loss, Net. Foreign currency exchange (gain) loss, net consists primarily of gains and losses on foreign currencytransactions. We have foreign currency exposure related to our accounts receivable and accounts payable that are denominated in currencies other than theU.S. Dollar, principally the British Pound, Euro, Canadian Dollar, and Australian Dollar.Provision (Benefit) for Income TaxesProvision (benefit) for income taxes consists primarily of federal, state, and foreign income taxes. Due to uncertainty as to the realization of benefitsfrom the predominant portion of our domestic and international net deferred tax assets, including net operating loss carryforwards and research anddevelopment tax credits, we have a full valuation allowance reserved against such net deferred tax assets. We intend to continue to maintain a full valuationallowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. We believe that thereis a possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portionof the domestic valuation allowance may no longer be needed. Release of the valuation allowance would result in the recognition of53Table of Contentscertain net deferred tax assets and a decrease to income tax expense or recognition of a benefit for the period the release is recorded. However, the exacttiming and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to achieve.Pursuant to Section 382 of the Internal Revenue Code, we underwent an ownership change for tax purposes (i.e., a more than 50% change in stockownership in aggregated 5% shareholders) on December 31, 2015. As a result, the use of our domestic NOL carryforwards and tax credits generated prior tothe ownership change will be subject to the annual 382 use limitations of approximately $53.1 million. We have concluded that the ownership change willnot impact our ability to utilize substantially all of our NOLs and carryforward credits to the extent we generate taxable income that can be offset by suchlosses.Results of OperationsThe following tables set forth our consolidated results of operations and our consolidated results of operations as a percentage of revenue for theperiods presented: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands, except per share data)Revenue $278,221 $248,484 $125,295Expenses: Cost of revenue(1)(2) 73,247 58,495 20,754Sales and marketing(1)(2) 83,328 83,333 43,203Technology and development(1)(2) 51,184 42,055 22,718General and administrative(1)(2) 68,570 70,199 57,398Restructuring and other exit costs 3,316 — —Impairment of intangible assets 23,473 — —Total expenses 303,118 254,082 144,073Loss from operations (24,897) (5,598) (18,778)Other income: (1,984) (1,459) (277)Loss before income taxes (22,913) (4,139) (18,501)Provision (benefit) for income taxes (4,860) (4,561) 172Net income (loss) $(18,053) $422 $(18,673)(1) Stock-based compensation expense included in our expenses was as follows: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Cost of revenue $344 $240 $166Sales and marketing 8,520 7,415 3,217Technology and development 5,788 4,963 2,228General and administrative 14,042 17,966 18,235Total stock-based compensation expense $28,694 $30,584 $23,846(2) Depreciation and amortization expense included in our expenses was as follows:54Table of Contents Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Cost of revenue $28,853 $19,290 $10,494Sales and marketing 9,020 8,168 669Technology and development 2,759 1,815 802General and administrative 2,131 1,737 552Total depreciation and amortization expense $42,763 $31,010 $12,517The following table sets forth our consolidated results of operations for the specified periods as a percentage of our revenue for those periodspresented: Year Ended * December 31, 2016 December 31, 2015 December 31, 2014Revenue 100 % 100 % 100 %Cost of revenue 26 24 17Sales and marketing 30 34 34Technology and development 18 17 18General and administrative 25 28 46Restructuring and other exit costs 1 — —Impairment of intangible assets 8 — —Total expenses 109 102 115Loss from operations (9) (2) (15)Other income, net (1) (1) —Loss before income taxes (8) (2) (15)Benefit for income taxes (2) (2) —Net loss (6)% — % (15)%* Certain figures may not sum due to rounding.Comparison of the Years Ended December 31, 2016, 2015 and 2014Revenue Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Revenue $278,221 $248,484 $125,295Revenue increased $29.7 million, or 12%, for the year ended December 31, 2016 compared to the year ended December 31, 2015. The increase in2016 revenue was primarily due to an increase in the amount of advertising spend on our platform during the year ended December 31, 2016 compared to theyear ended December 31, 2015. The increase in revenue was also attributable to an increase in average CPM to $1.25 for the year ended December 31, 2016from $1.09 for the year ended December 31, 2015, an increase of $0.16, or 15%. This increase in average CPM during the period was due to increasedmatching efficiency and a shift in mix of advertising spend on our platform from lower-priced higher-volume inventory mainly associated with static biddingto higher-priced lower-volume inventory mainly associated with RTB and Orders. The increase in average CPM was partially offset by a decrease in paidimpressions resulting from the same shift in mix of advertising spend on our platform from static bidding to RTB and Orders. While impressions associatedwith RTB and Orders increased during the year ended December 31, 2016 compared to the year ended December 31, 2015, paid impressions associated withStatic bidding decreased, resulting in an overall decrease of 11% from 920 billion for the year ended December 31, 2015 to 819 billion for the year endedDecember 31, 2016.Revenue increased $123.2 million, or 98%, for the year ended December 31, 2015 compared to the year ended December 31, 2014. The increase in2015 revenue was primarily due to the same reasons as described above for 2016. Average CPM increased to $1.09 for the year ended December 31, 2015from $0.67 for the year ended December 31, 2014, an increase of $0.42, or 63%.55Table of ContentsOverall, paid impressions decreased from 999 billion for the year ended December 31, 2014 to 920 billion for the year ended December 31, 2015, a decreaseof 8%. In addition, revenue in 2015 included revenue reported on a gross basis following the acquisition of Chango as discussed earlier; there was no grossrevenue reporting in 2014.Revenue may be impacted by seasonality, shifts in the mix of advertising spend by transaction type and channel, changes in the fees we are able tocharge or choose to charge buyers and sellers for our services (which drives take rate), whether we are the principal in the transactions and therefore reportrevenue on a gross basis, and other factors such as changes in the market, our execution of the business, and competition. Industry dynamics are challenging due to market and competitive pressures and make it difficult to predict the near term effect of our growthinitiatives. Consequently, in 2017 we expect a decrease in revenue resulting from the cessation of our intent marketing and Static bidding solutions, adecreasing take rate, increased competition for inventory partially due to increases in header bidding, and increased competition for demand, including fromlarge providers of owned and operated inventory. Factors that could contribute to a declining take rate include changes in the mix of transaction types on ourplatform and the implementation of fee reductions or lower-fee alternative pricing structures in response to market pressures or in an effort to be morecompetitive in attracting demand and capturing inventory. Lower fees may result in higher advertising spend growth, but it is not clear that resultingadvertising spend increases would offset the revenue decreases resulting from fee reductions.Cost of Revenue Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands, except percentages)Cost of revenue $73,247 $58,495 $20,754Percent of revenue 26% 24% 17%Cost of revenue increased by $14.8 million, or 25%, for the year ended December 31, 2016 compared to the year ended December 31, 2015. Thisincrease was primarily due to an increase of $9.6 million in depreciation and amortization expense, an increase in data center, hosting, and bandwidth costsof $2.5 million, and an increase in personnel costs of $1.2 million. The increase in depreciation and amortization was primarily attributable to an increase inamortization of developed technology acquired in our business combinations, depreciation of computer equipment and network hardware, and amortizationof capitalized internal use software, as we continued to functionally enhance our existing products, as well as build new solutions to expand our offerings.The amortization of developed technology acquired in our business combinations reflected in cost of revenue was $9.5 million and $6.3 million for the yearsended December 31, 2016 and 2015, respectively. The amortization of capitalized internal use software reflected in cost of revenue was $8.0 million and $6.5million for the years ended December 31, 2016 and 2015, respectively. The increases in data center, hosting, and bandwidth costs were primarily to supportthe increase in the use of our platform and international expansion efforts requiring additional data centers, hardware, software, and maintenance expenses.Cost of revenue in 2016 also included an increase of $1.0 million in amounts we paid sellers, reflecting the impact of a full year of gross revenue reporting forour intent marketing business following the acquisition of Chango in April 2015, as discussed earlier.Cost of revenue increased by $37.7 million, or 182%, for the year ended December 31, 2015 compared to the year ended December 31, 2014. Thisincrease was primarily due to the addition to cost of revenue of $21.2 million in amounts we paid sellers in 2015 for transactions we reported on a grossrevenue basis. In 2014, there was no gross revenue reporting and consequently no amounts paid to sellers in cost of revenue. The increase in cost of revenuefor 2015 was also due to an increase of $8.8 million in depreciation and amortization expense, and an increase in data center, hosting, and bandwidth costs of$6.2 million. The increase in depreciation and amortization was primarily attributable to the same reasons as described above for 2016. The amortization ofdeveloped technology acquired in our business combinations reflected in cost of revenue was $6.3 million and $0.6 million for the years ended December 31,2015 and 2014, respectively. The amortization of capitalized internal use software reflected in cost of revenue was $6.5 million and $4.9 million for the yearsended December 31, 2015 and 2014, respectively. As a percentage of revenue, cost of revenue increased for the year ended December 31, 2015 compared tothe year ended December 31, 2014 primarily as a result of the inclusion of amounts we paid sellers in cost of revenue following our acquisition of Chango inApril 2015, as previously described, which were not included in cost of revenue during the year ended December 31, 2014 because there was no grossrevenue reporting in 2014.We expect cost of revenue to be lower in absolute dollars in 2017 driven by the elimination of amounts paid to sellers due to the cessation of ourintent marketing business in the first quarter of 2017, which has been reported on a gross basis. We expect to have increased spending in 2017 on datacenters, personnel to build and maintain our technology and systems, as well as investments in developed technology to support our strategic growthinitiatives. Cost of revenue may fluctuate from quarter to56Table of Contentsquarter and period to period, on an absolute dollar basis and as a percentage of revenue, depending on revenue levels and the volume of transactions weprocess supporting those revenues, the timing and amounts of investments, and the amounts we pay sellers related to transactions we may report on a grossbasis.Sales and Marketing Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands, except percentages)Sales and marketing $83,328 $83,333 $43,203Percent of revenue 30% 34% 34%Sales and marketing expense decreased by $0.01 million, or 0.01%, for the year ended December 31, 2016 compared to the year ended December 31,2015. Personnel costs decreased by $0.3 million and depreciation and amortization costs increased by $0.9 million. The decrease in personnel costs wasprimarily due to a decrease in sales and marketing headcount resulting from our operating cost control initiatives. The increase in depreciation andamortization was mainly related to amortization of acquired customer relationships.Sales and marketing expense increased by $40.1 million, or 93%, for the year ended December 31, 2015 compared to the year ended December 31,2014, primarily due to an increase in personnel costs of $25.0 million, and to a lesser extent, an increase in depreciation and amortization of $7.5 million.The increase in personnel costs was primarily due to an increase in sales and marketing headcount resulting from continued hiring and acquisitions. Theincrease in depreciation and amortization was mainly related to amortization of customer relationships and backlog acquired in our business combinations.We expect sales and marketing expenses to be lower in absolute dollars in 2017 as a result of the personnel reductions discussed above. Sales andmarketing expense may fluctuate quarter to quarter and period to period, on an absolute dollar basis and as a percentage of revenue, based on revenue levels,the timing of our investments and seasonality in our industry and business.Technology and Development Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands, except percentages)Technology and development $51,184 $42,055 $22,718Percent of revenue 18% 17% 18%Technology and development expense increased by $9.1 million, or 22%, for the year ended December 31, 2016 compared to the year endedDecember 31, 2015 primarily due to an increase in personnel costs of $4.5 million resulting from an increase in headcount as a result of continued hiring ofengineers to maintain and support our technology and development efforts.Technology and development expense increased by $19.3 million, or 85%, for the year ended December 31, 2015 compared to the year endedDecember 31, 2014. This increase was primarily due to an increase in personnel costs of $14.6 million resulting from an increase in headcount as a result ofacquisitions and continued hiring of engineers to maintain and support our technology and development efforts.We expect technology and development expense to be higher in absolute dollars in 2017 as we continue to invest in our engineering andtechnology teams to support our technology and development efforts. The timing and amount of our capitalized development and enhancement projects mayaffect the amount of development costs expensed in any given period. As a percentage of revenue, technology and development expense may fluctuate fromquarter to quarter and period to period based on revenue levels, the timing and amounts of these investments, the timing and the rate of the amortization ofcapitalized projects and the timing and amounts of future capitalized internal use software development costs. General and Administrative 57Table of Contents Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands, except percentages)General and administrative $68,570 $70,199 $57,398Percent of revenue 25% 28% 46%General and administrative expense decreased by $1.6 million, or 2%, for the year ended December 31, 2016 compared to the year endedDecember 31, 2015 primarily due to a decrease in personnel costs of $2.3 million, a decrease in professional services costs of $0.5 million, partially offset byincreases of $0.4 million in depreciation and amortization, $0.7 million in insurance and taxes, and $0.5 million in software license costs. The decrease inpersonnel costs was primarily due to decreased headcount. The decrease in professional services was primarily due to decreased transaction related services.The increase in depreciation and amortization was mainly related to amortization of non-compete agreements and trademarks acquired in our businesscombinations. As a percentage of revenue, general and administrative expenses decreased for the year ended December 31, 2016 compared to the year endedDecember 31, 2015 primarily as a result of revenue increasing at a higher percentage compared to the increase in general and administrative expenses.General and administrative expense increased by $12.8 million, or 22%, for the year ended December 31, 2015 compared to the year endedDecember 31, 2014, primarily due to an increase in personnel costs of $6.5 million, an increase in professional services costs of $2.3 million, and to a lesserextent, an increase in depreciation and amortization of $1.2 million. The increase in personnel costs was primarily due to increased headcount, includingfrom our business combinations. The increase in professional services was primarily due to transaction related services. The increase in depreciation andamortization was mainly related to amortization of non-compete agreements and trademarks acquired in our business combinations. As a percentage ofrevenue, general and administrative expenses decreased for the year ended December 31, 2015 compared to the year ended December 31, 2014 primarily as aresult of revenue increasing at a higher percentage compared to the increase in general and administrative expenses.We expect general and administrative expense to be lower in 2017 absolute dollars as a result of the personnel reductions discussed above. Generaland administrative expenses may fluctuate from quarter to quarter and period to period based on the timing and amounts of our investments and relatedexpenditures in our general and administrative functions as they vary in scope and scale over periods which may not be directly proportional to changes inrevenue.Restructuring and other exit costs Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands, except percentages)Restructuring and other exit costs $3,316 $— $—On November 2, 2016, we announced a workforce reduction of 125 employees, or approximately 19% of our workforce. In connection with theworkforce reduction, we recorded restructuring and other exit costs totaling $3.3 million for one-time employee-termination benefits, of which $2.5 millionwas paid in the quarter ended December 31, 2016. The annual employee-related costs for the departed employees were approximately $18.0 million.Impairment of intangible assets Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands, except percentages)Impairment of intangible assets $23,473 $— $—In January 2017, we announced that we will cease providing intent marketing services. In connection with this decision, we assessed the value of theasset group related to the intent marketing services, which consisted of customer relationships and developed technology, and determined that the assetgroup was impaired. Accordingly, we recorded a charge for the impairment of intangible assets totaling $23.5 million, which is included in the consolidatedstatement of operations for the year ended December 31, 2016.58Table of ContentsOther (Income) Expense, Net Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Interest (income) expense, net $(491) $(59) $110Other income (554) — —Change in fair value of preferred stock warrant liabilities — — 732Foreign exchange gain, net (939) (1,400) (1,119)Total other income, net $(1,984) $(1,459) $(277)Other income primarily consists of revenue generated by our sub-leasing activity.Following the closing of our IPO, we were no longer required to re-measure the warrants to fair value and record any changes in the fair value ofthese liabilities in our consolidated statements of operations, and accordingly, we did not record any related expenses subsequent to the closing of our IPO.Foreign exchange (gain) loss, net is impacted by movements in exchange rates, primarily the British Pound and Euro relative to the U.S. Dollar, andthe amount of foreign-currency denominated receivables and payables, which are impacted by our billings to buyers and payments to sellers. The foreigncurrency gains, net during the year ended December 31, 2016, 2015 and 2014, respectively, were primarily attributable to the strengthening of the U.S. Dollarin relation to the British Pound and Euro for foreign currency denominated transactions.Provision (Benefit) for Income Taxes We recorded an income tax benefit for the years ended December 31, 2016 and 2015 of $4.9 million and $4.6 million, respectively and an incometax expense for the year ended December 31, 2014 of $0.2 million. The tax benefit for the year ended December 31, 2016 is the result of the net operatinglosses generated by our Canadian operations.At December 31, 2016, we had U.S. federal net operating loss carryforwards, or NOLs, of approximately $37.9 million, which will begin to expire in2027. At December 31, 2016, we had state NOLs of approximately $57.2 million, which will also begin to expire in 2027. At December 31, 2016, theCompany had foreign NOLs of approximately $23.2 million, which will begin to expire in 2026. At December 31, 2016, we had federal research anddevelopment tax credit carryforwards, or credit carryforwards, of approximately $8.3 million, which will begin to expire in 2027. At December 31, 2016, wehad state research and development tax credits of approximately $6.8 million, which carry forward indefinitely. At December 31, 2016, the Company hadforeign research tax credits of approximately $0.7 million, which carry forward indefinitely. Utilization of certain NOLs and credit carryforwards may besubject to an annual limitation due to ownership change limitations set forth in the Code and similar state provisions. Any future annual limitation may resultin the expiration of NOLs and credit carryforwards before utilization. A prior ownership change and certain acquisitions resulted in us having NOLs subjectto insignificant annual limitations.Non-GAAP Financial Measures and Operational Performance MeasuresIn addition to our GAAP results, we review certain non-GAAP financial measures to help us evaluate our business, measure our performance, identifytrends affecting our business, establish budgets, measure the effectiveness of investments in our technology and development and sales and marketing, andassess our operational efficiencies. These non-GAAP measures include advertising spend, non-GAAP net revenue, and Adjusted EBITDA, which are discussedimmediately following the table below. Revenue and other GAAP measures are discussed under the headings "Components of Our Results of Operations" and"Results of Operations".59Table of Contents Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Financial Measures and non-GAAP Financial Measures: Revenue (in thousands) $278,221 $248,484 $125,295Advertising spend (in thousands) $1,025,782 $1,004,751 $667,796Non-GAAP net revenue (in thousands) $256,098 $227,321 $125,295Net income (loss) (in thousands) $(18,053) $422 $(18,673)Adjusted EBITDA (in thousands) $70,920 $59,466 $19,098Operational Measure: Take Rate 25.0% 22.6% 18.8%Advertising SpendWe define advertising spend as the buyer spending on advertising transacted on our platform. Advertising spend does not represent revenue reportedon a GAAP basis. Tracking our advertising spend allows us to compare our results to the results of companies that report all spending transacted on theirplatforms as GAAP revenue on a gross basis. We also use advertising spend for internal management purposes to assess market share of total advertisingspending.Our advertising spend may be influenced by demand for our services, the volume and characteristics of paid impressions, average CPM, and otherfactors such as changes in the market, our execution of the business, and competition.Advertising spend may fluctuate due to seasonality and increases or decreases in average CPM and paid impressions. In addition, we generallyexperience higher advertising spend during the fourth quarter of a given year resulting from higher advertising budgets by advertisers and more biddingactivity on our platform, which may drive higher volumes of paid impressions or average CPM. Growth in our advertising spend slowed significantly in 2016for various reasons, including shift of spending on digital advertising from desktop, which represents the majority of our business to mobile, our delay inembracing header bidding, and absorption by competitors, principally Google and Facebook, of an increasing share of growth in spending on digitaladvertising.The following table presents the reconciliation of revenue to advertising spend: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Revenue $278,221 $248,484 $125,295Plus amounts paid to sellers(1) 747,561 756,267 542,501Advertising spend $1,025,782 $1,004,751 $667,796(1)Amounts paid to sellers for the portion of our revenue reported on a net basis for GAAP purposes.Our solution enables buyers and sellers to transact through desktop and mobile channels. The following table presents revenue and advertisingspend in dollar terms by channel and as a percentage of total revenue or advertising spend for the years ended December 31, 2016 and 2015. This informationis not readily available for the year ended December 31, 2014. Revenue Advertising Spend Year Ended December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 (in thousands, except percentages)Channel: Desktop $181,407 65% $177,197 71% $684,782 67% $747,543 74%Mobile 96,814 35 71,287 29 341,000 33 257,208 26Total $278,221 100% $248,484 100% $1,025,782 100% $1,004,751 100%Non-GAAP Net Revenue60Table of ContentsWe define non-GAAP net revenue as GAAP revenue less amounts we pay sellers that are included within cost of revenue for the portion of ourrevenue reported on a gross basis. Non-GAAP net revenue would represent our revenue if we were to record all of our revenue on a net basis. Non-GAAP netrevenue does not represent revenue reported on a GAAP basis. Non-GAAP net revenue is one useful measure in assessing the performance of our business inperiods for which our revenue includes revenue reported on a gross basis, because it shows the operating results of our business on a consistent basis withoutthe effect of differing revenue reporting (gross vs. net) that we apply under GAAP across different types of transactions, and facilitates comparison of ourresults to the results of companies that report all of their revenue on a net basis. A potential limitation of non-GAAP net revenue is that other companies maydefine non-GAAP net revenue differently, which may make comparisons difficult.Non-GAAP net revenue is influenced by demand for our services, the volume and characteristics of advertising spend, and our take rate. The revenuewe have reported on a gross basis was associated with our intent marketing business. Because we exited that business in the first quarter of 2017, we do notexpect to report any revenue on a gross basis after the first quarter of 2017 unless and until we change our business practices, develop new products, or makean acquisition, in each case with characteristics that require gross reporting.The following table presents a reconciliation of revenue to non-GAAP net revenue for the years ended December 31, 2016, 2015 and 2014. Beforeour acquisition of Chango in April 2015, we reported all revenue on a net basis and therefore payments to sellers were not included in the cost of revenuebefore that date. Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Revenue $278,221 $248,484 $125,295Less amounts paid to sellers 22,123 21,163 —Non-GAAP net revenue $256,098 $227,321 $125,295Adjusted EBITDAWe define Adjusted EBITDA as net income (loss) adjusted to exclude stock-based compensation expense, depreciation and amortization,amortization of acquired intangible assets, impairment charges, interest income or expense, and other cash and non-cash based income or expenses that we donot consider indicative of our core operating performance, including, but not limited to foreign exchange gains and losses, acquisition and related items, andprovision (benefit) for income taxes. We believe Adjusted EBITDA is useful to investors in evaluating our performance for the following reasons:•Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s performance without regard to items such as those weexclude in calculating this measure, which can vary substantially from company to company depending upon their financing, capital structures, andthe method by which assets were acquired.•Our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, including the preparation of ourannual operating budget, as a measure of performance and the effectiveness of our business strategies, and in communications with our board ofdirectors concerning our performance. Adjusted EBITDA may also be used as a metric for determining payment of cash incentive compensation.•Adjusted EBITDA provides a measure of consistency and comparability with our past performance that many investors find useful, facilitates period-to-period comparisons of operations, and also facilitates comparisons with other peer companies, many of which use similar non-GAAP financialmeasures to supplement their GAAP results. Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations asan analytical tool, and should not be considered in isolation or as a substitute for analysis of our results of operations as reported under GAAP. Theselimitations include:•Stock-based compensation is a non-cash charge and is and will remain an element of our long-term incentive compensation package, although weexclude it as an expense when evaluating our ongoing operating performance for a particular period.•Depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future, butAdjusted EBITDA does not reflect any cash requirements for these replacements.•Impairment charges are non-cash charges related to goodwill, intangible assets and/or long-lived assets.•Adjusted EBITDA does not reflect non-cash charges related to acquisition and related items, such as amortization of acquired intangible assets andchanges in the fair value of contingent consideration.•Adjusted EBITDA does not reflect cash and non-cash charges and changes in, or cash requirements for, acquisition and related items, such as certaintransaction expenses and expenses associated with earn-out amounts.61Table of Contents•Adjusted EBITDA does not reflect changes in our working capital needs, capital expenditures, or contractual commitments.•Adjusted EBITDA does not reflect cash requirements for income taxes and the cash impact of other income or expense.•Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.Our Adjusted EBITDA is influenced by fluctuation in our revenue and the timing and amounts of our investments in our operations.Adjusted EBITDA should not be considered as an alternative to net income (loss), operating loss, or any other measure of financial performancecalculated and presented in accordance with GAAP. The following table presents a reconciliation of net income (loss), the most comparable GAAP measure,to Adjusted EBITDA for the years ended December 31, 2016, 2015 and 2014: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Net income (loss) $(18,053) $422 $(18,673)Add back (deduct): Depreciation and amortization expense, excluding amortization of acquiredintangible assets 22,224 15,297 11,607 Amortization of acquired intangibles 20,539 15,713 910 Stock-based compensation expense 28,694 30,584 23,846Impairment of intangible assets 23,473 — — Acquisition and related items 333 3,470 1,513Interest (income) expense, net (491) (59) 110Change in fair value of preferred stock warrant liabilities — — 732 Foreign currency gain, net (939) (1,400) (1,119)Provision (benefit) for income taxes (4,860) (4,561) 172Adjusted EBITDA $70,920 $59,466 $19,098Operational Performance MeasuresTake RateTake rate is an operational performance measure calculated as (i) revenue (or for periods in which we have revenue reported on a gross basis, non-GAAP net revenue) divided by (ii) advertising spend. We review take rate for internal management purposes to assess the development of our marketplacewith buyers and sellers.Our take rate (and our fees, which drive take rate) can be affected by a variety of factors, including the terms of our arrangements with buyers andsellers active on our platform in a particular period, the scale of a buyer’s or seller’s activity on our platform, mix of transaction types, the implementation ofnew products, platforms and solution features, auction dynamics, competitive factors, our strategic pricing decisions, and the overall development of thedigital advertising ecosystem.Paid ImpressionsPaid impression is an operational performance measure that we define as an impression sold to an advertiser and subsequently displayed on awebsite or mobile application, which is transacted via our platform. We use paid impressions as one measure to assess the performance of our platform,including the effectiveness and efficiency at which buyers and sellers are trading via our platform and using our solution, and to assist us in tracking ourrevenue-generating performance and operational efficiencies. The number of paid impressions may fluctuate based on various factors, including the numberand spending of buyers using our solution, the number of sellers, their allocation of advertising inventory using our solution, our traffic quality controlinitiatives, and the seasonality in our business. Because of the volatility of this metric, we believe that paid impressions are useful to review on an annualbasis.Average CPMAverage CPM (cost per thousand impressions) is an operational performance measure that represents the average price at which paid impressions aresold. We compute average CPM by dividing advertising spend by total paid impressions and multiplying by 1,000. We review average CPM for internalmanagement purposes to assess buyer spending, liquidity in the marketplace, inventory quality, and integrity of our algorithms. Average CPM may beinfluenced by our transaction types and demand for such inventory facilitated by our relationships with both buyers and sellers, as well as by a variety ofother factors, including the precision of matching an advertisement to an audience, changes in our algorithms, seasonality, quality of inventory provided by62Table of Contentssellers, penetration of various channels and advertising units, and changes in buyer spending levels. We expect average CPM to increase with the continuedadoption of our solution by premium buyers and sellers, resulting in a higher quantity of premium advertising inventory available to advertisers. However,we have certain initiatives underway that we expect to drive growth at higher volumes but with lower associated CPM’s. To the extent the mix of theseinitiatives in our overall ad spend composition increases, total average CPM may decrease. Because of the volatility of this metric, we believe that averageCPM is useful to review on an annual basis.Quarterly Results of Operations and Key MetricsThe following tables set forth our quarterly consolidated statements of operations data in dollars and as a percentage of total revenue for each of theeight quarters in the two-year period ended December 31, 2016. We have prepared the quarterly unaudited consolidated statements of operations data on abasis consistent with the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In the opinion of management,the financial information in these tables reflects all adjustments, consisting only of normal recurring adjustments, which management considers necessary fora fair statement of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes includedelsewhere in this Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results for any future period. Three Months Ended Mar. 31,2015 June 30,2015 Sept. 30,2015 Dec. 31,2015 Mar. 31,2016 June 30,2016 Sept. 30,2016 Dec. 31,2016 (in thousands)Revenue $37,178 $53,046 $64,253 $94,007 $69,232 $70,511 $65,811 $72,667Expenses: Cost of revenue(1)(2) 6,561 14,009 16,556 21,369 16,783 17,540 17,798 21,126Sales and marketing(1)(2) 15,049 22,161 22,817 23,306 21,278 21,966 21,635 18,449Technology and development(1)(2) 8,414 10,390 11,822 11,429 12,443 13,294 12,513 12,934General and administrative(1)(2) 14,279 17,984 18,225 19,711 20,605 16,390 16,238 15,337Restructuring and other exit costs — — — — — — — 3,316Impairment of intangible assets — — — — — — — 23,473Total expenses 44,303 64,544 69,420 75,815 71,109 69,190 68,184 94,635Income (loss) from operations (7,125) (11,498) (5,167) 18,192 (1,877) 1,321 (2,373) (21,968)Other (income) expense, net (2,178) 858 (75) (64) 167 (906) (346) (899)Income (loss) before income taxes (4,947) (12,356) (5,092) 18,256 (2,044) 2,227 (2,027) (21,069)Provision (benefit) for income taxes 84 (413) (2,083) (2,149) (4,328) 4,904 (5,557) 121Net income (loss) $(5,031) $(11,943) $(3,009) $20,405 $2,284 $(2,677) $3,530 $(21,190)Net income (loss) per share: Basic $(0.14) $(0.30) $(0.07) $0.48 $0.05 $(0.06) $0.07 $(0.44)Diluted $(0.14) $(0.30) $(0.07) $0.43 $0.05 $(0.06) $0.07 $(0.44)Weighted-average shares used to compute netincome (loss) per share: Basic 35,758 39,414 41,308 42,083 44,663 46,341 47,538 48,051Diluted 35,758 39,414 41,308 47,396 48,676 46,341 48,683 48,05163Table of Contents(1) Stock-based compensation expense included in our expenses was as follows: Three Months Ended Mar. 31,2015 June 30, 2015 Sept. 30,2015 Dec. 31,2015 Mar. 31,2016 June 30,2016 Sept. 30,2016 Dec. 31,2016 (in thousands)Cost of revenue $42 $70 $65 $63 $62 $108 $91 $83Sales and marketing 1,125 1,858 2,197 2,235 2,114 2,543 2,054 1,809Technology and development 790 1,116 1,525 1,532 1,374 1,800 1,287 1,327General and administrative 3,541 4,695 5,013 4,717 4,841 2,675 3,099 3,427Total stock-based compensation expense $5,498 $7,739 $8,800 $8,547 $8,391 $7,126 $6,531 $6,646(2) Depreciation and amortization expense included in our expenses was as follows: Three Months Ended Mar. 31,2015 June 30, 2015 Sept. 30,2015 Dec. 31,2015 Mar. 31,2016 June 30,2016 Sept. 30,2016 Dec. 31,2016 (in thousands)Cost of revenue $3,471 $5,258 $5,270 $5,291 $5,948 $6,720 $7,010 $9,175Sales and marketing 505 3,240 2,286 2,137 1,592 1,970 2,736 2,722Technology and development 254 479 526 556 598 606 692 863General and administrative 160 482 539 556 488 486 516 641Total depreciation and amortization expense $4,390 $9,459 $8,621 $8,540 $8,626 $9,782 $10,954 $13,401The following table sets forth our consolidated results of operations for the specified periods as a percentage of our revenue for those periods presented: Three Months Ended** Mar. 31,2015 June 30, 2015 Sept. 30,2015 Dec. 31,2015 Mar. 31,2016 June 30,2016 Sept. 30,2016 Dec. 31, 2016 Revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %Expenses: Cost of revenue 18 26 26 23 24 25 27 29Sales and marketing 40 42 36 25 31 31 33 25Technology and development 23 20 18 12 18 19 19 18General and administrative 38 34 28 21 30 23 25 21Restructuring and other exit costs — — — — — — — 5Impairment of intangible assets — — — — — — — 32Total expenses 119 122 108 81 103 98 104 130Income (loss) from operations (19) (22) (8) 19 (3) 2 (4) (30)Other (income) expense, net (6) 2 — — — (1) (1) (1)Income (loss) before income taxes (13) (23) (8) 19 (3) 3 (3) (29)Provision (benefit) for income taxes — (1) (3) (2) (6) 7 (8) —Net income (loss) (14)% (23)% (5)% 22 % 3 % (4)% 5 % (29)%** Certain figures may not sum due to rounding.64Table of ContentsKey Financial and Operational Measures Three Months Ended Mar. 31,2015 June 30,2015 Sept. 30,2015 Dec. 31, 2015 Mar. 31,2016 June 30,2016 Sept. 30,2016 Dec. 31, 2016 (in thousands, except for percentages)Financial Measures and non-GAAP FinancialMeasures: Revenue $37,178 $53,046 $64,253 $94,007 $69,232 $70,511 $65,811 $72,667Advertising spend $197,220 $227,152 $244,358 $336,021 $248,497 $257,413 $242,802 $277,070Non-GAAP net revenue $37,178 $48,544 $57,867 $83,732 $63,560 $65,108 $60,563 $66,867Net income (loss) $(5,031) $(11,943) $(3,009) $20,405 $2,284 $(2,677) $3,530 $(21,190)Adjusted EBITDA $4,192 $6,667 $12,575 $36,032 $15,458 $18,439 $15,306 $21,717Operational Measure: Take Rate 18.9% 21.4% 23.7% 24.9% 25.6% 25.3% 24.9% 24.1%The following table presents the reconciliation of revenue to advertising spend: Three Months Ended Mar. 31,2015 June 30,2015 Sept. 30,2015 Dec. 31,2015 Mar. 31,2016 June 30,2016 Sept. 30,2016 Dec. 31,2016 (in thousands)Revenue $37,178 $53,046 $64,253 $94,007 $69,232 $70,511 $65,811 $72,667Plus amounts paid to sellers (1) 160,042 174,106 180,105 242,014 179,265 186,902 176,991 204,403Advertising spend $197,220 $227,152 $244,358 $336,021 $248,497 $257,413 $242,802 $277,070(1) Amounts paid to sellers for the portion of our revenue reported on a net basis for GAAP purposes.The following table presents a reconciliation of revenue to non-GAAP net revenue: Three Months Ended Mar. 31,2015 June 30,2015 Sept. 30,2015 Dec. 31,2015 Mar. 31,2016 June 30,2016 Sept. 30,2016 Dec. 31,2016 (in thousands)Revenue $37,178 $53,046 $64,253 $94,007 $69,232 $70,511 $65,811 $72,667Less amounts paid to sellers — 4,502 6,386 10,275 5,672 5,403 5,248 5,800Non-GAAP net revenue $37,178 $48,544 $57,867 $83,732 $63,560 $65,108 $60,563 $66,86765Table of ContentsThe following table presents a reconciliation of net income (loss), the most comparable GAAP measure, to Adjusted EBITDA: Three Months Ended Mar. 31,2015 June 30,2015 Sept. 30,2015 Dec. 31,2015 Mar. 31,2016 June 30,2016 Sept. 30,2016 Dec. 31,2016 (in thousands)Net income (loss) $(5,031) $(11,943) $(3,009) $20,405 $2,284 $(2,677) $3,530 $(21,190)Add back (deduct): Depreciation and amortization expense,excluding amortization of acquired intangibleassets 3,374 4,191 3,832 3,900 4,569 5,190 5,259 7,206 Amortization of acquired intangibles 1,016 5,268 4,789 4,640 4,057 4,592 5,695 6,195 Stock-based compensation expense 5,498 7,739 8,800 8,547 8,391 7,126 6,531 6,646Impairment of intangible assets — — — — — — — 23,473 Acquisition and related items 1,429 967 321 753 318 13 3 (1)Interest (income) expense, net 12 11 (37) (45) (94) (131) (134) (132) Foreign currency (gain) loss, net (2,190) 847 (38) (19) 261 (578) (21) (601)Provision (benefit) for income taxes 84 (413) (2,083) (2,149) (4,328) 4,904 (5,557) 121Adjusted EBITDA $4,192 $6,667 $12,575 $36,032 $15,458 $18,439 $15,306 $21,717Liquidity and Capital ResourcesFrom our incorporation in April 2007 until our IPO, we financed our operations and capital expenditures primarily through private sales ofconvertible preferred stock, our use of our credit facilities, and cash generated from operations. On April 7, 2014, we completed our IPO and receivedproceeds from the offering of approximately $86.2 million after deducting the underwriting discounts and commissions and offering expenses.Our principal sources of liquidity are our cash and cash equivalents, marketable securities, cash generated from operations, and our credit facilitywith Silicon Valley Bank (SVB). At December 31, 2016, we had cash and cash equivalents of $149.4 million, of which $20.3 million was held in foreigncurrency cash accounts, and additional marketable securities of $40.6 million.At December 31, 2016, we had no amounts outstanding under our credit facility with SVB, and $40.0 million was available for borrowing.At our option, loans under the credit facility may bear interest based on either the LIBOR rate or the prime rate plus, in each case, an applicablemargin. The applicable margins under the credit facility are (i) 2.00% or 3.50% per annum in the case of LIBOR rate loans, and (ii) 0.00% or 1.50% perannum in the case of prime rate loans (based on SVB's net exposure to us after giving effect to unrestricted cash held at SVB and its affiliates plus up to $3.0million held at other institutions). In addition, an unused revolver fee in the amount of 0.15% per annum of the average unused portion of the credit facility ispayable by us to SVB monthly in arrears.Our credit facility restricts our ability to, among other things, sell assets, make changes to the nature of our business, engage in mergers oracquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, make distributions on orredeem or repurchase capital stock, make certain other investments, engage in transactions with affiliates, and make payments in respect of subordinated debt,in each case unless approved by SVB.In addition, in the event that the amount available to be drawn is less than 20% of the maximum amount of the credit facility, or if an event ofdefault exists, we are required to satisfy a minimum fixed charge coverage ratio test of 1.10 to 1.00. At December 31, 2016, our fixed charge coverage ratiowas 558.7 to 1.0.The credit facility also includes customary representations and warranties, affirmative covenants, and events of default, including events of defaultupon a change of control and material adverse change (as defined in the credit facility). Following an event of default, SVB would be entitled to, among otherthings, accelerate payment of amounts due under the credit facility and exercise all rights of a secured creditor. We were in compliance with the covenantsunder the credit facility at December 31, 2016.We believe our existing cash and cash flow from operations, together with the undrawn balance under our credit facility with SVB, will be sufficientto meet our working capital requirements for at least the next 12 months. However, our liquidity assumptions may prove to be incorrect, and we could utilizeour available financial resources sooner than we currently expect,66Table of Contentsparticularly if we decide to pursue an acquisition or other strategic investment. Our future capital requirements and the adequacy of available funds willdepend on many factors, including those set forth in Item 1A: "Risk Factors."In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financingarrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raiseadditional financing by incurring indebtedness, we will be subject to increased fixed payment obligations and could also be subject to 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 assurances that we will be able to raise additional capital, and an inability to raise additional capital could adversely affect ourability to achieve our business objectives. In addition, if our operating performance during the next twelve months is below our expectations, our liquidityand ability to operate our business could be adversely affected.Cash FlowsThe following table summarizes our cash flows for the periods presented: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Cash flows provided by operating activities $60,120 $76,856 $6,645Cash flows used in investing activities (37,116) (72,861) (23,123)Cash flows provided by financing activities 10,077 15,468 83,794Effects of exchange rate changes on cash and cash equivalents (157) (160) (76)Change in cash and cash equivalents $32,924 $19,303 67,240Operating ActivitiesOur cash flows from operating activities are primarily influenced by increases or decreases in receipts from buyers and related payments to sellers, aswell as our investment in personnel and infrastructure to support our business. Our future cash flows may be diminished if we cannot sustain our revenuelevels and manage costs appropriately. Cash flows from operating activities have been further affected by changes in our working capital, particularlychanges in accounts receivable and accounts payable. The timing of cash receipts from buyers and payments to sellers can significantly impact our cash flowsfrom operating activities for any period presented. We typically collect from buyers in advance of payments to sellers; our collection and payment cycle canvary from period to period depending upon various circumstances, including seasonality. Increases in revenue earned directly from advertisers and agenciesmay cause the amount of receipts from buyers collected in advance of payments to sellers to decrease, because advertisers and agencies may pay slowly.For the year ended December 31, 2016, cash provided by operating activities of $60.1 million resulted from our net loss of $18.1 million adjustedfor non-cash expenses of $87.4 million, offset by net changes in our working capital of $9.2 million. The net change in operating working capital wasprimarily related to a decrease in accounts payable and accrued expenses of $33.0 million and an increase in prepaid expenses and other assets of $3.0million, offset by a decrease in accounts receivable of $25.8 million. The changes in accounts payable, accrued expenses and accounts receivable wasprimarily due to the timing of cash receipts from buyers and the timing of payments to sellers driven by seasonality. The change in prepaid expenses andother assets was primarily due to increases in insurance rates and other receivables.For the year ended December 31, 2015, cash provided by operating activities of $76.9 million resulted from our net income of $0.4 million, non-cash expenses of $56.6 million, and net changes in our working capital of $19.8 million. The net change in operating working capital was primarily related toan increase in accounts payable and accrued expenses of $93.1 million, offset by an increase in accounts receivable of $71.8 million, an increase in prepaidexpenses and other current assets of $1.1 million, and a decrease in other liabilities of $0.4 million. The increase in prepaid expenses and other current assetswas primarily due to an increase in business activity and the timing of payments to vendors. The decrease in other liabilities was primarily due to adecrease in business activity associated with the timing of payments to tax authorities. The changes in accounts payable, and accrued expenses and accountsreceivable was primarily due to the timing of cash receipts from buyers and the timing of payments to sellers.For the year ended December 31, 2014, cash provided by operating activities of $6.6 million resulted from our net loss of $18.7 million, offset bynon-cash expenses of $36.5 million, and net changes in our working capital of $11.1 million. The net change in operating working capital was primarilyrelated to an increase in accounts receivable of approximately $38.0 million, an67Table of Contentsincrease in prepaid expenses and other current assets of approximately $2.2 million, and a decrease in other liabilities of $0.8 million, partially offset by anincrease in accounts payable and accrued expenses of approximately $29.9 million. The increase in prepaid expenses and other current assets was primarilydue to an increase in business activity associated with the timing of payments to vendors. The decrease in other liabilities was primarily due to a decrease inbusiness activity associated with the timing of payments to tax authorities. The changes in accounts payable and accrued expenses and accounts receivablewas primarily due to the timing of cash receipts from buyers and the timing of payments to sellers.Investing ActivitiesOur primary investing activities have consisted of investments in, and maturities of, available-for-sale securities, acquisitions of businesses,purchases of property and equipment in support of our expanding headcount as a result of our growth, and capital expenditures to develop our internal usesoftware in support of creating and enhancing our technology infrastructure. Purchases of property and equipment and investments in internal use softwaredevelopment may vary from period-to-period due to the timing of the expansion of our operations, the addition of headcount and the development cycles ofour internal use software development. As our business evolves, we expect our capital expenditures and our investment activity to evolve as well, andgenerally to continue to increase over time. Investments in, and maturities of, available-for-sale securities and acquisitions of businesses vary from period-to-period.During the year ended December 31, 2016, we used $37.1 million of cash for investing activities, consisting primarily of $41.1 million ofinvestments in available-for-sale securities, $23.5 million in purchases of property and equipment, net of amounts reflected in accounts payable and accruedexpenses at December 31, 2016, and $9.9 million of investments in our internal use software. These cash outflows were partially offset by inflows of $37.4million due to maturities of available-for-sale securities.During the year ended December 31, 2015, we used $72.9 million of cash in investing activities, consisting primarily of $48.8 million ofinvestments in available-for-sale securities, $20.1 million in investments in property and equipment, net of amounts reflected in accounts payable andaccrued expenses at December 31, 2015, $8.6 million for the acquisition of Chango, net of cash acquired, and $8.3 million of investments in our internal usesoftware. These cash outflows were partially offset by maturities of available-for-sale securities of $12.0 million and a decrease in restricted cash of $1.0million in conjunction with our corporate office building lease.During the year ended December 31, 2014, we used $23.1 million of cash in investing activities, consisting of $10.7 million in investments inproperty and equipment, and $8.8 million of investments in our internal use software, net of amounts reflected in accounts payable and accrued expenses atDecember 31, 2014. In addition, during the year ended December 31, 2014, we used $4.6 million for the acquisition of Shiny Inc., net of cash acquired, whichwas partially offset by cash of $0.6 million assumed in the acquisition of iSocket, Inc. In conjunction with our corporate office building lease, restricted cashdecreased by $0.3 million.Financing ActivitiesOur financing activities consisted primarily of the issuance of shares of common stock upon the exercise of stock options.For the year ended December 31, 2016, cash provided by financing activities of $10.1 million was primarily due to proceeds of $14.2 million fromstock option exercises and proceeds of $1.9 million from issuance of common stock under the employee stock purchase plan, partially offset by $6.1 millionin income tax deposits paid in respect of vesting of stock-based compensation awards that were reimbursed by the award recipients through surrender ofshares.For the year ended December 31, 2015, cash provided by financing activities of $15.5 million was primarily due to proceeds of $13.5 million fromstock option exercises, and proceeds of $2.0 million from issuance of common stock under the employee stock purchase plan.For the year ended December 31, 2014, cash provided by financing activities of $83.8 million was primarily due to the net proceeds received fromour IPO of $89.7 million, net of underwriting commissions and discounts, and proceeds of $3.5 million from stock option exercises, offset by the repaymentof our Silicon Valley Bank credit facility and payments on our capital lease obligations of $4.1 million, payments of $3.0 million for offering costs related toour IPO, and payments of $2.3 million for taxes paid related to a net share settlement of stock-based awards.Off-Balance Sheet ArrangementsWe do not have any relationships with other entities or financial partnerships, such as entities often referred to as structured finance or specialpurpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limitedpurposes. We did not have any other off-balance sheet arrangements at December 31, 2016 other than the operating leases and the indemnificationagreements described below.68Table of ContentsContractual Obligations and Known Future Cash RequirementsOur principal commitments consist of leases for our various office facilities, including our corporate headquarters in Los Angeles, California, andnon-cancelable operating lease agreements with data centers that expire at various times through January 2024. In certain cases, the terms of the leaseagreements provide for rental payments on a graduated basis. We received rental income from subleases totaling $0.5 million as of December 31, 2016.The following table summarizes our future obligations and related sublease income at December 31, 2016: 2017 2018 2019 2020 2021 Thereafter Total (in thousands)Operating lease obligations $8,128 $8,530 $6,373 $3,305 $1,227 $668 $28,231Operating sublease income (601) (382) (96) — — — (1,079)Purchase obligations 250 — — — — — 250Total $7,777 $8,148 $6,277 $3,305 $1,227 $668 $27,402At December 31, 2016, liabilities for unrecognized tax benefits of $5.0 million, which are attributable to U.S. income taxes, were not included in ourcontractual obligations because, due to their nature, there is a high degree of uncertainty regarding the time of future cash outflows and other events thatextinguish these liabilities.In the ordinary course of business, we enter into agreements with sellers, buyers and other third parties pursuant to which we agree to indemnifybuyers, sellers, vendors, lessors, business partners, lenders, stockholders, and other parties with respect to certain matters, including, but not limited to, lossesresulting from claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities. Generally, these indemnityand defense obligations relate to our own business operations, obligations, and acts or omissions. However, under some circumstances, we agree to indemnifyand 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 theyappear. In addition, we have entered into indemnification agreements with our directors, executive officers and certain other officers that will require us,among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. Nodemands for indemnification have been made as of December 31, 2016.Critical Accounting Policies and EstimatesOur consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires usto make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimatesand assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable underthe 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 ofrevenue recognition as net versus gross in our revenue arrangements, internal use software development costs, including assumptions used in the valuationmodels to determine the fair value of stock options and stock-based compensation expense, the assumptions used in the valuation of acquired assets andliabilities in business combinations, and income taxes, including the realization of tax assets and estimates of tax liabilities, have the greatest potentialimpact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.Revenue RecognitionWe generate revenue from buyers and sellers in transactions in which they use our solution for the purchase and sale of advertising inventory, andalso in transactions in which we manage ad campaigns on behalf of buyers. We recognize revenue when four basic criteria are met: (i) persuasive evidence ofan arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonablyassured. We maintain separate arrangements with each buyer and seller either in the form of a master agreement, which specifies the terms of the relationshipand access to our solution, or by insertion orders, which specify price and volume requests and other terms. We recognize revenue upon the completion of atransaction, that is, when an impression has been delivered to the consumer viewing a website or mobile application. We assess whether fees are fixed ordeterminable based on impressions delivered and the contractual terms of the arrangements. We assess collectability based on a number of factors, includingthe creditworthiness of a buyer and seller and payment and transaction history. Our revenue arrangements generally do not include multiple deliverables.69Table of ContentsRevenue is reported depending on whether we function as principal or agent. The determination of whether we act as the principal or the agentrequires us to evaluate a number of indicators, none of which is presumptive or determinative. For transactions in which we are the principal, revenue isreported on a gross basis for the amount paid by buyers for the purchase of advertising inventory and related services and we record the amounts we pay tosellers as cost of revenue. For transactions in which we are the agent, revenue is reported on a net basis for the amount of fees charged to the buyer (if any),and fees retained from or charged to the seller.As a result of the acquisition of Chango (which comprised our intent marketing business) in April 2015, we began entering into arrangements forwhich we managed advertising campaigns on behalf of buyers. We were the principal in these arrangements as we: (i) were the primary obligor in theadvertising inventory purchase transaction; (ii) established the purchase prices paid by the buyer; (iii) performed all billing and collection activitiesincluding the retention of credit risk; (iv) had latitude in selecting suppliers; (v) negotiated the price we pay to suppliers of inventory; and (vi) made allinventory purchasing decisions. Accordingly, for these arrangements we reported revenue on a gross basis. Because we exited the intent marketing businessin the first quarter of 2017, we do not expect to report revenue on a gross basis after the first quarter of 2017 unless and until we change our businesspractices, develop new products, or make a business acquisition, in each case with characteristics requiring gross reporting.For our other arrangements, in which our solution matches buyers and sellers, enables them to purchase and sell advertising inventory, andestablishes rules and parameters for advertising inventory transactions, we report revenue on a net basis because we: (i) are not the primary obligor for thepurchase of advertising inventory but rather provide a platform to facilitate the buying and selling of advertising; (ii) do not have pricing latitude as pricingis generally determined through our auction process and/or our fees are based on a percentage of advertising spend; and (iii) do not directly select suppliers.Cash, Cash Equivalents and Marketable SecuritiesWe invest excess cash primarily in money market funds, corporate debt securities, and highly liquid debt instruments of the U.S. government and itsagencies. We classify investments held in money market funds as cash equivalents included in cash and cash equivalents as they have weighted-averagematurities at the date of purchase of less than 90 days, U.S. government and agency bonds and corporate debt securities with stated maturities of less than oneyear as short-term investments included in marketable securities, prepaid expenses, and other current assets, and U.S. government and agency bonds andcorporate debt securities with stated maturities of over a year as long-term investments included in marketable securities and other assets, non-current on ourconsolidated balance sheets, as we do not expect to redeem or sell these securities within one year from the balance sheet date.We determine the appropriate classification of investments in marketable securities at the time of purchase and reevaluate such designation at eachbalance sheet date. We classify and account for our marketable securities as available-for-sale, and as a result carry the securities at fair value and report theunrealized gains and losses in the consolidated statements of comprehensive income (loss) and as a component of stockholders’ equity. We determine anyrealized gains or losses on the sale of marketable securities on a specific identification method, and we record such gains and losses as a component of otherincome, net on our consolidated statements of operations.Internal Use Software Development CostsWe capitalize certain internal use software development costs associated with creating and enhancing internally developed software related to ourtechnology infrastructure. These costs include personnel and related employee benefits expenses for employees who are directly associated with and whodevote time to software projects, and external direct costs of materials and services consumed in developing or obtaining the software. Software developmentcosts that do not meet the qualification for capitalization, as further discussed below, are expensed as incurred and recorded in technology and developmentexpenses in the results of operations.Software development activities generally consist of three stages, (i) the planning stage, (ii) the application and infrastructure development stage,and (iii) the post implementation stage. Costs incurred in the planning and post implementation stages of software development, including costs associatedwith the post-configuration training and repairs and maintenance of the developed technologies, are expensed as incurred. We capitalize costs associatedwith software developed for internal use when both the preliminary project stage is completed, management has authorized further funding for thecompletion of the project, and it is probable that the project will be completed and perform as intended. Costs incurred in the application and infrastructuredevelopment stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete and thesoftware and technologies are ready for their intended purpose. Internal use software development costs are amortized using a straight-line method over theestimated useful life of three years, commencing when the software is ready for its intended use. The straight-line recognition method approximates themanner in which the expected benefit will be derived.70Table of ContentsWe do not transfer ownership of our software, or lease our software, to third parties.Stock-Based CompensationCompensation expense related to employee stock-based awards is measured and recognized in the consolidated financial statements based on thefair value of the awards granted. We have granted awards to employees that vest based solely on continued service, or service conditions, awards that vestbased on the achievement of performance targets, or performance conditions, and awards that vest based on our stock price exceeding a peer index, or marketconditions. The fair value of each option award containing service and/or performance conditions is estimated on the grant date using the Black-Scholesoption-pricing model. The fair value of awards containing market conditions is estimated using a Monte-Carlo lattice model. For service condition awards,stock-based compensation expense is recognized on a straight-line basis over the requisite service periods of the awards, which is generally four years. Forperformance condition and market condition awards, stock-based compensation expense is recognized using a graded vesting model over the requisiteservice period of the awards. For market condition awards, expense recognized is not subsequently reversed if the market conditions are not achieved.Stock-based awards issued to non-employees are accounted for at fair value determined by using the Black-Scholes option-pricing model. Webelieve that the fair value of the stock options is more reliably measured than the fair value of the services received. The fair value of each non-employeestock-based compensation award is re-measured each period until a commitment date is reached, which is generally the vesting date.Determining the fair value of stock-based awards at the grant date requires judgment. Our use of the Black-Scholes option-pricing model and Monte-Carlo lattice model requires the input of subjective assumptions such as the expected term of the option, the expected volatility of the price of our commonstock, risk-free interest rates, the expected dividend yield of our common stock, and for periods prior to our IPO, the fair value of our common stock. Theassumptions used in our valuation models represent management’s best estimates. These estimates involve inherent uncertainties and the application ofmanagement’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in thefuture.These assumptions and estimates are as follows:Fair Value of Common Stock. For stock options granted subsequent to our IPO, the fair value of common stock is based on the closing price of ourcommon stock as reported on the New York Stock Exchange, or the NYSE, on the date of grant. Prior to the IPO, the board of directors determined the fairvalue of the common stock at the time of the grant of options and restricted stock awards by considering a number of objective and subjective factors. Thefair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants titledValuation of Privately Held Company Equity Securities Issued as Compensation.Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes option-pricing model on the yields of U.S. Treasury securitieswith maturities appropriate for the term of employee stock option awards.Expected Term. For employee options that contain service conditions, we apply the simplified approach, in which the expected term of an award ispresumed to be the mid-point between the vesting date and the expiration date of the award. The expected term of employee stock options that containperformance conditions represents the weighted-average period that the stock options are estimated to remain outstanding.Volatility. Because we do not have significant trading history for our common stock, we determine the price volatility based on the historicalvolatilities of a publicly traded peer group based on daily price observations over a period equivalent to the expected term of the stock option grants.Dividend Yield. The dividend yield assumption is based on our history and current expectations of dividend payouts. We have never declared orpaid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future, so we used an expecteddividend yield of zero.The following table summarizes the weighted-average assumptions used in the Black-Scholes option-pricing model to determine the fair value ofour stock options:71Table of Contents Year Ended December 31, 2016 December 31, 2015 December 31, 2014Common stock price$7.42 $16.82 $13.88Expected term (in years)5.9 4.5 5.7Risk-free interest rate1.47% 1.30% 1.75%Expected volatility49% 47% 51%Dividend yield—% —% —%We early adopted the new accounting guidance that simplifies several aspects of the accounting for share-based payments, including our election toeliminate the requirement to estimate the number of awards that are expected to vest and, instead, account for forfeitures when they occur. The new standardrequires the change be adopted using the modified retrospective approach. As such, we recorded a cumulative-effect adjustment of $0.7 million to increasethe 2016 beginning of period accumulated deficit and additional paid-in capital balances.We will continue to use judgment in evaluating the assumptions related to our stock-based compensation. Future expense amounts for any particularperiod could be affected by changes in our assumptions or market conditions.Due to the full valuation allowance provided on our net deferred tax assets, we have not recorded any tax benefit attributable to stock-based awardsfor the years ended December 31, 2016, 2015 and 2014.Business CombinationsThe results of businesses acquired in a business combination are included in our consolidated financial statements from the date of acquisition. Weallocate the purchase price, which is the sum of the consideration provided, which may consist of cash, equity or a combination of the two, in a businesscombination to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over theamount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumedrequires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cashflows, discount rates and selection of comparable companies.When we issue stock-based or cash awards to an acquired company’s stockholders, we evaluate whether the awards are contingent consideration orcompensation for post-business combination services. The evaluation includes, among other things, whether the vesting of the awards is contingent on thecontinued employment of the selling stockholder beyond the acquisition date. If continued employment is required for vesting, the awards are treated ascompensation for post-acquisition services and recognized as expense over the requisite service period.We estimate the fair value of intangible assets acquired generally using a discounted cash flow approach, which includes an analysis of the futurecash flows expected to be generated by the asset and the risk associated with achieving these cash flows. The key assumptions used in the discounted cashflow model include the discount rate that is applied to the forecasted future cash flows to calculate the present value of those cash flows and the estimate offuture cash flows attributable to the acquired intangible asset, which include revenue, expenses and taxes. The carrying value of acquired working capitalassets and liabilities approximates its fair value, given the short-term nature of these assets and liabilities.Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an expense in the periodin which the costs are incurred.Intangible AssetsIntangible assets primarily consist of acquired developed technology, customer relationships and non-compete agreements resulting from businesscombinations, which are recorded at acquisition-date fair value, less accumulated amortization. We determine the appropriate useful life of its intangibleassets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives using astraight-line method, which approximates the pattern in which the economic benefits are consumed.The estimated useful lives of our intangible assets are as follows:72Table of Contents YearsDeveloped technology3 to 5Customer relationships2.5 to 3Non-compete agreements2 to 3Other intangible assets0.5 to 1Impairment of Long-Lived Assets, including Internal Use Capitalized Software CostsWe assess the recoverability of our long-lived assets when events or changes in circumstances indicate their carrying value may not be recoverable.Such events or changes in circumstances may include: a significant adverse change in the extent or manner in which a long-lived asset is being used,significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, an accumulation of costs significantly inexcess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses thatdemonstrate continuing losses associated with the use of a long-lived asset, or a current expectation that, more likely than not, a long-lived asset will be soldor otherwise disposed of significantly before the end of its previously estimated useful life. We perform impairment testing at the asset group level thatrepresents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. We assess recoverabilityof a long-lived asset by determining whether the carrying value of the asset group can be recovered through projected undiscounted cash flows over theirremaining lives. If the carrying value of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized, measured as theamount by which the carrying amount exceeds estimated fair value. An impairment loss is charged to operations in the period in which managementdetermines such impairment.GoodwillGoodwill represents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assetsacquired, net of liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test. We test for impairment of goodwill annuallyduring the fourth quarter or more frequently if events or changes in circumstances indicate that the goodwill may be impaired. For purposes of goodwillimpairment testing, we have one reporting unit.Events or changes in circumstances which could trigger an impairment review include a significant adverse change in legal factors or in the businessclimate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use ofthe acquired assets or the strategy for our overall business, significant negative industry or economic trends, or significant underperformance relative toexpected historical or projected future results of operations.Testing goodwill for impairment involves a two-step quantitative process. However, prior to performing the two-step quantitative goodwillimpairment test, we have the option to first assess qualitative factors to determine whether or not it is necessary to perform the two-step quantitative goodwillimpairment test for selected reporting units. If we choose the qualitative option, we are not required to perform the two-step quantitative goodwill impairmenttest unless we have determined, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than itscarrying amount. If the two-step quantitative impairment test is required or chosen, the first step of the impairment test involves comparing the estimated fairvalue of the reporting unit with its respective carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carryingamount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of thereporting unit is less than its carrying amount, including goodwill, then the carrying amount of the goodwill is compared with its implied fair value, and animpairment loss is recognized in an amount equal to the excess.We operate as a single operating segment and have identified a single reporting unit. We performed the annual quantitative goodwill impairmentassessment for our reporting unit in the fourth quarter of 2016. The first step of the quantitative goodwill impairment test resulted in the determination thatthe fair value of our reporting unit substantially exceeded its carrying amount, including goodwill. Accordingly, the second step was not required for ourreporting unit.Income TaxesDeferred income tax assets and liabilities are determined based upon the net tax effects of the differences between our consolidated financialstatements 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 theyears 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 thannot that those deferred tax assets will not be realized. We have established a full valuation allowance to offset the predominant portion of our domestic andinternational net deferred tax assets due to the uncertainty of realizing future tax benefits from the net operating loss carryforwards and other deferred taxassets.73Table of ContentsWe recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examinationby the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from suchpositions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. We recognize interest and penalties accruedrelated to our uncertain tax positions in our income tax provision (benefit) in the accompanying consolidated statements of operations.Recently Issued Accounting PronouncementsFor information regarding recent accounting pronouncements, refer to Note 2 of Item 8. "Financial Statements and Supplementary Data" included inthis Annual Report on Form 10-K.Item 7A. Quantitative and Qualitative Disclosure About Market RiskWe have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business.These risks include primarily interest rate, foreign exchange, and inflation risks. Interest Rate Fluctuation RiskOur cash and cash equivalents consist of cash and money market funds. Our investments consist of U.S. government and agency bonds and corporatedebt securities. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk.Because our cash, cash equivalents, and investments have a relatively short maturity, our portfolio’s fair value is relatively insensitive to interest ratechanges. Our line of credit is at variable interest rates. We had no amounts outstanding under our credit facility at December 31, 2016. We do not believe thatan increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition. In future periods, wewill continue to evaluate our investment policy relative to our overall objectives.Foreign Currency Exchange RiskWe have foreign currency risks related to our revenue and expenses denominated in currencies other than the U.S. Dollar, principally British Poundsand Euros. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continueto experience fluctuations in our net income (loss) as a result of transaction gains and losses related to translating certain cash balances, trade accountsreceivable and payable balances and intercompany balances that are denominated in currencies other than the U.S. Dollar. The effect of an immediate 10%adverse change in foreign exchange rates on foreign-denominated accounts at December 31, 2016, including intercompany balances, would result in aforeign currency loss of approximately $2.4 million. In the event our non-U.S. Dollar denominated sales and expenses increase, our operating results may bemore greatly affected by fluctuations in the exchange rates of the currencies in which we do business. At this time we do not, but we may in the future, enterinto derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedgingactivities would have on our results of operations.Inflation RiskWe do not believe that inflation has had a material effect on our business, financial condition, or results of operations. If our costs were to becomesubject to significant inflationary pressures, we might not be able to fully offset such higher costs through price increases. Our inability or failure to do socould harm our business, financial condition, and results of operations.74Table of ContentsItem 8. Financial Statements and Supplementary DataThe Rubicon Project, Inc.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm76 Consolidated Financial Statements: Consolidated Balance Sheets77Consolidated Statements of Operations78Consolidated Statements of Comprehensive Income (Loss)79Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)80Consolidated Statements of Cash Flows82Notes to Consolidated Financial Statements83The supplementary financial information required by this Item 8 is included in Item 7 under the caption "Quarterly Results of Operations and Key Metrics."75Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholders of The Rubicon Project, Inc.In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss),convertible preferred stock and stockholders’ equity (deficit) and cash flows present fairly, in all material respects, the financial position of The RubiconProject, Inc. and its subsidiaries (the "Company") as of December 31, 2016 and 2015 and the results of their operations and their cash flows for each of thethree years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based onour audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion./s/ PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 14, 201776Table of ContentsTHE RUBICON PROJECT, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except per share amounts) December 31, 2016 December 31, 2015ASSETS Current assets: Cash and cash equivalents$149,423 $116,499Marketable securities40,550 23,249Accounts receivable, net192,064 218,235Prepaid expenses and other current assets9,540 7,724TOTAL CURRENT ASSETS391,577 365,707Marketable securities, non-current— 13,483Property and equipment, net36,246 25,403Internal use software development costs, net16,522 13,929Other assets, non-current2,921 1,726Intangible assets, net6,804 50,783Goodwill65,705 65,705TOTAL ASSETS$519,775 $536,736LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses$214,903$247,967Other current liabilities3,534 2,196TOTAL CURRENT LIABILITIES218,437 250,163Deferred tax liability, net42 6,225Other liabilities, non-current1,783 2,247TOTAL LIABILITIES220,262 258,635Commitments and contingencies (Note 18) STOCKHOLDERS' EQUITY Preferred stock, $0.00001 par value, 10,000 shares authorized at December 31, 2016 and December 31, 2015;0 shares issued and outstanding at December 31, 2016 and December 31, 2015— —Common stock, $0.00001 par value; 500,000 shares authorized at December 31, 2016 and December 31,2015; 49,378 and 46,600 shares issued and outstanding at December 31, 2016 and December 31, 2015,respectively— —Additional paid-in capital398,787 358,406Accumulated other comprehensive loss(273) (15)Accumulated deficit(99,001) (80,290)TOTAL STOCKHOLDERS' EQUITY299,513 278,101TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$519,775 $536,736The accompanying notes to consolidated financial statements are an integral part of these statements.77Table of ContentsTHE RUBICON PROJECT, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts) Year Ended December 31, 2016 December 31, 2015 December 31, 2014Revenue$278,221 $248,484 $125,295Expenses: Cost of revenue73,247 58,495 20,754Sales and marketing83,328 83,333 43,203Technology and development51,184 42,055 22,718General and administrative68,570 70,199 57,398Restructuring and other exit costs3,316 — —Impairment of intangible assets23,473 — —Total expenses303,118 254,082 144,073Loss from operations(24,897) (5,598) (18,778)Other (income) expense: Interest (income) expense, net(491) (59) 110Other income(554) — —Change in fair value of preferred stock warrant liabilities— — 732Foreign exchange gain, net(939) (1,400) (1,119)Total other income, net(1,984) (1,459) (277)Loss before income taxes(22,913) (4,139) (18,501)Provision (benefit) for income taxes(4,860) (4,561) 172Net income (loss)(18,053) 422 (18,673)Cumulative preferred stock dividends— — (1,116)Net income (loss) attributable to common stockholders$(18,053) $422 $(19,789)Net income (loss) per share: Basic$(0.39) $0.01 $(0.70)Diluted$(0.39) $0.01 $(0.70)Weighted-average shares used to compute net income (loss) per share: Basic46,655 39,663 28,217Diluted46,655 44,495 28,217The accompanying notes to consolidated financial statements are an integral part of these statements.78Table of ContentsTHE RUBICON PROJECT, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In thousands) Year Ended December 31, 2016December 31, 2015 December 31, 2014Net income (loss)$(18,053) $422 $(18,673)Other comprehensive loss: Unrealized gain (loss) on investments, net of tax of $0, $0, and $0 for the yearsended December 31 2016, 2015 and 2014, respectively.67 (68) —Foreign currency translation adjustments(325) 61 (104)Other comprehensive loss(258) (7) (104)Comprehensive income (loss)$(18,311) $415 $(18,777)The accompanying notes to consolidated financial statements are an integral part of these statements.79Table of ContentsTHE RUBICON PROJECT, INC.CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK ANDSTOCKHOLDERS’ EQUITY (DEFICIT)(In thousands) Preferred Stock Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) AccumulatedDeficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount December 31, 201328,820 $52,571 11,855 $— $25,532 $96 $(62,039) $(36,411)Exercise of common stock options— — 1,360 — 3,498 — — 3,498Restricted stock awards, net— — 2,168 — — — — —Shares withheld related to net share settlement— — (174) — (2,324) — — (2,324)Issuance of common stock related to RSUvesting— — 4 — — — — —Net exercise of warrant for convertiblepreferred stock572 — — — 5,983 — — 5,983Conversion of convertible preferred stock tocommon stock(29,392) (52,571) 14,696 — 52,571 — — 52,571Conversion of warrant for convertiblepreferred stock to common stock warrant— — — — 200 — — 200Issuance of common stock from initial publicoffering, net of issuance costs— — 6,432 — 86,200 — — 86,200Net exercise of warrant for common stock— — 10 — — — — —Issuance of common stock and exchange ofstock options related to acquisitions— — 841 — 13,342 — — 13,342Stock-based compensation— — — — 24,470 — — 24,470Other comprehensive loss— — — — — (104) — (104)Net loss— — — — — — (18,673) (18,673)Balance at December 31, 2014— — 37,192 — 209,472 (8) (80,712) 128,752Exercise of common stock options— — 2,552 — 13,533 — — 13,533Restricted stock awards, net— — 479 — — — — —Issuance of common stock related to RSUvesting— — 229 — — — — —Issuance of common stock related to employeestock purchase plan— — 170 — 2,040 — — 2,040Issuance of common stock and exchange ofstock options related to acquisition— — 4,425 — 76,350 — — 76,350Issuance of common stock for contingentconsideration associated with acquisitions— — 1,553 — 25,608 — — 25,608Stock-based compensation— — — — 31,403 — — 31,403Other comprehensive loss— — — — — (7) — (7)Net income— — — — — — 422 422Balance at December 31, 2015— — 46,600 — 358,406 (15) (80,290) 278,101Cumulative-effect adjustment(1)— — — — 658 — (658) —Balance at January 1, 2016— — 46,600 — 359,064 (15) (80,948) 278,101Exercise of common stock options— — 2,026 — 14,249 — — 14,249Restricted stock awards, net— — 92 — — — — —Shares withheld related to net share settlement— — (493) — (6,058) — — (6,058)80Table of Contents Preferred Stock Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) AccumulatedDeficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Issuance of common stock related to RSUvesting— — 945 — — — — —Issuance of common stock related to employeestock purchase plan— — 208 — 1,886 — — 1,886Stock-based compensation— — — — 29,646 — — 29,646Other comprehensive loss— — — — — (258) — (258)Net loss— — — — — — (18,053) (18,053)Balance at December 31, 2016— $— 49,378 $— $398,787 $(273) $(99,001) $299,513(1) Refer to Note 14 and Note 16 for discussion of the adoption of the new accounting guidance for share-based payment transactions (as defined in Note 2).The accompanying notes to consolidated financial statements are an integral part of these statements.81Table of ContentsTHE RUBICON PROJECT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2016 December 31, 2015 December 31, 2014OPERATING ACTIVITIES: Net income (loss)$(18,053) $422 $(18,673)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization42,763 31,010 12,517Stock-based compensation28,694 30,584 23,846Loss on disposal of property and equipment214 58 202Change in fair value of preferred stock warrant liabilities— — 732Change in fair value of contingent consideration— 306 66Unrealized foreign currency gains, net(1,122) (72) (763)Impairment of intangible assets23,473 — —Deferred income taxes(6,635) (5,286) (145)Changes in operating assets and liabilities, net of effect of business acquisitions: Accounts receivable25,842 (71,796) (38,023)Prepaid expenses and other assets(3,038) (1,073) (2,152)Accounts payable and accrued expenses(32,965) 93,135 29,861Other liabilities947 (432) (823)Net cash provided by operating activities60,120 76,856 6,645INVESTING ACTIVITIES: Purchases of property and equipment(23,479) (20,104) (10,706)Capitalized internal use software development costs(9,922) (8,333) (8,779)Acquisitions, net of cash acquired(238) (8,647) (3,983)Investments in available-for-sale securities(41,096) (48,801) —Maturities of available-for-sale securities37,360 12,001 —Change in restricted cash259 1,023 345Net cash used by investing activities(37,116) (72,861) (23,123)FINANCING ACTIVITIES: Proceeds from the issuance of common stock in initial public offering, net of underwriting discountsand commissions— — 89,733Payments of initial public offering costs— — (3,037)Proceeds from exercise of stock options14,249 13,533 3,498Proceeds from issuance of common stock under employee stock purchase plan1,886 2,040 —Taxes paid related to net share settlement(6,058) — (2,324)Repayment of debt and capital lease obligations— (105) (4,076)Net cash provided by financing activities10,077 15,468 83,794EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS(157) (160) (76)CHANGE IN CASH AND CASH EQUIVALENTS32,924 19,303 67,240CASH AND CASH EQUIVALENTS — Beginning of period116,499 97,196 29,956CASH AND CASH EQUIVALENTS — End of period$149,423 $116,499 $97,196SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION: Cash paid for income taxes$1,285 $1,069 $403Cash paid for interest$61 $62 $122Capitalized assets financed by accounts payable and accrued expenses$1,627 $342 $1,872Leasehold improvements paid by landlord$— $— $803Capitalized stock-based compensation$952 $819 $624Conversion of preferred stock to common stock$— $— $52,571Reclassification of preferred stock warrant liabilities to additional-paid-in-capital$— $— $6,183Reclassification of deferred offering costs to additional-paid-in-capital$— $— $3,533Common stock and options issued for business acquisitions$— $76,534 $13,342Conversion of contingent consideration to common stock$— $25,608 $—The accompanying notes to consolidated financial statements are an integral part of these statements.82Table of ContentsTHE RUBICON PROJECT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1—Nature of OperationsCompany OverviewThe Rubicon Project, Inc., or Rubicon Project or the Company, was formed on April 20, 2007 in Delaware and began operations in April 2007. TheCompany is headquartered in Los Angeles, California.The Company is a technology company with a mission to keep the Internet free and open and to fuel its growth by making it easy and safe to buyand sell advertising. The Company pioneered advertising automation technology to enable the world's leading brands, content creators, and applicationdevelopers to trade and protect trillions of advertising transactions each month and to improve the advertising experience of consumers. The Company offersa highly scalable platform that provides an automated advertising solution for buyers and sellers of digital advertising.The Company delivers value to buyers and sellers of digital advertising through the Company’s proprietary advertising automation solution, whichprovides critical functionality to both buyers and sellers. The advertising automation solution consists of applications for sellers, including providers ofwebsites, mobile applications and other digital media properties, and their representatives, to sell their advertising inventory; applications for buyers,including advertisers, agencies, agency trading desks, demand side platforms, and ad networks, to buy advertising inventory; and a marketplace over whichsuch transactions are executed. This solution incorporates proprietary machine-learning algorithms, sophisticated data processing, high-volume storage,detailed analytics capabilities, and a distributed infrastructure. Together, these features form the basis for the Company’s automated advertising solution thatbrings buyers and sellers together and facilitates intelligent decision-making and automated transaction execution for the advertising inventory managed onthe Company's platform.Initial Public OfferingIn April 2014, the Company completed an initial public offering, or IPO, whereby 6,432,445 shares of common stock were issued and sold by theCompany, and 1,354,199 shares of common stock were sold by selling stockholders. Upon the closing of the IPO, all outstanding shares of preferred stock ofthe Company converted into common stock. See Note 12.RisksThe Company is subject to certain business risks, including competition, the Company’s ability to adapt its offering in response to market evolutionand to maintain market acceptance of its platform solution, the Company’s ability to source demand from buyers of advertising inventory and source supplyfrom sellers of advertising inventory, dependence on growth to achieve its business plan, and pricing pressure, among other things.Note 2—Organization and Summary of Significant Accounting PoliciesBasis of ConsolidationThe accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the UnitedStates of America, or GAAP, and include the operations of the Company and its wholly owned subsidiaries. All significant inter-company transactions andbalances have been eliminated in consolidation.SegmentsManagement has determined that the Company operates as one segment. The Company’s chief operating decision maker reviews financialinformation on an aggregated and consolidated basis, together with certain operating and performance measures principally to make decisions about how toallocate resources and to measure the Company’s performance.Stock SplitOn March 18, 2014, the Company effected a 1-for-2 reverse stock split of its common stock. The convertible preferred stock was not split atMarch 18, 2014; instead the convertible preferred stock conversion ratio was adjusted to effect the stock split at the time of conversion of the preferred stockto common stock. All share, per share and related information presented in the consolidated financial statements and accompanying notes has beenretroactively adjusted, where applicable, to reflect the reverse stock split.ReclassificationsCertain prior period amounts have been reclassified to conform with current period presentation. During 2016, each of current and non-currentmarketable securities were reclassified from "Other assets" to its own line item within each section on the83Table of Contentsbalance sheet. In addition, foreign exchange translation adjustments and unrealized loss on investments were reclassified as "Other comprehensive loss" onthe Statement of Convertible Preferred Stock and Stockholders' Equity.Use of EstimatesThe preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affectthe reported and disclosed financial statements and accompanying footnotes. Actual results could differ materially from these estimates.On an ongoing basis, management evaluates its estimates, primarily those related to: (i) revenue recognition criteria, including the determination ofrevenue reporting as net versus gross in the Company’s revenue arrangements, (ii) accounts receivable and allowances for doubtful accounts, (iii) the usefullives of intangible assets and property and equipment, (iv) valuation of long-lived assets and their recoverability, including goodwill, (v) the realization oftax assets and estimates of tax liabilities, (vi) the valuation of common stock, (vii) assumptions used in valuation models to determine the fair value of stock-based awards, (viii) fair value of financial instruments, (ix) the recognition and disclosure of contingent liabilities, and (x) the assumptions used in valuingacquired assets and assumed liabilities in business combinations. These estimates are based on historical data and experience, as well as various other factorsthat management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value ofassets and liabilities that are not readily apparent from other sources. Estimates relating to the valuation of stock and business combinations require theselection of appropriate valuation methodologies and models, and significant judgment in evaluating ranges of assumptions and financial inputs. Actualresults may differ materially from those estimates under different assumptions or circumstances.Revenue RecognitionThe Company generates revenue from buyers and sellers who use its solution for the purchase and sale of advertising inventory. The Company'ssolution enables buyers and sellers to purchase and sell advertising inventory, by matching buyers and sellers, and establishing rules and parameters for openand transparent auctions of advertising inventory. Buyers use the Company's solution to reach their intended audiences by buying advertising inventory thatthe Company makes available from sellers through its solution or advertising inventory the Company purchases from third-party exchanges. Sellers use theCompany's solution to monetize their inventory. The Company recognizes revenue upon fulfillment of its contractual obligations in connection with acompleted transaction, subject to satisfying all other revenue recognition criteria, including (i) persuasive evidence of an arrangement existing, (ii) deliveryhaving occurred or services having been rendered, (iii) the fees being fixed or determinable, and (iv) collectability being reasonably assured. The Companygenerally bills and collects the full purchase price of impressions from buyers, together with other fees, if applicable. The Company reports revenue on a netbasis for arrangements in which it has determined that it does not act as the principal in the purchase and sale of advertising inventory because pricing isdetermined through the Company's auction process and it is not the primary obligor. In some cases, the Company generates revenue directly from sellers whomaintain the primary relationship with buyers and utilize the Company's solution to transact and increase the monetization of their activities. The Companyreports revenue on a net basis for these activities. The Company reports revenue on a gross basis for arrangements in which it has determined that theCompany acts as the principal in the purchase and sale of advertising inventory because the Company has direct contractual relationships with and managesadvertising campaigns on behalf of the buyer by acting as the primary obligor in the purchase of advertising inventory, the Company exercises discretion inestablishing prices, the Company has credit risk, and the Company independently selects and purchases inventory from the seller.The Company's accounts receivable are recorded at the amount of gross billings to buyers, net of allowances, for the amounts the Company isresponsible to collect, and the Company's accounts payable are recorded at the net amount payable to sellers. Accordingly, both accounts receivable andaccounts payable appear large in relation to revenue reported on a net basis. ExpensesThe Company classifies its expenses into the following six categories:Cost of Revenue. The Company's cost of revenue consists primarily of amounts the Company pays sellers for transactions for which the Company isthe principal and reports revenues on a gross basis, data center costs, bandwidth costs, depreciation and maintenance expense of hardware supporting theCompany's revenue-producing platform, amortization of software costs for the development of the Company's revenue-producing platform, amortizationexpense associated with acquired developed technologies, personnel costs, and facilities-related costs. Personnel costs included in cost of revenue includesalaries, bonuses, stock-based compensation, and employee benefit costs, and are primarily attributable to personnel in the Company's network operationsgroup who support the Company's platform. The Company capitalizes costs associated with software that is developed or obtained for internal use andamortizes the costs associated with its revenue-producing platform in cost of revenue over their estimated useful lives. The Company amortizes acquireddeveloped technologies over their estimated useful lives.Sales and Marketing. The Company's sales and marketing expenses consist primarily of personnel costs, including stock-84Table of Contentsbased compensation and sales bonuses paid to the Company's sales organization, marketing expenses such as brand marketing, travel expenses, trade showsand marketing materials, professional services, and amortization expense associated with customer relationships and backlog from the Company's businessacquisitions and, to a lesser extent, facilities-related costs and depreciation and amortization. The Company's sales organization focuses on increasing theadoption of the Company's solution by existing and new buyers and sellers. The Company amortizes acquired intangibles associated with customerrelationships and backlog from its business acquisitions over their estimated useful lives.Technology and Development. The Company's technology and development expenses consist primarily of personnel costs, including stock-basedcompensation and bonuses, and professional services associated with the ongoing development and maintenance of the Company's solution and, to a lesserextent, facilities-related costs and depreciation and amortization, including amortization expense associated with acquired intangible assets from theCompany's business acquisitions that are related to technology and development functions. These expenses include costs incurred in the development,implementation and maintenance of internal use software, including platform and related infrastructure. Technology and development costs are expensed asincurred, except to the extent that such costs are associated with internal use software development that qualifies for capitalization, which are then recordedas internal use software development costs, net on the Company's consolidated balance sheet. The Company amortizes internal use software developmentcosts that relate to its revenue-producing activities on the Company's platform to cost of revenue and amortizes other internal use software development coststo technology and development costs or general and administrative expenses, depending on the nature of the related project. The Company amortizesacquired intangibles associated with technology and development functions from its business acquisitions over their estimated useful lives.General and Administrative. The Company's general and administrative expenses consist primarily of personnel costs, including stock-basedcompensation and bonuses, associated with the Company's executive, finance, legal, human resources, compliance, and other administrative personnel, aswell as accounting and legal professional services fees, facilities-related costs and depreciation, and other corporate-related expenses. General andadministrative expenses also include amortization of internal use software development costs and acquired intangible assets from the Company's businessacquisitions over their estimated useful lives that relate to general and administrative functions and changes in fair value associated with the liability-classified contingent consideration related to acquisitions.Restructuring and other exit costs. The Company's restructuring and other exit costs are cash and non-cash charges consisting primarily of employeetermination costs, facility closure and relocation costs, and contract termination costs.Impairment of intangible assets. The Company's impairment charges are non-cash charges related to its intangible assets. Intangible assets arereviewed for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of the assets mightnot be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, asignificant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount ofan asset or group of assets may not be recoverable. For intangible assets used in operations, impairment losses are only recorded if the asset’s carrying amountis not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the differencebetween the carrying amount and estimated fair value. Intangible assets are considered held for sale when certain criteria are met, including whenmanagement has committed to a plan to sell the asset, the asset is available for sale in its immediate condition, and the sale is probable within one year of thereporting date. Assets held for sale are reported at the lower of cost or fair value less costs to sell. The Company had no assets held for sale as of December 31,2016 and 2015.Stock-Based CompensationCompensation expense related to employee stock-based awards is measured and recognized in the consolidated financial statements based on thefair value of the awards granted. The Company has granted awards to employees that vest based solely on continued service, or service conditions, awardsthat vest based on the achievement of performance targets, or performance conditions, and awards that vest based on the Company's stock price exceeding apeer index, or market conditions. The fair value of each option award containing service and/or performance conditions is estimated on the grant date usingthe Black-Scholes option-pricing model. The fair value of awards containing market conditions is estimated using a Monte-Carlo lattice model. For servicecondition awards, stock-based compensation expense is recognized on a straight-line basis over the requisite service periods of the awards, which is generallyfour years. For performance condition and market condition awards, stock-based compensation expense is recognized using a graded vesting model over therequisite service period of the awards. For market condition awards, expense recognized is not subsequently reversed if the market conditions are notachieved.Stock-based awards issued to non-employees are accounted for at fair value determined by using the Black-Scholes option-pricing model. TheCompany 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 each non-employee stock-based compensation award is re-measured each period until a commitment date is reached, which is generally the vesting date.85Table of ContentsDetermining the fair value of stock-based awards at the grant date requires judgment. The Company’s use of the Black-Scholes option-pricing modeland Monte-Carlo lattice model requires the input of subjective assumptions such as the expected term of the option, the expected volatility of the price of theCompany’s common stock, risk-free interest rates, the expected dividend yield of the Company’s common stock, and for periods prior to the Company's IPO,the fair value of the Company's common stock. The assumptions used in the Company’s valuation models represent management’s best estimates. Theseestimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’sstock-based compensation expense could be materially different in the future.These assumptions and estimates are as follows:Fair Value of Common Stock. For stock options granted subsequent to the Company's IPO, the fair value of common stock is based on the closingprice of the Company's common stock as reported on the New York Stock Exchange, or the NYSE, on the date of grant. Prior to the IPO, the board of directorsdetermined the fair value of the common stock at the time of the grant of options and restricted stock awards by considering a number of objective andsubjective factors. The fair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of CertifiedPublic Accountants titled Valuation of Privately Held Company Equity Securities Issued as Compensation.Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes option-pricing model on the yields of U.S. Treasurysecurities with maturities appropriate for the term of employee stock option awards.Expected Term. For employee options that contain service conditions, the Company applies the simplified approach, in which the expected term ofan award is presumed to be the mid-point between the vesting date and the expiration date of the award. The expected term of employee stock options thatcontain performance conditions represents the weighted-average period that the stock options are estimated to remain outstanding.Volatility. Because the Company does not have significant trading history for the Company’s common stock, the Company determines the pricevolatility based on the historical volatilities of a publicly traded peer group based on daily price observations over a period equivalent to the expected termof the stock option grants.Dividend Yield. The dividend yield assumption is based on the Company’s history and current expectations of dividend payouts. The Company hasnever declared or paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future, so the Companyused an expected dividend yield of zero.The Company will continue to use judgment in evaluating the assumptions related to the Company’s stock-based compensation. Future expenseamounts for any particular period could be affected by changes in the Company’s assumptions or market conditions.Due to the full valuation allowance provided on its net deferred tax assets, the Company has not recorded any tax benefit attributable to stock-basedawards for the years ended December 31, 2016, 2015 and 2014.Income TaxesDeferred income tax assets and liabilities are determined based upon the net tax effects of the differences between the Company’s consolidatedfinancial statements carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxableincome 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 thannot that those deferred tax assets will not be realized. The Company has established a full valuation allowance to offset its domestic net deferred tax assetsdue to the uncertainty of realizing future tax benefits from the net operating loss carryforwards and other deferred tax assets.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 onexamination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statementsfrom such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. The Company recognizes interestand penalties accrued related to its uncertain tax positions in its income tax provision (benefit) in the consolidated statements of operations.Net Income (Loss) Per Share Attributable to Common StockholdersBasic net income (loss) per share of common stock is calculated by dividing the net income (loss) attributable to common stockholders by theweighted-average number of shares of common stock outstanding. Net income (loss) attributable to common stockholders is equal to net income (loss)adjusted for declared or cumulative preferred stock dividends for the period. Prior to the IPO, because the holders of the Company’s convertible preferredstock were entitled to participate in dividends, the Company86Table of Contentsapplied the two-class method in calculating earnings per share for periods when the Company generated net income. The two-class method requires netincome to be allocated between the common and preferred stockholders based on their respective rights to receive dividends, whether or not declared.However, because the convertible preferred stock was not contractually obligated to share in the Company’s income (losses), no such allocation was made forany period presented given the Company’s net income (losses).Diluted income (loss) per share attributable to common stockholders adjusts the basic weighted-average number of shares of common stockoutstanding for the effect of potentially dilutive securities during the period. Potentially dilutive securities consist of stock options, restricted stock awards,restricted stock units, potential shares issued under the Company's Employee Stock Purchase Plan, shares held in escrow and potential shares issuable as partof contingent consideration as a result of business combinations, warrants and convertible preferred stock. For purposes of this calculation, potentiallydilutive securities are excluded from the calculation of diluted net income (loss) per share attributable to common stockholders if their effect is anti-dilutive.Prior to the Company's IPO, the Company had two classes of stock, Class A and Class B. Basic and diluted net income (loss) per share attributable tocommon stockholders were the same for Class A and Class B common stock because they were entitled to the same liquidation and dividend rights. Inconnection with the IPO, the outstanding shares of Class A common stock and Class B common stock were converted into shares of a single class of commonstock on a one-for-one basis. See Note 12.Comprehensive Income (Loss)Comprehensive income (loss) encompasses all changes in equity other than those arising from transactions with stockholders, and consists of netincome (loss), unrealized gains (losses) on investments and foreign currency translation adjustments.Cash, Cash Equivalents, and Marketable SecuritiesThe Company invests excess cash primarily in money market funds, corporate debt securities, and highly liquid debt instruments of the U.S.government and its agencies. The Company classifies investments held in money market funds as cash equivalents included in cash and cash equivalents asthey have weighted-average maturities at the date of purchase of less than 90 days, U.S. government and agency bonds and corporate debt securities withstated maturities of less than one year as short-term investments included in marketable securities, prepaid expenses, and other current assets, and U.S.government and agency bonds and corporate debt securities with stated maturities of over a year as long-term investments included in marketable securitiesand other assets, non-current on the Company’s consolidated balance sheets, as the Company does not expect to redeem or sell these securities within oneyear from the balance sheet date.The Company determines the appropriate classification of investments in marketable securities at the time of purchase and reevaluates suchdesignation at each balance sheet date. The Company classifies and accounts for the Company’s marketable securities as available-for-sale, and as a resultcarries the securities at fair value and reports the unrealized gains and losses in the consolidated statements of comprehensive income (loss) and as acomponent of stockholders’ equity. The Company determines any realized gains or losses on the sale of marketable securities on a specific identificationmethod, and the Company records such gains and losses as a component of other income, net on the Company’s consolidated statements of operations.Restricted CashThe Company classifies certain restricted cash balances within prepaid expenses and other current assets on the consolidated balance sheets basedupon the term of the remaining restrictions. At December 31, 2016 and 2015, restricted cash was held as collateral for credit cards. At December 31, 2016 and2015, restricted cash totaling $0.1 million and $0.3 million, respectively, was included in prepaid expenses and other current assets.Accounts Receivable Allowance for Doubtful AccountsAccounts receivable are recorded at the invoiced amount, are unsecured, and do not bear interest. The allowance for doubtful accounts is based onthe best estimate of the amount of probable credit losses in existing accounts receivable. The allowance for doubtful accounts is determined based onhistorical collection experience and the review in each period of the status of the then-outstanding accounts receivable, while taking into considerationcurrent customer information, subsequent collection history and other relevant data. The Company reviews the allowance for doubtful accounts on aquarterly basis. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered. TheCompany’s allowance for doubtful accounts was approximately $0.7 million, $1.0 million and $0.3 million at December 31, 2016, 2015 and 2014respectively. During the years ended December 31, 2016, 2015 and 2014, the Company wrote-off $1.1 million, $0.2 million and $0.6 million, respectively, ofaccounts receivable.Property and Equipment, Net87Table of ContentsProperty and equipment are recorded at historical cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets. The estimated useful lives of the Company’s property and equipment are as follows: YearsComputer equipment and network hardware3Furniture, fixtures and office equipment5 to 7Leasehold improvementsShorter of usefullife or life of leaseComputer equipment under capital leasesShorter of usefullife or life of leaseRepair and maintenance costs are charged to expense as incurred, while renewals and improvements are capitalized. When assets are retired orotherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in theCompany’s results of operations.Internal Use Software Development CostsThe Company capitalizes certain internal use software development costs associated with creating and enhancing internally developed softwarerelated to the Company’s technology infrastructure. These costs include personnel and related employee benefits expenses for employees who are directlyassociated with and who devote time to software projects, and external direct costs of materials and services consumed in developing or obtaining thesoftware. Software development costs that do not meet the qualification for capitalization, as further discussed below, are expensed as incurred and recordedin technology and development expenses in the results of operations.Software development activities generally consist of three stages, (i) the planning stage, (ii) the application and infrastructure development stage,and (iii) the post implementation stage. Costs incurred in the planning and post implementation stages of software development, including costs associatedwith the post-configuration training and repairs and maintenance of the developed technologies, are expensed as incurred. The Company capitalizes costsassociated with software developed for internal use when both the preliminary project stage is completed, management has authorized further funding for thecompletion of the project, and it is probable that the project will be completed and perform as intended. Costs incurred in the application and infrastructuredevelopment stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete and thesoftware and technologies are ready for their intended purpose. Internal use software development costs are amortized using a straight-line method over theestimated useful life of three years, commencing when the software is ready for its intended use. The straight-line recognition method approximates themanner in which the expected benefit will be derived.The Company does not transfer ownership of its software, or lease its software, to third parties.Intangible AssetsIntangible assets primarily consist of acquired developed technology, customer relationships and non-compete agreements resulting from businesscombinations, which are recorded at acquisition-date fair value, less accumulated amortization. The Company determines the appropriate useful life of itsintangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful livesusing a straight-line method, which approximates the pattern in which the economic benefits are consumed.The estimated useful lives of the Company’s intangible assets are as follows: YearsDeveloped technology3 to 5Customer relationships2.5 to 3Non-compete agreements2 to 3Impairment of Long-Lived Assets including Internal Use Capitalized Software CostsThe Company assesses the recoverability of its long-lived assets when events or changes in circumstances indicate their carrying value may not berecoverable. Such events or changes in circumstances may include: a significant adverse change in the extent or manner in which a long-lived asset is beingused, significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, an accumulation of costssignificantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flowlosses that demonstrate continuing losses associated with the use of a long-lived asset, or a current expectation that, more likely than not, a long-lived assetwill be sold88Table of Contentsor otherwise disposed of significantly before the end of its previously estimated useful life. The Company performs impairment testing at the asset grouplevel that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Companyassesses recoverability of a long-lived asset by determining whether the carrying value of the asset group can be recovered through projected undiscountedcash flows over their remaining lives. If the carrying value of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss isrecognized, measured as the amount by which the carrying amount exceeds estimated fair value. An impairment loss is charged to operations in the period inwhich management determines such impairment.Business CombinationsThe results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date ofacquisition. The Company allocates the purchase price, which is the sum of the consideration provided, which may consist of cash, equity or a combinationof the two, in a business combination to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of thepurchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquiredand liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates offuture revenues and cash flows, discount rates and selection of comparable companies.When the Company issues stock-based or cash awards to an acquired company’s stockholders, the Company evaluates whether the awards arecontingent consideration or compensation for post-business combination services. The evaluation includes, among other things, whether the vesting of theawards is contingent on the continued employment of the selling stockholder beyond the acquisition date. If continued employment is required for vesting,the awards are treated as compensation for post-acquisition services and recognized as expense over the requisite service period.The Company estimates the fair value of intangible assets acquired generally using a discounted cash flow approach, which includes an analysis ofthe future cash flows expected to be generated by the asset and the risk associated with achieving these cash flows. The key assumptions used in thediscounted cash flow model include the discount rate that is applied to the forecasted future cash flows to calculate the present value of those cash flows andthe estimate of future cash flows attributable to the acquired intangible asset, which include revenue, expenses and taxes. The carrying value of acquiredworking capital assets and liabilities approximates its fair value, given the short-term nature of these assets and liabilities.Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an expense in the periodin which the costs are incurred.GoodwillGoodwill represents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assetsacquired, net of liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test. The Company tests for impairment of goodwillannually during the fourth quarter or more frequently if events or changes in circumstances indicate that the goodwill may be impaired. For purposes ofgoodwill impairment testing, the Company has one reporting unit.Events or changes in circumstances which could trigger an impairment review include a significant adverse change in legal factors or in the businessclimate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of theCompany’s use of the acquired assets or the strategy for the Company’s overall business, significant negative industry or economic trends, or significantunderperformance relative to expected historical or projected future results of operations.Testing goodwill for impairment involves a two-step quantitative process. However, prior to performing the two-step quantitative goodwillimpairment test, the Company has the option to first assess qualitative factors to determine whether or not it is necessary to perform the two-step quantitativegoodwill impairment test for selected reporting units. If the Company chooses the qualitative option, the Company is not required to perform the two-stepquantitative goodwill impairment test unless it has determined, based on the qualitative assessment, that it is more likely than not that the fair value of thereporting unit is less than its carrying amount. If the two-step quantitative impairment test is required or chosen, the first step of the impairment test involvescomparing the estimated fair value of the reporting unit with its respective carrying amount, including goodwill. If the estimated fair value of the reportingunit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, theestimated fair value of the reporting unit is less than its carrying amount, including goodwill, then the carrying amount of the goodwill is compared with itsimplied fair value, and an impairment loss is recognized in an amount equal to the excess.89Table of ContentsThe Company operates as a single operating segment and has identified a single reporting unit. The Company performed the annual quantitativegoodwill impairment assessment for its reporting unit in the fourth quarter of 2016. The first step of the quantitative goodwill impairment test resulted in thedetermination that the fair value of the Company's reporting unit substantially exceeded its carrying amount, including goodwill. Accordingly, the secondstep was not required for the Company's reporting unit.Operating and Capital LeasesThe 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 andbegins 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 andrent paid as a deferred rent liability.Assets and liabilities under capital lease are recorded at the lesser of present value of aggregate future minimum lease payments, including estimatedbargain purchase options, or the fair value of the asset under lease. Assets under capital lease are amortized using the straight-line method over the estimateduseful lives of the assets. The Company has no capital leases at December 31, 2016.Preferred Stock Warrant LiabilitiesThe Company issued warrants to purchase preferred stock in connection with professional services and financing arrangements and accounted forthese warrants as liabilities at fair value because the underlying shares of convertible preferred stock were contingently redeemable, including in the case of adeemed liquidation, which may have obligated the Company to transfer assets to the warrant holders. The preferred stock warrants were recorded at fair valueat the time of issuance and changes in the fair value of the preferred stock warrants each reporting period were recorded as part of other expense, net in theCompany’s consolidated statements of operations until the earlier of the exercise or expiration of the warrants or the warrants’ conversion to warrants topurchase common stock, at which time any remaining liability was reclassified to additional paid-in capital. Following the closing of the Company's IPO, theCompany was no longer required to re-measure the warrants to fair value and record any changes in the fair value of these liabilities in the consolidatedstatement of operations, and accordingly, the Company did not record any related expenses subsequent to the closing of the IPO.Fair Value of Financial InstrumentsFair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used tomeasure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on thefollowing three levels of inputs, of which the first two are considered observable and the last one is considered unobservable:•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at themeasurement date.•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.•Level 3 – Unobservable inputs.Observable inputs are based on market data obtained from independent sources.The Company's contingent consideration liabilities were measured using unobservable inputs that required a high level of judgment to determinefair value, and thus classified as Level 3. The Company's contingent consideration liabilities were re-measured to fair value through the date they wereconverted to equity. See Note 9.The carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued expenses, and seller payables approximate fair value dueto the short-term nature of these instruments. The carrying amounts of cash equivalents are classified as Level 1 or Level 2 depending on whether or not theirfair values are based on quoted market prices for identical securities that are traded in active markets, rather derived from similar securities. Corporate debtsecurities, included in marketable securities on the balance sheet, whose fair values are not based on quoted market prices for identical securities that aretraded in an active market, rather derived from similar securities, are classified as Level 2 as well. See Note 9.Certain assets, including goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis if they are deemed tobe impaired as a result of an impairment review.90Table of ContentsConcentration of RiskFinancial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, restrictedcash and accounts receivable. The Company maintains its cash and cash equivalents with financial institutions which exceed the federally insured limits.Accounts receivable include amounts due from buyers with principal operations primarily in the United States. The Company performs ongoingcredit evaluations of its buyers.At December 31, 2016, two buyers accounted for 12% and 11%, respectively, of consolidated accounts receivable. At December 31, 2015, twobuyers accounted for 14% and 10%, respectively, of consolidated accounts receivable.For the years ended December 31, 2016, 2015 and 2014, no buyer or seller of advertising inventory comprised 10% or more of consolidated revenue.At December 31, 2016, no seller of advertising inventory comprised 10% of consolidated accounts payable. At December 31, 2015, one seller ofadvertising inventory comprised 10% of consolidated accounts payable.Foreign Currency Transactions and TranslationTransactions in foreign currencies are translated into the functional currency of the applicable entity at the rates of exchange in effect at the date ofthe transaction. Foreign exchange gains, net were approximately $0.9 million, $1.4 million and $1.1 million for the years ended December 31, 2016, 2015and 2014, respectively, and are included in other expense, net in the accompanying consolidated statements of operations. To the extent that the functionalcurrency is different than the U.S Dollar, the financial statements have then been translated into U.S. Dollars using period-end exchange rates for assets andliabilities and average exchanges rates for the results of operations. Foreign currency translation gains and losses are included as a component of accumulatedother comprehensive loss on the consolidated balance sheet.Recent Accounting PronouncementsUnder the Jumpstart Our Business Startups Act, or the JOBS Act, the Company meets the definition of an emerging growth company. The Companyhas irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of theJOBS Act.In May 2014, the Financial Accounting Standards Board, or FASB, issued new accounting guidance that amends the guidance for revenuerecognition to replace numerous, industry-specific requirements and converges areas under the "Revenue from Contracts with Customers" topic with those ofthe International Financial Reporting Standards. The guidance implements a five-step process for customer contract revenue recognition that focuses ontransfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing anduncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contractcosts, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized beforecontingencies are resolved in certain circumstances. These amendments were effective for reporting periods beginning after December 15, 2016, with earlyadoption prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Subsequentto issuing the May 2014 guidance, in August 2015, the FASB issued amendments that deferred the effective date one year. As a result, the guidance iseffective for reporting periods beginning after December 15, 2017, with early adoption permitted only as of annual reporting periods beginning afterDecember 15, 2016. Since its issuance, the FASB has amended several aspects of the new guidance including provisions that clarify the implementationguidance on principal versus agent considerations in the new revenue recognition standard. The amendments clarify how an entity should identify the unit ofaccounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types ofarrangements. The Company has not yet selected a transition method, but is currently evaluating the new principle vs. agent guidance with respect to itsrevenue arrangements and assessing the impact this guidance will have on the Company's consolidated financial statements.In January 2016, the FASB issued new accounting guidance that changes certain recognition, measurement, presentation, and disclosurerequirements for financial instruments. The new guidance requires all equity investments, except those accounted for under the equity method of accountingor resulting in consolidation, to be measured at fair value with changes in fair value recognized in net income. The guidance also simplifies the impairmentassessment for equity investments without readily determinable fair values, amends the presentation requirements for changes in the fair value of financialliabilities, requires presentation of financial instruments by measurement category and form of financial asset, and eliminates the requirement to disclose themethods and significant assumptions used in estimating the fair value of financial instruments. The new guidance is effective for interim and annual periodsbeginning after December 15, 2017, and early adoption is not permitted except for the91Table of Contentsamended presentation requirements for changes in the fair value of financial liabilities. The Company is currently assessing the impact this guidance willhave on its consolidated financial statements.In February 2016, the FASB issued new accounting guidance that requires an entity to recognize right-of-use assets and lease liabilities on itsbalance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor, and sale andleaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user ofthe 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 classification affecting the pattern of expense recognition in the income statement. This guidance is effective for annual reporting periods beginningafter December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoptionpermitted. Although the Company is currently evaluating the effect this guidance will have on its consolidated financial statements and related disclosures.The Company anticipates the guidance to have an impact on its assets and liabilities, as most of its operating lease commitments will be subject to the newstandard and recognized as right-of-use assets and lease liabilities.In June 2016, the FASB issued new guidance that changes the accounting for recognizing impairments of financial assets. Under the new guidance,credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models foravailable-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The new guidance will be effective for theCompany starting in the first quarter of fiscal 2021. Early adoption is permitted starting in the first quarter of fiscal 2020. The Company is currently assessingthe impact this guidance will have on its consolidated financial statements.In August 2016, the FASB issued new guidance intended to reduce diversity in practice in how certain cash receipts and payments are classified inthe statement of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination,proceeds from insurance settlements, and distributions from certain equity method investees. The new guidance will be effective for interim and annualperiods beginning after December 15, 2017, and early adoption is permitted. The guidance requires application using a retrospective transition method. TheCompany is currently assessing the impact this guidance will have on its consolidated financial statements.In October 2016, the FASB issued new guidance intended to improve the accounting for the income tax consequences of intra-entity transfers ofassets other than inventory. Under the new guidance, entities should recognize the income tax consequences of such transfers when the transfers occur. Thenew guidance will be effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The guidance requiresapplication using a modified retrospective transition method. The Company is currently assessing the impact this guidance will have on its consolidatedfinancial statements.In January 2017, the FASB issued new guidance intended to simplify the test for goodwill impairment. The new guidance removes the requirementto perform a hypothetical purchase price allocation to measure goodwill impairment (Step 2). Under the new guidance, a goodwill impairment is calculated asthe amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in the reporting unit. All othergoodwill impairment guidance will remain largely unchanged. The guidance is effective on a prospective basis beginning after December 15, 2019, withearly adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company expects to update its methodologyfor assessing goodwill impairment as a result of this guidance.In January 2017, the FASB issued amended guidance for business combinations. The new pronouncement changes the definition of a business withthe objective of adding guidance to assist companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets orbusinesses. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and will be appliedprospectively to any transactions occurring within the period of adoption. Early adoption is permitted, including for interim or annual periods in which thefinancial statements have not been issued or made available for issuance. Subsequent to adoption, the Company will apply this guidance to acquisitions ordisposals occurring in the period of adoption and thereafter.92Table of ContentsNote 3—Net Income (Loss) Per Share Attributable to Common StockholdersThe following table presents the basic and diluted net income (loss) per share attributable to common stockholders: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (In thousands, except per share data)Basic EPS: Net income (loss) attributable to common stockholders $(18,053) $422 $(19,789)Weighted-average common shares outstanding 48,512 42,067 29,921Weighted-average unvested restricted shares (1,857) (1,677) (1,704)Weighted-average escrow shares — (727) —Weighted-average common shares outstanding used to compute net income (loss) pershare 46,655 39,663 28,217Basic net income (loss) per share $(0.39) $0.01 $(0.70)Diluted EPS: Net income (loss) $(18,053) $422 $(19,789)Weighted-average common shares used in basic EPS 46,655 39,663 28,217Dilutive effect of weighted-average common stock options — 2,510 —Dilutive effect of weighted-average restricted stock awards — 532 —Dilutive effect of weighted-average restricted stock units — 426 —Dilutive effect of weighted-average ESPP — 25 —Dilutive effect of weighted-average escrow shares — 591 —Dilutive effect of weighted-average contingent shares — 748 —Weighted-average shares used to compute diluted net income (loss) per share 46,655 44,495 28,217Diluted net income (loss) per share $(0.39) $0.01 $(0.70)The following weighted-average shares have been excluded from the calculation of diluted net income (loss) per share attributable to commonstockholders for each period presented because they are anti-dilutive: December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Options to purchase common stock 951 — 8,113Unvested restricted stock awards 414 — 1,750Unvested restricted stock units 611 — 845Shares held in escrow 392 — 125ESPP 30 — —Contingent shares — 704 —Conversion of convertible preferred stock — — —Conversion of preferred stock warrants — — —Total shares excluded from net income (loss) per share 2,398 704 10,833Prior to December 31, 2015, shares contingently issuable if certain milestones were achieved on December 31, 2015 related to businesscombinations that occurred during the year ended December 31, 2014 were excluded from the calculation of diluted net income (loss) per share attributableto common stockholders for the year ended December 31, 2014.93Table of ContentsIn connection with the acquisition of Chango, which occurred during the year ended December 31, 2015, the Company agreed to pay up to $18.2million of contingent consideration in addition to 126,098 shares held in escrow, if certain milestones were achieved by December 31, 2015. The Companyhad the option to pay the contingent consideration in cash or common stock, or a combination thereof. As of December 31, 2015, the entire contingentconsideration issuable in connection with the Chango acquisition was deemed earned (See Note 7). The Company elected to pay the contingentconsideration in shares, with the number of shares issued in connection with the contingent consideration based on the greater of the volume-weighted-average closing prices of the Company's common stock for the ten consecutive trading days ending on (and including) the trading day that is one day prior toDecember 31, 2015 and $18.77. On December 31, 2015, the Company issued 971,481 shares in connection with the contingent consideration and released126,098 shares from escrow. These shares were included in the calculation of basic net income (loss) per share attributable to common stockholders effectiveDecember 31, 2015, the date of issuance, and were included in the calculation of diluted net income (loss) per share attributable to common stockholders forperiods between the date of acquisition and immediately prior to December 31, 2015.In connection with the acquisition of iSocket, Inc., or iSocket, which occurred during the year ended December 31, 2014, the Company was requiredto issue up to $9.6 million of contingent consideration payable in shares of common stock if certain performance milestones were achieved by December 31,2015. The number of shares issued was based on the average closing price of the Company's common stock for the ten consecutive trading days ending on(and including) the last trading day of 2015. On December 31, 2015, the Company issued 585,170 shares in connection with the contingent consideration.These shares were included in the calculation of basic net income (loss) per share attributable to common stockholders effective December 31, 2015, the dateof issuance, and were excluded in the calculation of diluted net income (loss) per share attributable to common stockholders for periods between the date ofacquisition and immediately prior to December 31, 2015 because they were anti-dilutive.For the year ended December 31, 2014 the Company increased net loss by $1.1 million for cumulative preferred stock dividends in determining its netloss attributable to common stockholders. Upon the completion of the Company’s IPO in April 2014, all of the preferred stock converted to common stockand accordingly, after the IPO the Company was no longer required to increase its net loss for preferred stock dividends in determining its net lossattributable to common stockholders.94Table of ContentsNote 4—InvestmentsInvestments in marketable securities as of December 31, 2016 consisted of the following: AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairValue (in thousands)Available-for-sale — short-term: U.S. Treasury, government and agency debt securities$23,237 $1 $(2) $23,236Corporate debt securities17,314 — — 17,314Total$40,551 $1 $(2) $40,550As of December 31, 2016, the Company's available-for-sale securities had a weighted remaining contractual maturity of 0.3 years. For the year endedDecember 31, 2016, there were no realized gains (losses) and there were no unrealized holding gains (losses) reclassified out of accumulated othercomprehensive income (loss) into the consolidated statements of operations for the sale of available-for-sale investments.Investments in marketable securities as of December 31, 2015 consisted of the following: AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairValue (in thousands)Available-for-sale — short-term: U.S. Treasury, government and agency debt securities$10,485 $— $(22) $10,463Corporate debt securities12,786 — — 12,786Total$23,271 $— $(22) $23,249Available-for-sale — long-term: U.S. Treasury, government and agency debt securities$13,529 $— $(46) $13,483The amortized cost and fair value of the Company's marketable securities at December 31, 2016, by contractual years-to-maturity are as follows: Amortized Cost Fair Value (in thousands)Due in less than 1 year$40,551 $40,550Due within 1-2 years— —Total$40,551 $40,550Note 5—Property and EquipmentMajor classes of property and equipment were as follows: December 31, 2016 December 31, 2015 (in thousands)Purchased software $1,777 $1,706Computer equipment and network hardware 62,084 40,765Furniture, fixtures and office equipment 2,194 1,959Leasehold improvements 3,385 3,237Gross property and equipment 69,440 47,667Accumulated depreciation (33,194) (22,264)Net property and equipment $36,246 $25,403Depreciation expense on property and equipment totaled $13.7 million, $8.6 million and $6.5 million for the years ended December 31, 2016, 2015and 2014, respectively. 95Table of ContentsAt December 31, 2016 and 2015, the Company had no property and equipment under capital leases. At December 31, 2014, property and equipmentincluded property and equipment under capital leases with a cost basis of $0.6 million.Depreciation expense on property and equipment under capital leases was zero for the years ended December 31, 2016, 2015 and $0.3 million forthe year ended December 31, 2014, respectively.There were no impairment charges to property and equipment for the years ended December 31, 2016, 2015 and 2014.Note 6—Internal Use Software Development CostsInternal use software development costs were as follows: December 31, 2016 December 31, 2015 (in thousands)Internal use software development costs, gross $37,032 $27,265Accumulated amortization (20,510) (13,336)Internal use software development costs, net $16,522 $13,929During the years ended December 31, 2016, 2015 and 2014, the Company capitalized $10.9 million, $9.2 million, and $9.4 million of internal usesoftware development costs. Amortization expense was $8.3 million, $6.7 million and $5.1 million for the years ended December 31, 2016, 2015 and 2014.In the years ended December 31, 2016, 2015 and 2014, amortization expense included the write-off of software development costs, net of $0.8 million, $1.5million and $0.7 million, respectively. Based on the Company’s internal use software development costs at December 31, 2016, estimated amortizationexpense of $8.4 million, $5.5 million and $2.6 million is expected to be recognized in 2017, 2018 and 2019, respectively.There were no impairment charges to internal use software development costs for the years ended December 31, 2016, 2015 and 2014.Note 7—Business Combinations2015 AcquisitionChango Inc.On April 24, 2015, or the Acquisition Date, the Company completed the acquisition of all the issued and outstanding shares of Chango, a Toronto,Canada based intent marketing technology company.The purchase consideration for the acquisition included 4,191,878 shares of the Company's common stock, with a fair value of approximately $72.5million, based on the Company's stock price as reported on the NYSE on the Acquisition Date. 639,318 of the 4,191,878 shares of the Company's commonstock were placed in escrow to secure post-closing indemnification obligations of the sellers and were released from escrow on July 24, 2016. In addition, theCompany issued 106,553 shares of the Company's common stock on the date of the acquisition, which were placed in escrow, related to employee futureservice requirements which were excluded from the purchase consideration and were expensed in the Company's post acquisition consolidated statement ofoperations. The Company also used approximately $9.1 million of cash to repay Chango's outstanding debt, including accrued interest, and to pay Chango'soutstanding transaction expenses.96Table of ContentsThe purchase consideration also included contingent consideration of up to approximately $18.2 million worth of cash or shares of the Company'scommon stock and 126,098 shares held in escrow based upon Chango's performance against certain agreed-upon operating objectives for the year endingDecember 31, 2015. The Company had the option to pay the contingent consideration in cash or common stock, or a combination thereof. The number ofshares issued in connection with the contingent consideration, excluding the escrow shares, was based on a price per share of $18.77. On the AcquisitionDate, the fair value was estimated using a Monte-Carlo model as the fair value of the contingent consideration was dependent on both the performancemilestones being achieved and the post-acquisition prices of the Company's common stock. The total contingent consideration was recorded at an estimatedfair value of $16.2 million. The fair value of the contingent consideration assumed the probability of the performance milestones being achieved and theprobability that the Company would settle the contingent consideration in common stock. The contingent consideration was recorded as a non-currentliability in the consolidated balance sheet as the contingent consideration was payable in a variable number of shares at the Acquisition Date. Changes in thefair value of the contingent consideration liability were recorded in the Company's consolidated statement of operations. Subsequent to the Acquisition Date,the operations of Chango were fully integrated into the operations of the Company. Accordingly, pursuant to the acquisition agreement, because Changowould no longer be operated separate from the Company's other operations in accordance with the agreed-upon business plan, the entire contingentconsideration was deemed earned. As a result, the changes in the fair value of the contingent consideration liability post-acquisition were primarilydependent on prices of the Company's common stock for periods subsequent to the Acquisition Date. On December 31, 2015 the Company converted thecontingent consideration to equity and issued 971,481 shares in addition to releasing 126,098 shares from escrow.As part of the acquisition, existing stock options to purchase common stock of Chango were exchanged for 428,798 options to purchase theCompany's common stock. The fair value of stock options exchanged on the Acquisition Date attributable to pre-acquisition services of approximately $4.3million was recorded as purchase consideration. The fair value of stock options exchanged on the Acquisition Date attributable to post-acquisition servicesof $2.4 million will be recorded as additional stock-based compensation expense in the Company's consolidated statements of operations over theirremaining requisite service (vesting) periods. During the fourth quarter of 2015, the Company recorded a decrease to goodwill related to the Changoacquisition for an insignificant adjustment to purchase price associated with the fair value of stock-based awards exchanged in the amount of $0.3 millionand a reduction to the fair value of stock options exchanged on the Acquisition Date attributable to post-acquisition services of $0.7 million.As part of the acquisition, the Company recorded deferred tax liabilities related to acquired intangibles of $13.9 million net of deferred tax assets of$2.0 million, primarily related to net operating loss carry forwards. During the fourth quarter of 2015, the Company recorded a decrease to goodwill related tothe Chango acquisition for a measurement period adjustment for a reduction in deferred tax liabilities in the amount of $0.5 million.97Table of ContentsThe total purchase consideration and the allocation of the total purchase consideration to assets acquired and liabilities assumed is summarizedbelow (in thousands):Shares of the Company's common stock$72,477Estimated fair value of contingent consideration16,171Fair value of stock-based awards exchanged4,058Cash paid9,097Working capital adjustment(184)Total purchase consideration101,619Cash450Accounts receivable13,333Prepaid and other assets1,025Fixed assets265Intangible assets, including in process research and development of $58052,420Goodwill51,732Total assets acquired119,225Accounts payable and accrued expenses5,825Other liabilities443Deferred tax liability, net11,338Total liabilities assumed17,606Total net assets acquired$101,619The fair value of the consideration transferred to acquire Chango was allocated to the identifiable assets acquired and liabilities assumed based upontheir estimated fair values as of the date of the acquisition as set forth above. This allocation was final as of December 31, 2015.The following table summarizes the components of the acquired intangible assets and estimated useful lives (dollars in thousands): Estimated Useful LifeDeveloped technology$22,0003 - 5 yearsIn-process research and development5803 years*Customer relationships22,0005 yearsBacklog3,090<1 yearNon-compete agreements4,5002 yearsTrademarks250<1 yearTotal intangible assets acquired$52,420 * In-process research and development was completed and placed in service as of December 31, 2015 and amortization commenced.The intangible assets are generally amortized on a straight-line basis, which approximates the pattern in which the economic benefits are consumed,over their estimated useful lives. Amortization of developed technology is included in cost of revenues, the amortization of customer relationships andbacklog is included in sales and marketing, the amortization of non-compete agreements is included in technology and development and general andadministrative, and the amortization of trademarks is included in general and administrative in the consolidated statements of operations. See Note 8 forfurther discussion related to the cessation of the Company's intent marketing solution and related impairment of acquired intangible assets.Goodwill was primarily attributable to expected synergies from assembled workforce, an increase in development capabilities, increased offerings tocustomers, and enhanced opportunities for growth and innovation. The goodwill resulting from the Chango acquisition is not tax deductible.During the year ended December 31, 2015, the Company recognized approximately $1.3 million in professional fees directly related to theacquisition of Chango, primarily composed of legal, accounting, and valuation costs, which are recorded within general and administrative expenses in theCompany’s consolidated statements of operations. In addition, as part of the acquisition of Chango, the Company acquired Chango's NOLs of approximately$6.9 million.98Table of ContentsUnaudited Pro Forma Information - 2015 AcquisitionThe following table provides unaudited pro forma information as if Chango had been acquired as of January 1, 2014. The unaudited pro formainformation reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed. The proforma results do not include any anticipated cost synergies or other effects of the integration of Chango or recognition of compensation expense relating tothe contingent consideration. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had theacquisition been completed on the dates indicated, nor is it indicative of the future operating results of the combined company. Year Ended December 31, 2015 December 31, 2014 (in thousands, except per share data)Pro forma revenues $265,134 $167,860Pro forma net income (loss) $673 $(39,225)Pro forma net income (loss) per share, basic $0.02 $(1.27)Pro forma net income(loss) per share, diluted $0.01 $(1.27)Subsequent to the Acquisition Date, the operations of Chango were fully integrated into the operations of the Company and as a result, thedetermination of Chango’s post-acquisition revenues and operating results on a standalone basis are impracticable given the integration of the Changooperations with the Company's operations.2014 AcquisitionsiSocket, Inc.On November 17, 2014, the Company completed the acquisition of all the issued and outstanding shares of iSocket, Inc., or iSocket, a San Francisco,California based technology company focused on automating the direct buying and selling of premium, guaranteed ad inventory. iSocket providedautomated applications for advertisers to plan, negotiate and purchase guaranteed inventory and for publishers to manage and streamline the direct salesprocess.Purchase consideration for the acquisition was 840,885 shares of the Company’s common stock, with a fair value of approximately $11.2 million,based on the Company’s common stock price as reported on the NYSE on the acquisition date. 125,116 of the 840,885 shares were placed in escrow to securepost-closing indemnification obligations of the sellers and any shares remaining in escrow after satisfaction of any resolved indemnity claims, less any shareswithheld to satisfy pending claims, will be released from escrow on February 17, 2016.The purchase consideration also included contingent consideration of up to $12.0 million worth of common stock if certain performance milestoneswere achieved by December 31, 2015. The number of shares to be issued was based on the average closing price of the Company's common stock for the tenconsecutive trading days ending on (and including) the last trading day of 2015. The Company determined it was probable that the performance milestoneswould be achieved and accordingly, the full amount of the contingent consideration of $12.0 million was discounted to fair value at a discount rate of 4.8%,based on an estimate of the Company's incremental borrowing rate. In accordance with ASC 480, Distinguishing Liabilities from Equity, the contingentconsideration was recorded as a non-current liability in the consolidated balance sheet as the contingent consideration was payable in a variable number ofshares.During the fourth quarter of 2015, the Company identified an error in its consolidated financial statements for the year ended December 31, 2014relating to the calculation of the contingent consideration amount associated with the acquisition of iSocket, which was completed on November 17, 2014.The contingent consideration amount with a fair value of $11.4 million on the date of acquisition was to be reduced by amounts associated with shares of theCompany’s common stock subject to in-the-money options that were assumed as part of the acquisition. As a result, the contingent consideration amountshould have been a fair value of approximately $9.1 million on the date of acquisition. The fair value of the assumed options was properly included in theinitial accounting.As a result, the purchase price, the fair value of the contingent consideration, and goodwill were overstated as of the acquisition date and as ofDecember 31, 2014 by approximately $2.3 million. The impact of change in fair value to the previously issued income statement for the year endedDecember 31, 2014 was insignificant.99Table of ContentsThe Company has concluded that the correction of the error was not material to the consolidated financial statements for the year ended December31, 2015 or to any previously issued annual or interim financial statements. On December 31, 2015, the Company converted the contingent consideration toequity and issued 585,170 shares. As part of the acquisition, existing stock options to purchase common stock of iSocket, were exchanged for options to purchase shares of theCompany's common stock. The fair value of stock options exchanged, measured on the acquisition date, of $3.1 million was attributed to pre-acquisition andpost-acquisition services. The fair value attributed to pre-acquisition services of $2.1 million was recorded as purchase consideration and the fair valueattributed to post-acquisition services of $1.0 million is expected to be recognized as compensation expense on the Company's consolidated statements ofoperations over their remaining vesting periods. The total purchase consideration and the allocation of the total purchase consideration to assets acquired and liabilities assumed is summarizedbelow (in thousands):Fair value of common stock$11,200Fair value of contingent consideration9,065Fair value attributed to pre-acquisition stock options exchanged2,142Total purchase consideration, including contingent consideration22,407Other assets, including cash acquired of $0.6 million1,521Intangible assets12,193Goodwill9,461Other liabilities(768)Net assets acquired$22,407The following table summarizes the components of the acquired intangible assets and estimated useful lives (dollars in thousands): Estimated Useful LifeDeveloped technology$9,3105.0 yearsCustomer Relationships2,8802.5 yearsTrademarks30.5 yearsTotal intangible assets acquired$12,193 Goodwill was primarily attributable to expected synergies from assembled workforce, an increase in development capabilities, increased offerings tocustomers, and enhanced opportunities for growth and innovation. Goodwill generated in the iSocket acquisition is not deductible for tax purposes.The Company recognized approximately $0.4 million of acquisition related costs during the year ended December 31, 2015, that are recordedwithin general and administrative expenses in the Company’s consolidated statements of operations. The operations of iSocket were fully integrated into theoperations of the Company upon acquisition. The results of operations of iSocket were insignificant to the Company’s consolidated statements of operationsfrom the acquisition date of November 17, 2014 through the period ended December 31, 2014.As part of the acquisition, the Company recorded deferred tax assets of $6.4 million, primarily related to net operating loss carry forwards, whichwere offset by deferred tax liabilities of $4.8 million related to acquired intangible assets, and a valuation allowance of $1.6 million. See Note 16 foradditional information related to net operating loss carryforwards associated with this acquisition.Shiny Inc.On October 20, 2014, the Company completed the acquisition of all the issued and outstanding shares of Shiny Inc., or Shiny, a Toronto, Canadabased technology company focused on providing an end-to-end automated direct advertising platform for digital buyers of all sizes. Shiny also offered anopen application programming interface to support real-time buying of guaranteed advertising as well as a self-serve automated guaranteed platform fordigital buyers and sellers.The purchase consideration of Shiny was paid in cash by the Company at the acquisition date; $0.7 million of which was held in escrow subject tothe continued employment of certain employees post-acquisition. The $0.7 million has been excluded from the purchase consideration; rather, the Companyrecorded it as compensation expense post acquisition.100Table of ContentsThe Company’s allocation of the total purchase considerations is summarized below (in thousands):Cash purchase consideration (excluding $0.7 million tied to continued employment)$4,651Other assets, including cash acquired of $0.1 million737Intangible assets2,300Goodwill3,021Other liabilities(1,407)Net assets acquired$4,651The following table summarizes the components of the acquired intangible assets and estimated useful lives (dollars in thousands): Estimated Useful LifeDeveloped technology$1,3603.0 yearsCustomer relationships4502.5 yearsNon-compete agreements4903.0 yearsTotal intangible assets acquired$2,300 Goodwill was primarily attributable to expected synergies from assembled workforce, an increase in development capabilities, increased offerings tocustomers, and enhanced opportunities for growth and innovation. A portion, $0.2 million, of the goodwill generated in the Shiny acquisition is not taxdeductible while the remaining $2.8 million is deductible.Unaudited Pro Forma Information - 2014 AcquisitionsThe following table provides unaudited pro forma information as if Shiny and iSocket had been acquired as of January 1, 2013. The unaudited proforma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed. Thepro forma results do not include any anticipated cost synergies or other effects of the integration of Shiny and iSocket or recognition of compensationexpense relating to the contingent consideration. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would haveoccurred had the acquisition been completed on the dates indicated, nor is it indicative of the future operating results of the combined company. Year Ended December 31, 2014 (in thousands, except per share data)Pro forma revenues $125,834Pro forma net loss $(27,659)Pro forma net loss per share, basic and diluted $(0.95)101Table of ContentsNote 8—Goodwill and Intangible AssetsDetails of the Company’s goodwill were as follows: December 31, 2016 December 31, 2015 (in thousands)Beginning balance $65,705 $16,290Additions from the acquisition of Chango — 52,513Error correction related to iSocket (See Note 7) — (2,317)Measurement period adjustment related to Chango (See Note 7) — (520)Other adjustment related to Chango (See Note 7) — (261)Ending balance $65,705 $65,705Details of the Company’s intangible assets were as follows: December 31, 2016 December 31, 2015 (in thousands)Amortizable intangible assets: Developed technology $13,418 $35,756Customer relationships 3,330 25,330Non-compete agreements 4,990 4,990Total identifiable intangible assets, gross 21,738 66,076Accumulated amortization— intangible assets: Developed technology (7,652) (9,031)Customer relationships (2,837) (4,524)Non-compete agreements (4,445) (1,738)Total accumulated amortization—intangible assets (14,934) (15,293)Total identifiable intangible assets, net $6,804 $50,783Amortization of intangible assets for the years ended December 31, 2016, 2015 and 2014 was $20.5 million, $15.7 million and $0.9 million,respectively. During the three months ended June 30, 2016, the Company reassessed the remaining estimated useful lives of the developed technology andcustomer relationships related to the Chango acquisition. The change in estimated useful lives for the developed technology and customer relationships wasbased on the remaining expected benefit from those assets. The change in the remaining estimated useful lives for developed technology and customerrelationships resulted in increased amortization expense of $4.2 million for the year ended December 31, 2016. The increased amortization expensedecreased the basic and diluted earnings per share by $0.09 for the year ended December 31, 2016.These assets were subsequently impaired as of December31, 2016.In January 2017, the Company announced that it will cease providing intent marketing services. In connection with this decision, the Companyassessed the asset group related to the intent marketing services, which consisted of customer relationships and developed technology related to the Changoacquisition, and determined that the asset group was impaired. Accordingly, the Company recorded a charge for the impairment of intangible assets totaling$23.5 million, which is included in the consolidated statement of operations for the year ended December 31, 2016.The estimated remaining amortization expense associated with the Company's intangible assets was as follows as of December 31, 2016:Fiscal YearAmount (in thousands)2017$3,30220181,86220191,640Total$6,804No impairment of goodwill was identified for the years ended December 31, 2016, 2015 and 2014.102Table of ContentsNote 9—Fair Value MeasurementsFair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used tomeasure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs are based on market dataobtained from independent sources. The fair value hierarchy is based on the following three levels of inputs, of which the first two are considered observableand the last one is considered unobservable:•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at themeasurement date.•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.•Level 3 – Unobservable inputs.The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2016: December 31, 2016 Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands)Cash equivalents$15,776 $7,781 $7,995 $—Corporate debt securities$17,314 $— $17,314 $—U.S. Treasury, government andagency debt securities$23,236 $23,236 $— $—The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2015: December 31, 2015 Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands)Cash equivalents$19,257 $19,257 $— $—Corporate debt securities$12,786 $12,786 $— $—U.S. Treasury, government andagency debt securities$23,946 $23,946 $— $—At December 31, 2016 and 2015, cash equivalents of $15.8 million and $19.3 million consisted of money market funds and commercial paper withoriginal maturities of three months or less. The carrying amounts of cash equivalents are classified as Level 1 or Level 2 depending on whether or not theirfair values are based on quoted market prices for identical securities that are traded in an active market. The commercial paper included in cash equivalents isclassified as Level 2 since its fair value is not based on quoted market prices for identical securities that are traded in an active market, rather derived fromsimilar securities. Corporate debt securities, included in marketable securities on the balance sheet, whose fair values are not based on quoted market pricesfor identical securites that are traded in an active market, rather derived from similar securities, are classified as Level 2 as well. The fair values of theCompany's U.S. treasury, government and agency debt securities, are based on quoted market prices and classified as Level 1.103Table of ContentsThe Company classified the contingent consideration liabilities, which were incurred in connection with the acquisitions of iSocket and Chango,within Level 3 as factors used to develop the estimated fair value include unobservable inputs that were not supported by market activity. The Companyestimated the fair value of the contingent consideration liability related to the iSocket acquisition by discounting the present value of probability-weightedfuture payout related to the contingent consideration criteria using an estimate of the Company's incremental borrowing rate. At December 31, 2014, theCompany considered it highly likely that the iSocket contingent consideration criteria would be met. On Chango's acquisition date, the Company estimatedthe fair value of the contingent consideration liability related to the Chango acquisition by using a Monte-Carlo model as the fair value of the contingentconsideration was dependent on both the performance milestones being achieved and the post-acquisition prices of the Company's common stock.Subsequent to Chango's acquisition date, the operations of Chango were fully integrated into the operations of the Company. Accordingly, pursuant to theacquisition agreement, because Chango would no longer be operated separate from the Company's other operations in accordance with the agreed-uponbusiness plan, the entire contingent consideration was deemed earned. As a result, the changes in the fair value of the contingent consideration liability wereprimarily dependent on prices of the Company's common stock for periods subsequent to Chango's acquisition date.For each of the years ended December 31, 2015 and 2014, the Company recognized expense of $0.3 million and $0.1 million, respectively, relatingto the change in fair value of the contingent consideration liabilities, which was recorded in general and administrative expenses. The contingentconsideration liability related to the iSocket acquisition was payable in shares and the number of shares to be issued was based on the average closing priceof the Company's common stock for the ten consecutive trading days ending on (and including) the last trading day of 2015. The contingent considerationrelated to the Chango acquisition was payable in cash or shares, or a combination thereof, and the number of shares issued, excluding the 126,098 sharesrelated to the contingent consideration that were already issued and held in escrow, was based on a price per share of $18.77. On December 31, 2015, theCompany converted the contingent consideration to equity and issued 585,170 shares related to iSocket and 971,481 shares related to Chango.The Company’s pre-IPO preferred stock warrants were recorded at fair value and were determined to be Level 3 fair value items. The changes in thefair value of preferred stock warrants are summarized below: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Beginning balance $— $— $5,451Change in value of preferred stock warrants recorded in other expense, net — — 732Net exercise of preferred stock warrant and conversion of preferred stock warrantto common stock warrant — — (6,183)Ending balance $— $— $—The Company determined the fair value of the convertible preferred stock warrants utilizing the Black-Scholes model with the following weighted-average assumptions: Series BDecember 31, 2013 Series C December 31, 2013Risk-free interest rate 0.18% 0.13%Expected term (in years) 0.69 0.50Estimated dividend yield 2.00% 2.00%Weighted-average estimated volatility 64% 63%Fair value (in thousands) $173 $5,278104Table of ContentsThe Company’s contingent consideration liabilities were recorded at fair value and were determined to be Level 3 fair value items. The changes inthe fair value of the contingent consideration liabilities are summarized below: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Beginning balance $— $11,448 $—Increase to contingent consideration liability related to the iSocket acquisition (SeeNote 7) — — 11,382Increase to contingent consideration liability related to the Chango acquisition (SeeNote 7) — 16,171 —Change in fair value of contingent consideration liabilities recorded in general andadministrative expense — 306 66Decrease in iSocket contingent consideration liability related to goodwilladjustment (See Note 7) — (2,317) —Issuance of shares associated with iSocket and Chango contingent consideration — (25,608) —Ending balance $— $— $11,448In connection with the Company’s IPO in April 2014, the outstanding warrant for 845,867 shares of the Company’s convertible preferred stock wasnet exercised, resulting in the issuance of 286,055 shares of common stock based on the IPO price of $15.00 per share and taking into account the 1-for-2reverse stock split. In connection with the IPO, the remaining warrant for 25,174 shares of convertible preferred stock was automatically converted into awarrant exercisable for 12,587 shares of common stock. See Note 12 regarding the exercise of a preferred stock warrant and the conversion of eachoutstanding share of preferred stock into one half of a share of common stock in connection with the Company's IPO. Following the closing of the Company’sIPO on April 7, 2014, the Company was no longer required to re-measure the converted common stock warrants to fair value and record any changes in thefair value of these liabilities in the Company's consolidated statement of operations. During the years ended December 31, 2016 and 2015, the Companyrecognized no expense, from the re-measurement of the warrants to fair value. During the year ended December 31, 2014 the Company recognized an expenseof $0.7 million, from the re-measurement of the warrants to fair value. The warrant exercisable for 12,587 shares of common stock was net exercised in June2014.For the year ended December 31, 2016, the Company recorded an impairment of intangible assets totaling $23.5 million. The fair value of the assetgroup was determined based on a discounted cash flow method, which reflects estimated future cash flows associated with the identified asset group at themeasurement date, and falls within Level 3 of the fair value hierarchy. The intangible assets were determined to be fully impaired and were written down totheir fair values of zero.For the years ended December 31, 2015 and 2014, no impairments were recorded on those assets required to be measured at fair value on a non-recurring basis.Note 10—Accounts Payable and Accrued ExpensesAccounts payable and accrued expenses included the following: December 31, 2016 December 31, 2015 (in thousands)Accounts payable—seller$197,261 $228,850Accounts payable—trade7,930 6,962Accrued employee-related payables9,712 12,155Total$214,903 $247,967At December 31, 2016 and 2015, accounts payable—seller are recorded net of zero and $0.7 million, respectively, due from sellers for servicesprovided by the Company to sellers, where the Company has the right of offset.Note 11—DebtThe Company has a loan and security agreement with Silicon Valley Bank, or the Loan Agreement, that provides a senior secured revolving creditfacility of up to $40.0 million with a maturity date of September 27, 2018. An unused revolver fee in the amount of 0.15% per annum of the average unusedportion of the revolver line is charged and is payable monthly in arrears. The105Table of ContentsCompany may elect for advances to bear interest calculated by reference to prime or LIBOR. If the Company elects LIBOR, amounts outstanding under theamended credit facility bear interest, at a rate per annum equal to LIBOR plus 2.0% if the Company maintains a net cash balance exceeding $1. If theCompany elects prime, advances bear interest at a rate of prime plus 0% if the Company maintains a net cash balance exceeding $1 or prime plus 1.50% if theCompany does not maintain a net cash balance of $1.The Loan Agreement is collateralized by security interests in substantially all of the Company’s assets. The Loan Agreement restricts the Company’sability to pay dividends, sell assets, make changes to the nature of the business, engage in mergers or acquisitions, incur, assume or permit to exist, additionalindebtedness and guarantees, create or permit to exist, liens, make distributions or redeem or repurchase capital stock, or make other investments, engage intransactions with affiliates, make payments with respect to subordinated debt, and enter into certain transactions without the consent of the financialinstitution. The Company is required to maintain a lockbox arrangement where customer payments received in the lockbox will reduce the amountsoutstanding on the credit facility only if the Company does not maintain a net cash balance of $1 or in the event of a default, as defined in the arrangement.The Loan Agreement requires the Company to comply with financial covenants including minimum levels of adjusted tangible net worth and afixed charge coverage ratio, as well as certain affirmative covenants. In the event the amount available to be drawn is less than 20% of the maximum lineamount of the credit facility, or in the event that a default exists, the Company is required to satisfy a minimum fixed charge coverage ratio of no less than1.10 to 1.00 calculated on a twelve month trailing basis as of the last day of each month on a consolidated basis. The Company was in compliance with thecovenants as of December 31, 2016 and 2015.The Loan Agreement includes customary events of defaults, including a change of control default and an event of default in the event a materialadverse change occurs. In case of such an event of default, Silicon Valley Bank would be entitled to, among other things, accelerate payment of amounts dueunder the credit facility and exercise all rights of a secured creditor.At December 31, 2016, $40.0 million was available for borrowing under the credit facility and no amounts were outstanding under this loan.Note 12—CapitalizationAt December 31, 2013, the authorized capital stock of the Company consisted of 73,380,126 shares of common stock, of which 32,500,000 shareswere designated Class A common stock and 4,190,063 shares were designated Class B common stock, and 29,691,524 shares of preferred stock. On March 14,2014 the authorized capital stock of the Company was increased to 80,608,856 shares of common stock. In connection with the IPO, the outstanding sharesof Class A common stock and Class B common stock were converted into shares of a single class of common stock on a one-for-one basis. Class A commonstock and Class B common stock are collectively referred to herein as common stock.Initial Public Offering On April 7, 2014, the Company closed its IPO whereby 6,432,445 shares of common stock were issued and sold by the Company (including1,015,649 shares sold pursuant to the underwriters’ exercise of their over-allotment option), and 1,354,199 shares of common stock were sold by sellingstockholders at an IPO price of $15.00 per share. The Company received proceeds from the offering of approximately $86.2 million after deductingunderwriting discounts and commissions and offering expenses. The Company did not receive any proceeds from the sales of shares by the sellingstockholders.In connection with the Company’s IPO: (i) all shares of the Company’s outstanding convertible Series A, B, C and D preferred stock automaticallyconverted into an aggregate of 14,410,238 shares of Class A common stock on a one for one-half basis; (ii) each outstanding share of Class B common stockautomatically converted into one share of Class A common stock; (iii) all shares of Class A common stock (including all shares of Class A common stockissued upon conversion of convertible preferred stock and Class B common stock) converted into a single class of common stock; (iv) a warrant for 845,867shares of convertible preferred stock was net exercised, resulting in the issuance of 286,055 shares of common stock based on the IPO price of $15.00 pershare and taking into account the 1-for-2 reverse stock split; (v) a warrant exercisable for 25,174 shares of convertible preferred stock automatically convertedinto a warrant exercisable for 12,587 shares of common stock (which was subsequently net exercised); and (vi) the Company’s certificate of incorporationwas amended in various respects, including to provide for authorized capital stock of 500,000,000 shares of common stock and 10,000,000 shares ofpreferred stock. The board of directors is authorized to establish, from time to time, the number of shares to be included in each series of preferred stock, andto fix the designation, powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each series of preferred stock,and any of its qualifications, limitations or restrictions.106Table of ContentsIn addition, upon completion of the IPO, costs associated with the IPO of $3.5 million were reclassified from other assets, non-current to additionalpaid-in capital.Convertible Preferred StockAt December 31, 2013 the Company’s outstanding convertible preferred stock consisted of the following: December 31, 2013 SharesAuthorized SharesOutstanding CarryingValues LiquidationPreference (Dollars in thousands)Series A 6,154,000 6,154,000 $4,000 $6,118Series B 13,588,160 13,562,986 21,087 30,754Series C 4,765,173 3,919,306 9,484 12,779Series D 5,184,191 5,184,189 18,000 23,121Total 29,691,524 28,820,481 $52,571 $72,772Prior to the conversion of the preferred stock into common stock in April 2014, the rights and preferences of the convertible preferred stock were asfollows:Voting Rights: On any matters presented to the Company’s stockholders for their action or consideration, each holder of convertible preferred stockwas entitled to one vote for each share of Class A common stock into which such holder’s shares of convertible preferred stock were then convertible. Exceptas provided by law or the Company's amended and restated certificate of incorporation, the holders of the convertible preferred stock and Class A commonstock vote together as a single class.Dividends: The holders of the convertible preferred stock were entitled, when, as, and if declared by the board of directors, and prior and inpreference to common stock, to cumulative dividends at the following per annum rates (pro-rated for partial years elapsed): $0.052 per share for Series A,$0.1244480 per share for Series B, $0.1941832 per share for Series C, and $0.2844824 per share for Series D. Cumulative preferred stock dividends atDecember 31, 2013 were $19.7 million. Unless declared, dividends were not payable except in the event of a liquidation, dissolution or winding up of theCompany. No dividends had been declared or paid to date.Liquidation: In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company or a sale of the Company, theholders of the convertible preferred stock were entitled to receive out of the assets available for distribution to the Company’s stockholders, on a pari passubasis prior to distribution of any assets of the Company to the holders of common stock, an amount equal to the greater of (a) the original issuance price plusaccrued but unpaid dividends, or (b) such amount as would have been payable had the convertible preferred stock converted into common stock immediatelyprior to the liquidation, dissolution or winding up. If amounts available to be distributed were insufficient to pay the liquidation preferences of the preferredstock in full, then the entire assets and funds of the Company legally available for distribution would be distributed to the holders of convertible preferredstock ratably in proportion to the preferential amount each holder would have otherwise been entitled to receive. After payment of the liquidation preferencesto the convertible preferred stock, all remaining assets were to be distributed to the common stock.The liquidation preference provisions of the convertible preferred stock were considered contingent redemption provisions because there werecertain elements that were not solely within the control of the Company, such as a change in control of the Company. Accordingly, the Company presentedthe convertible preferred stock within the mezzanine portion of the accompanying consolidated balance sheets.Conversion: Each outstanding share of convertible preferred stock was convertible, at the holder’s option, into shares of Class A common stock at aconversion rate determined by dividing the original issue price for such share by the then Conversion Price for such share. The original issue price andconversion price of the each series of preferred stock were as follows: Original IssuePrice per share Conversion Priceper shareSeries A $0.65 $1.30Series B $1.55556 $3.11112Series C $2.42729 $4.85458Series D $3.55603 $7.11206107Table of ContentsThe conversion price was subject to adjustment in the event of certain anti-dilutive issuances of shares of common stock. The conversion price pershare in the table above reflects the adjustment for the 1-for-2 reverse stock split of the Company’s common stock effected on March 18, 2014.Each share of convertible preferred stock would automatically convert into shares of common stock at its then effective conversion rate immediatelyupon the earlier of (i) the closing of a firm commitment underwritten initial public offering pursuant to an effective registration statement under the SecuritiesAct of 1933, as amended, with proceeds to the Company of not less than $20 million (net of underwriting discounts and commissions) based on a pre-offeringenterprise value of at least $250 million, (ii) or upon the consent of the holders on the date specified by a vote of at least 75% of all then-outstanding sharesof convertible preferred stock voting together as a single class on an as-converted to Class A common stock basis, provided that the Series C preferred stockshall not be converted as a result of such a vote without the consent of the holders of a majority of the shares of Series C preferred stock then outstanding, andthe Series D preferred stock shall not be converted as a result of such a vote without the consent of the holders of a majority of the shares of Series D preferredstock then outstanding.Redemption: The convertible preferred stock was not redeemable at the option of the holder.Convertible Preferred Stock WarrantsOn March 1, 2009, the Company issued a fully vested, non-forfeitable warrant to purchase 25,174 shares of the Company’s Series B preferred stockat an exercise price of $1.55556 per share. The warrant was issued to the Company’s bank, Silicon Valley Bank, in connection with securing an equipmentterm loan. The warrant was fully vested upon issuance and expires on March 1, 2019. The holder of the warrant has the right to include shares issued uponexercise of the warrant in certain registered offerings by the Company of its common stock. The fair value of the warrants at issuance was recorded as adeferred financing cost and was amortized over the term of the loan. In connection with the Company's IPO, this warrant was automatically converted into awarrant exercisable for 12,587 shares of common stock, and was net exercised in June 2014.On January 12, 2010, the Company issued a warrant to an investment bank to purchase 845,867 shares of the Company’s Series C preferred stock atan exercise price of $2.42729 per share. The warrant was issued for banking and financial advisory services provided to the Company. The warrant was fullyvested upon issuance and expired on the earliest of January 12, 2015, a firm commitment underwritten initial public offering if the lead underwriter requeststermination, or, under certain circumstances, a liquidation, dissolution, winding up or change in control as defined in the Company's amended and restatedcertificate of incorporation. The holder of the warrant had the right to exercise the warrant for cash or on a net issuance basis. In December 2013, the leadunderwriter of the Company's initial public offering requested the termination of the warrant in connection with the offering, and in March 2014, the warrantholder agreed to net exercise the warrant upon the consummation of the offering. In April 2014, the warrant was net exercised, resulting in the issuance of286,055 shares of common stock based on the IPO price of $15.00 per share and taking into account the 1-for-2 reverse stock split.Common Shares Reserved For IssuanceThe Company is required to reserve and keep available out of its authorized but unissued shares of common stock such number of shares sufficientto effect the contingent consideration and the conversion of all shares granted and available for grant under the Company’s stock award plans. The number ofshares of the Company's stock reserved for these purposes at December 31, 2016 was 12,116,233.Note 13—Accumulated Other Comprehensive LossThe components of accumulated other comprehensive loss were as follows (in thousands): Unrealized Gain (Loss) onInvestments, net of tax Foreign Currency Translation Accumulated OtherComprehensive LossBalance at December 31, 2014 $— $(8) $(8)Other comprehensive income (loss) (68) 61 (7)Balance at December 31, 2015 (68) 53 (15)Other comprehensive income (loss) 67 (325) (258)Balance at December 31, 2016 $(1) $(272) $(273)Note 14—Stock-Based CompensationIn connection with its IPO, the Company implemented its 2014 Equity Incentive Plan, or the 2014 Plan, which governs equity awards made toemployees and directors of the Company since the IPO. In connection with the acquisition of iSocket, the Company assumed the iSocket 2009 EquityIncentive Plan, or the iSocket Plan, which governs stock options issued to former108Table of ContentsiSocket employees and assumed by the Company. In November 2014, the Company approved the 2014 Inducement Grant Equity Incentive Plan, or theInducement Plan, which governs certain equity awards made to certain employees in connection with commencement of employment. In connection with theacquisition of Chango, the Company assumed Chango's 2009 Stock Option Plan, or the Chango plan, which governs stock options issued to former Changoemployees and assumed by the Company. All compensatory equity awards outstanding at December 31, 2016 were issued pursuant to the 2014 Plan, theiSocket Plan, the Chango Plan, the Inducement Plan, or the 2007 Stock Incentive Plan, or the 2007 Plan, which governs equity awards made to employeesand contractors of the Company prior to the IPO. The Company’s equity incentive plans provide for the grant of equity awards, including non-statutory orincentive stock options, restricted stock, and restricted stock units, to the Company's employees, officers, directors, and consultants. The Company's board ofdirectors administers the plans. Options outstanding vest based upon continued service at varying rates, but generally over four years from issuance with 25%vesting after one year of service and the remainder vesting monthly thereafter. Restricted stock and restricted stock units vest at varying rates, usually 25%vesting after one year of service and the remainder vesting semi-annually thereafter. Options, restricted stock, and restricted stock units granted under theplans accelerate under certain circumstances on a change in control, as defined in the governing plan. No further awards were made under the iSocket Plan,the Chango Plan, or the 2007 Plan; available shares under the iSocket Plan and the Chango Plan were rolled into the available share pool under the 2014Plan at the time of acquisition of each company, and available shares under the 2007 Plan were rolled into the available share pool under the 2014 Plan at thetime of the IPO. An aggregate of 3,254,098 shares remained available for issuance at December 31, 2016 under the plans. The 2014 Plan has an evergreenprovision pursuant to which the share reserve will automatically increase on January 1st of each year in an amount equal to 5% of the total number of sharesof capital stock outstanding on December 31st of the preceding calendar year, although the Company’s board of directors may provide for a lesser increase, orno increase, in any year. The Inducement Plan has a provision pursuant to which the share reserve may be increased at the discretion of the Company's boardof directors.During the year ended December 31, 2016, the Company early adopted the new accounting guidance that simplifies several aspects of theaccounting for share-based payments, including the Company's election to eliminate the requirement to estimate the number of awards that are expected tovest and, instead, account for forfeitures when they occur. The new standard requires the change be adopted using the modified retrospective approach. Assuch, the Company recorded a cumulative-effect adjustment of $0.7 million to increase the 2016 beginning of period accumulated deficit and additionalpaid-in capital balances. In addition, the new standard requires income tax benefits and deficiencies to be recognized as income tax expense or benefit in theincome statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. TheCompany recorded $7.5 million of net deferred tax assets related to net operating losses for income tax benefits as of January 1, 2016. The Company has afull valuation allowance, and thus the income tax consequences of the new standard did not have an impact on the consolidated financial statements. Excesstax benefits should be classified along with other income tax cash flows as an operating activity. The new standard also requires the presentation of cash paidby the employer for employee taxes as a financing activity. The Company has historically presented these items as financing activities, and thus the newstandard did not have an impact on the consolidated statement of cash flows.Stock OptionsA summary of stock option activity for the year ended December 31, 2016 is as follows:Shares UnderOption Weighted-Average Exercise Price Weighted- AverageContractual Life AggregateIntrinsic Value(in thousands) (in thousands)Outstanding at December 31, 20156,203 $9.76 Granted469 $13.41 Exercised(2,027) $7.03 Canceled(784) $12.06 Outstanding at December 31, 20163,861 $11.16 6.71 years $1,562Exercisable at December 31, 20162,707 $10.04 6.05 years $1,559The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 were $18.5 million, $28.3 million and$18.5 million, respectively.At December 31, 2016, the Company had unrecognized employee stock-based compensation expense relating to stock options of approximately$6.5 million, which is expected to be recognized over a weighted-average period of 1.9 years.The weighted-average grant date per share fair value of stock options granted in the years ended December 31, 2016, 2015 and 2014 were $6.29,$9.25 and $7.41, respectively.The Company estimates the fair value of stock options that contain service and/or performance conditions using the Black-109Table of ContentsScholes option pricing model. The weighted-average input assumptions used by the Company were as follows: Year Ended December 31, 2016 December 31, 2015 December 31, 2014Expected term (in years) 5.9 4.5 5.7Risk-free interest rate 1.47% 1.30% 1.75%Expected volatility 49% 47% 51%Dividend yield —% —% —%Restricted Stock A summary of restricted stock activity for the year ended December 31, 2016 is as follows: Number of Shares Weighted-AverageGrant Date FairValue (in thousands) Nonvested shares of restricted stock outstanding at December 31, 20151,479 $15.58Granted525 $12.15Canceled(433) $14.49Vested(458) $16.34Nonvested shares of restricted stock outstanding at December 31, 20161,113 $14.07The weighted-average grant date per share fair value of restricted stock with service conditions granted for the years ended December 31, 2016, 2015and 2014 was $13.26, $16.75 and $16.22, respectively. The fair value of restricted stock with service conditions that vested during the years endedDecember 31, 2016, 2015 and 2014 was $5.7 million, $9.8 million and $5.6 million, respectively. At December 31, 2016, the Company had unrecognizedstock-based compensation expense for restricted stock with service conditions of $6.4 million, which is expected to be recognized over a weighted-averageperiod of 2.4 years.In March 2014, the Company granted 280,000 shares of restricted stock to certain executives that vest based on certain stock price performancemetrics, beginning on the completion of the Company’s IPO in April 2014 over an estimated weighted-average period of 1.7 years. The grant date fair valueper share of the 280,000 shares of restricted stock was $13.15, which was estimated using a Monte-Carlo lattice model. The compensation expense will not bereversed if performance metrics are not obtained. At December 31, 2016, the Company had unrecognized stock-based compensation expense relating to theseshares of restricted stock of approximately $0.5 million, which is expected to be recognized over a weighted-average period of 4.4 years.In May 2015, the Company granted certain executives shares of restricted stock that vest based on certain stock price performance metrics. The grantdate fair value per share of restricted stock was $13.81, which was estimated using a Monte-Carlo lattice model. In February 2016, the Company grantedcertain executives shares of restricted stock that vest based on certain stock price performance metrics. The grant date fair value per share of restricted stockwas $11.07, which was estimated using a Monte-Carlo lattice model. At December 31, 2016, the Company had unrecognized employee stock-basedcompensation expense relating to these shares of restricted stock with market conditions of approximately $2.8 million, which is expected to be recognizedover a weighted-average period of 1.6 years. The compensation expense will not be reversed if the performance metrics are not met.Restricted Stock Units A summary of restricted stock unit activity for the year ended December 31, 2016 is as follows: Number of Shares Weighted-AverageGrant Date FairValue (in thousands) Nonvested shares of restricted stock units outstanding at December 31, 20152,647 $15.76Granted2,306 $12.66Canceled(1,105) $14.73Vested(945) $15.86Nonvested shares of restricted stock units outstanding at December 31, 20162,903 $13.63110Table of ContentsThe weighted-average grant date fair value per share of restricted stock units granted for the years ended December 31, 2016, 2015 and 2014 was$12.66, $16.45 and $13.22, respectively. The fair value of restricted stock units that vested during the years ended December 31, 2016, 2015 and 2014 was$11.5 million, $3.6 million and $0.1 million, respectively. At December 31, 2016, the intrinsic value of nonvested restricted stock units was $21.0 million. AtDecember 31, 2016, the Company had unrecognized stock-based compensation expense relating to restricted stock units of approximately $33.0 million,which is expected to be recognized over a weighted-average period of 3.0 years.Employee Stock Purchase PlanIn November 2013, the Company adopted the Company's 2014 Employee Stock Purchase Plan, or ESPP. The ESPP is designed to enable eligibleemployees to periodically purchase shares of the Company's common stock at a discount through payroll deductions of up to 10% of their eligiblecompensation, subject to any plan limitations. At the end of each six month offering period, employees are able to purchase shares at a price per share equalto 85% of the lower of the fair market value of the Company's common stock on the first trading day of the offering period or on the last trading day of theoffering period. Offering periods generally commence and end in May and November of each year.As of December 31, 2016, the Company has reserved 985,968 shares of its common stock for issuance under the ESPP. Shares reserved for issuancewill increase on January 1st of each year by the lesser of (i) a number of shares equal to 1% of the total number of outstanding shares of common stock on theDecember 31st immediately prior to the date of increase or (ii) such number of shares as may be determined by the board of directors.Stock-Based Compensation ExpenseTotal stock-based compensation expense recorded in the consolidated statements of operations was as follows: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Cost of revenue $344 $240 $166Sales and marketing 8,520 7,415 3,217Technology and development 5,788 4,963 2,228General and administrative 14,042 17,966 18,235Total stock-based compensation expense $28,694 $30,584 $23,846Note 15—Restructuring And Other Exit CostsRestructuring and other exit costs were a result of management's decision to streamline operations, prioritize resources for growth initiatives andincrease profitability. The following tables summarize restructuring and other exit costs (in thousands): Accrued restructuring and other exit costs at December 31, 2015$—Restructuring and other exit costs3,316Cash paid for restructuring and other exit costs(2,515)Accrued restructuring and other exit costs at December 31, 2016$801 Year EndedDecember 31, 2016 Outstanding at Restructuring and other exit costs: Employee termination costs$3,270Facility closing costs46Total restructuring and other exit costs$3,316Note 16—Income TaxesThe following are the domestic and foreign components of the Company’s income (loss) before income taxes for the years ended December 31,2016, 2015 and 2014:111Table of Contents Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Domestic $25,704 $15,723 $(19,081)International (48,617) (19,862) 580Loss before income taxes $(22,913) $(4,139) $(18,501)The following are the components of the provision (benefit) for income taxes for the years ended December 31, 2016, 2015 and 2014: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)Current: Federal $441 $196 $—State 713 90 16Foreign 613 367 308Total current provision 1,767 653 324Deferred: Federal — — (10)State (289) 1 (1)Foreign (6,338) (5,215) (141)Total deferred benefit (6,627) (5,214) (152)Total provision (benefit) for income taxes $(4,860) $(4,561) $172During the year ended December 31, 2016, the Company early adopted the new accounting guidance that simplifies several aspects of theaccounting for share-based payments, including the requirement for income tax benefits and deficiencies to be recognized as income tax expense or benefitin the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. TheCompany recorded $7.5 million of net deferred tax assets related to net operating losses for income tax benefits as of January 1, 2016. The Company has afull valuation allowance, and thus the new standard did not have an impact on the consolidated financial statements. Excess tax benefits should be classifiedalong with other income tax cash flows as an operating activity.The Company recorded an income tax benefit for the years ended December 31, 2016 and 2015 of $4.9 million and $4.6 million, respectively, andan income tax expense for the year ended December 31, 2014 of $0.2 million. The tax benefit for the year ended December 31, 2016 and 2015 is the result ofthe net operating losses generated by the Canadian operations.Set forth below is a reconciliation of the components that caused the Company’s provision (benefit) for income taxes to differ from amountscomputed by applying the U.S. Federal statutory rate of 34.0% for the years ended December 31, 2016, 2015 and 2014:112Table of Contents Year Ended December 31, 2016 December 31, 2015 December 31, 2014U.S. federal statutory income tax rate 34.0 % 34.0 % 34.0 %State income taxes, net of federal benefit (2.1)% (1.4)% (0.1)%Foreign income (loss) at other than U.S. rates (14.4)% (31.0)% 0.8 %Stock-based compensation expense 2.1 % (31.5)% (4.4)%Meals and entertainment (1.5)% (14.2)% (1.7)%Acquisition and related items — % (8.6)% (0.1)%Non-deductible gifts (0.1)% (0.8)% (0.1)%Research and development tax credits 7.2 % 42.3 % 4.7 %Tax effect of intercompany financing 4.9 % 11.2 % — %Other permanent items — % (0.5)% (1.6)%Provision (benefit) to return adjustments 0.6 % (9.4)% (0.2)%Change in valuation allowance (9.5)% 120.1 % (32.2)%Effective income tax rate 21.2 % 110.2 % (0.9)%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 liabilitiesas of December 31, 2016 and 2015: December 31, 2016 December 31, 2015 (in thousands)Deferred Tax Assets: Accrued liabilities $1,287 $1,777Stock-based compensation 7,381 7,737Net operating loss carryovers 21,375 18,609Tax credit carryovers 10,915 7,931Other 2,360 1,926Total deferred tax assets 43,318 37,980Less valuation allowance (39,491) (29,255)Deferred tax assets, net of valuation allowance 3,827 8,725Deferred Tax Liabilities: Fixed assets (3,764) (2,630)Intangible assets 468 (12,198)Other — —Total deferred tax liabilities (3,296) (14,828)Net deferred tax assets (liability) $531 $(6,103)The change in valuation allowance for the years ended December 31, 2016, 2015 and 2014 was $10.2 million, $3.2 million and $8.5 million,respectively.At December 31, 2016, the Company had U.S. federal net operating loss carryforwards, or NOLs, of approximately $37.9 million, which will begin toexpire in 2027. At December 31, 2016, the Company had state NOLs of approximately $57.2 million, which will begin to expire in 2027. At December 31,2016, the Company had foreign NOLs of approximately $23.2 million, which will begin to expire in 2026. At December 31, 2016, the Company had federalresearch and development tax credit carryforwards, or credit carryforwards, of approximately $8.3 million, which will begin to expire in 2027. AtDecember 31, 2016, the Company had state research and development tax credits of approximately $6.8 million, which carry forward indefinitely. AtDecember 31, 2016, the Company had foreign research tax credits of approximately $0.7 million, which carry forward indefinitely.Utilization of certain NOLs and credit carryforwards may be subject to an annual limitation due to ownership change limitations set forth in theInternal Revenue Code of 1986, as amended, or the Code, and comparable state income tax laws. Any future annual limitation may result in the expiration ofNOLs and credit carryforwards before utilization. A prior ownership change113Table of Contentsand certain acquisitions resulted in the Company having NOLs subject to insignificant annual limitations. At December 31, 2016, unremitted earnings of thesubsidiaries outside of the United States were approximately $2.8 million, on which no U.S. taxes had been paid. The Company’s intention is to indefinitelyreinvest these earnings outside the United States. Upon distribution of those earnings in the form of a dividend or otherwise, the Company would be subjectto both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries. The amounts of suchtax liabilities that might be payable upon repatriation of foreign earnings, after consideration of corresponding foreign tax credits, are not material.The following table summarizes the activity related to the unrecognized tax benefits (in thousands): Amount (in thousands)Balance at January 1, 2014 $1,454Increases related to 2014 tax positions 679Decreases related to prior year tax positions (2)Balance as of December 31, 2014 2,131Increases related to 2015 tax positions 2,194Decreases related to prior year tax positions —Balance as of December 31, 2015 4,325Increases related to current year tax positions 702Decreases related to prior year tax positions —Balance as of December 31, 2016 $5,027Interest and penalties related to the Company’s unrecognized tax benefits accrued at December 31, 2016, 2015 and 2014 were not material.Due to the net operating loss carryforwards, the Company's United States federal and a majority of its state returns are open to examination by theInternal Revenue Service and state jurisdictions for all years since inception. For Australia, Brazil, Canada, Germany, Italy, Japan, Singapore, and the UnitedKingdom, all tax years remain open for examination by the local country tax authorities, while for France only 2014 forward are open for examination.The Company does not expect its uncertain income tax positions to have a material impact on its consolidated financial statements within the nexttwelve months.Note 17—Geographic InformationRevenue by geography are based on the location of the Company's sellers. The Company's revenue by geographical region was as follows: Year Ended December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)United States only $182,777 $172,188 $73,277United Kingdom 20,778 20,355 16,047Other international 74,666 55,941 35,971Total $278,221 $248,484 $125,295The Company’s property and equipment, net by geographical region was as follows: December 31, 2016 December 31, 2015 December 31, 2014 (in thousands)United States $29,032 $21,782 $12,680Other international 7,214 3,621 2,516Total $36,246 $25,403 $15,196114Table of ContentsNote 18—Commitments and ContingenciesOperating LeasesThe Company has commitments under non-cancelable operating leases for facilities, certain equipment, and its managed data center facilities. Totalrental expenses were $17.3 million, $13.3 million and $7.6 million for the years ended December 31, 2016, 2015 and 2014, respectively. Rental expense forsublease rentals were $3.0 million, $1.7 million and $1.4 million for the years ended December 31, 2016, 2015 and 2014, respectively. During the year endedDecember 31, 2016, in connection with office leases, the Company entered into a new irrevocable letter of credit in the amount of $0.5 million. Asof December 31, 2016, $2.9 million of letters of credit associated with office leases were outstanding, of which none were issued.The following table summarizes the Company's future minimum lease payments under non-cancelable operating leases and related subleaseincome at December 31, 2016: 2017 2018 2019 2020 2021 Thereafter Total (in thousands)Operating lease obligations $8,128 $8,530 $6,373 $3,305 $1,227 $668 $28,231Operating sublease income (601) (382) (96) — — — (1,079)Total $7,527 $8,148 $6,277 $3,305 $1,227 $668 $27,152Purchase ObligationsThe Company’s purchase obligations were $0.3 million as of December 31, 2016.Guarantees and IndemnificationThe Company’s agreements with sellers, buyers, and other third parties typically obligate it to provide indemnity and defense for losses resultingfrom claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities. Generally these indemnity and defenseobligations relate to the Company’s own business operations, obligations, and acts or omissions. However, under some circumstances, the Company agrees toindemnify and defend contract counterparties against losses resulting from their own business operations, obligations, and acts or omissions, or the businessoperations, obligations, and acts or omissions of third parties. For example, because the Company’s business interposes the Company between buyers andsellers in various ways, buyers often require the Company to indemnify them against acts and omissions of sellers, and sellers often require the Company toindemnify them against acts and omissions of buyers. In addition, the Company’s agreements with sellers, buyers, and other third parties typically includeprovisions limiting the Company’s liability to the counterparty, and the counterparty’s liability to the Company. These limits sometimes do not apply tocertain liabilities, including indemnity obligations. These indemnity and limitation of liability provisions generally survive termination or expiration of theagreements in which they appear. The Company has also entered into indemnification agreements with its directors, executive officers and certain otherofficers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service asdirectors, officers or employees. No material demands have been made upon the Company to provide indemnification under such agreements and there are noclaims that the Company is aware of that could have a material effect on the Company’s consolidated financial statements.LitigationThe Company and its subsidiaries may from time to time be parties to legal or regulatory proceedings, lawsuits and other claims incident to theirbusiness activities and to the Company’s status as a public company. Such matters may include, among other things, assertions of contract breach orintellectual property infringement, claims for indemnity arising in the course of the Company’s business, regulatory investigations or enforcementproceedings, and claims by persons whose employment has been terminated. Such matters are subject to many uncertainties, and outcomes are notpredictable with assurance. Consequently, management is unable to ascertain the ultimate aggregate amount of monetary liability, amounts which may becovered by insurance or recoverable from third parties, or the financial impact with respect to such matters as of December 31, 2016. However, based onmanagement’s knowledge as of December 31, 2016, management believes that the final resolution of these matters known at such date, individually and inthe aggregate, will not have a material adverse effect upon the Company’s consolidated financial position, results of operations or cash flows.Employment ContractsThe Company has entered into severance agreements with certain employees and officers. The Company may be required to pay severance andaccelerate the vesting of certain equity awards in the event of involuntary terminations.Note 19—Related Party Transactions115Table of ContentsAs of December 31, 2016, there were no holders of more than 10% of the Company’s outstanding common stock that were considered to be relatedparties.For the years ended December 31, 2015 and 2014, the Company recognized revenue of approximately $3.3 million and $1.9 million, respectively,from entities affiliated with a holder of more than 10% of the Company’s outstanding common stock. At December 31, 2015 accounts payable and accruedexpenses included $6.5 million related to these revenue transactions.For the year ended December 31, 2015 there were $0.5 million accounts payable and accrued expenses related to the sublease for its headquarters inLos Angeles, California with an entity affiliated with a holder of more than 10% of the Company's outstanding common stock.Note 20—Subsequent EventsOn January 18, 2017, the Company announced its plans to cease providing intent marketing services and closed its Toronto, Canada office. Theintent marketing solution, which generated approximately $40.9 million in revenue during 2016, was not contributing enough revenue to justify theassociated costs. As a result, the Company recorded an impairment of its intangible assets relating to the Company's customer relationships and developedtechnology totaling $23.5 million, which is included in the consolidated statement of operations for the year ended December 31, 2016. In addition, theCompany incurred approximately $0.5 million in one-time employee-termination benefits.On February 22, 2017, the Company announced the final step in its restructuring to include a management transition plan, whereby seven seniorleaders will be leaving the Company following transition of their duties, which is already underway. This management restructuring is intended to focus andstreamline operations and enable the Company to reallocate and focus resources to invest in market share growth as well as technology and R&D for growthareas including mobile, video, orders, and the Company’s consumer initiative. The annualized cash compensation expense for the departing executives isapproximately $4.1 million.On March 14, 2017, the Company announced that Michael Barrett will be joining the Company as President and Chief Executive Officer.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures as defined in Rule 13a-15(e) under the Exchange Act. Our disclosure controls and procedures are designed to provide reasonableassurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act isaccumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules andforms. There is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. Based upon the evaluation describedabove, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2016, our disclosure controls and procedures wereeffective at the reasonable assurance level.Changes in Internal Control over Financial ReportingThere have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2016 thathave materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Management's Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) ofthe Exchange Act).Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "InternalControl - Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation,management concluded that the Company's internal control over financial reporting was effective as of December 31, 2016.116Table of ContentsInherent Limitations on Effectiveness of Controls Management recognizes that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance thatthe objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and thatmanagement is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherentlimitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, havebeen detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of asimple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or bymanagement override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of futureevents, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls maybecome inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherentlimitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.Item 9B. Other InformationNot applicable.117Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe information required by Item 10 will be included in our Proxy Statement for the 2017 Annual Meeting of Stockholders to be filed with the SECwithin 120 days of the fiscal year ended December 31, 2016, or the 2017 Proxy Statement, and is incorporated herein by reference.Item 11. Executive CompensationThe information required by Item 11 will be included in the 2017 Proxy Statement and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by Item 12 will be included in the 2017 Proxy Statement and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by Item 13 will be included in the 2017 Proxy Statement and is incorporated herein by reference.Item 14. Principal Accounting Fees and ServicesThe information required by Item 14 will be included in the 2017 Proxy Statement and is incorporated herein by reference.PART IVItem 15. Exhibits, Financial Statement Schedules(a) We have filed the following documents as part of this Annual Report on Form 10-K:1. Consolidated Financial StatementsReport of Independent Registered Public Accounting Firm76Consolidated Balance Sheets77Consolidated Statements of Operations78Consolidated Statements of Comprehensive Income (Loss)79Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)80Consolidated Statements of Cash Flows82Notes to Consolidated Financial Statements832. Financial Statement SchedulesNo financial statement schedules are provided because the information called for is not required or is shown in the financial statements of thenotes thereto.3. Exhibits See the Exhibit index immediately following the signature page of this Annual Report on Form 10-K.Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report onForm 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. THE RUBICON PROJECT, INC.(Registrant) /s/ David Day David Day Chief Financial Officer and Chief Accounting Officer(Principal Financial Officer and Principal Accounting Officer) Date: March 14, 2017Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated:NameTitleDate/s/ Frank AddanteChief Executive Officer and Director(Principal Executive Officer)March 14, 2017Frank Addante/s/ David DayChief Financial Officer and Chief Accounting Officer(Principal Financial Officer and Principal Accounting Officer)March 14, 2017David Day/s/ Robert J. FrankenbergDirectorMarch 14, 2017Robert J. Frankenberg/s/ Sumant MandalDirectorMarch 14, 2017Sumant Mandal/s/ Gregory R. RaifmanDirectorMarch 14, 2017Gregory R. Raifman/s/ Robert F. SpillaneDirectorMarch 14, 2017Robert F. Spillane/s/ Lisa L. TroeDirectorMarch 14, 2017Lisa L. Troe/s/ Lewis W. ColemanDirectorMarch 14, 2017Lewis W. ColemanEXHIBIT INDEX Number Description 2.1 Agreement and Plan of Merger, dated November 13, 2014, by and among the Registrant, Pluto 2014Acquisition Corp., iSocket, Inc., Shareholder Representative Services LLC, solely in its capacity as the initialHolder Representative thereunder, and certain persons delivering joinder agreements therewith (incorporatedby reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the Commission onNovember 17, 2014).†2.2 Arrangement Agreement, dated March 31, 2015, by and among the Registrant, Chango Inc., 2459502 OntarioInc., the Supporting Shareholders, Fortis Advisors LLC, as the Securityholder Representative, and certainpersons delivering joinder agreements therewith (incorporated by reference to Exhibit 2.1 to the Registrant'sCurrent Report on Form 8-K filed with the Commission on March 31, 2015).†2.3 Amendment Agreement, dated April 20, 2015, by and among the Registrant, Chango Inc., and Fortis AdvisorsLLC, as the Securityholder Representative (incorporated by reference to Exhibit 2.1 to the Registrant's CurrentReport on Form 8-K filed with the Commission on April 27, 2015).3.1 Sixth Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference toExhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on May 15, 2014).3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant'sCurrent Report on Form 8-K filed with the Commission on April 8, 2016).10.1+ The Rubicon Project, Inc. 2007 Stock Incentive Plan and forms of agreements for employees thereunder(incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1/A filed withthe Commission on March 20, 2014).10.2+ The Rubicon Project, Inc. 2014 Equity Incentive Plan, as amended and restated (incorporated by reference toExhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on April 8, 2016).10.3+ Form of Stock Option Grant Notice and Award Agreement for Employees under The Rubicon Project, Inc. 2014Equity Incentive Plan (incorporated by reference to Exhibit 10.2(B) to the Registrant's Annual Report on Form10-K filed with the Commission on March 6, 2015).10.4+ Form of Restricted Stock Unit Grant Notice and Award Agreement for Employees under The Rubicon Project,Inc. 2014 Equity Incentive Plan (incorporated by reference to Exhibit 10.2(C) to the Registrant's AnnualReport on Form 10-K filed with the Commission on March 6, 2015).10.5+ Form of Stock Option Grant Notice and Award Agreement for Non-Employee Directors under The RubiconProject, Inc. 2014 Equity Incentive Plan (incorporated by reference to Exhibit 10.2(D) to the Registrant'sAnnual Report on Form 10-K filed with the Commission on March 6, 2015).10.6+ Form of Restricted Stock Unit Grant Notice and Award Agreement for Non-Employee Directors under TheRubicon Project, Inc. 2014 Equity Incentive Plan (incorporated by reference to Exhibit 10.2(E) to theRegistrant's Annual Report on Form 10-K filed with the Commission on March 6, 2015).10.7+ Form Market Stock Award Notice and Award Agreement under The Rubicon Project, Inc. 2014 EquityIncentive Plan (incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K filedwith the Commission on March 4, 2016).10.8+ The Rubicon Project, Inc. 2014 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.2 tothe Registrant's Registration Statement on Form S-8 filed with the Commission on May 15, 2014).10.9+ Form of Enrollment Agreement under The Rubicon Project, Inc. 2014 Employee Stock Purchase Plan(incorporated by reference to Exhibit 10.3(B) to the Registrant's Annual Report on Form 10-K filed with theCommission on March 6, 2015).10.10+ The Rubicon Project, Inc. 2014 Inducement Grant Equity Incentive Plan, as amended and restated(incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with theCommission on April 8, 2016).10.11+ Form of Restricted Stock Unit Grant Notice under The Rubicon Project, Inc. 2014 Inducement Grant EquityIncentive Plan (incorporated by reference to Exhibit 4.7 to the Registrant's Registration Statement on Form S-8filed with the Commission on December 19, 2014).10.12+ Form of Stock Option Grant Notice under The Rubicon Project, Inc. 2014 Inducement Grant Equity IncentivePlan (incorporated by reference to Exhibit 4.8 to the Registrant's Registration Statement on Form S-8 filed withthe Commission on December 19, 2014).10.13+ Form of Restricted Stock Grant Notice under The Rubicon Project, Inc. 2014 Inducement Grant EquityIncentive Plan (incorporated by reference to Exhibit 4.9 to the Registrant's Registration Statement on Form S-8filed with the Commission on December 19, 2014).10.14+ The Rubicon Project, Inc. 2015 Executive Cash Incentive Plan (incorporated by reference to Exhibit A to theRegistrant's Definitive Proxy Statement on Schedule 14A filed with the Commission on April 2, 2015).10.15 Amended and Restated Investors' Rights Agreement, dated March 28, 2014, by and among The RubiconProject, Inc. and certain of its stockholders (incorporated by reference to Exhibit 10.3 to the Registrant'sRegistration Statement on Form S-1/A filed with the Commission on March 20, 2014).10.16+ Executive Employment Agreement, dated May 4, 2007, between adMonitor, Inc. and the Registrant's ChiefExecutive Officer, as amended December 14, 2007 (incorporated by reference to Exhibit 10.4 to theRegistrant's Registration Statement on Form S-1 filed with the Commission on February 4, 2014).10.17+ Offer Letter, dated January 17, 2013, between The Rubicon Project, Inc. and the Registrant's President(incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 filed with theCommission on February 4, 2014).10.18 Loan and Security Agreement, dated September 27, 2011, by and among Silicon Valley Bank, the Registrant,and the other Borrowers thereunder (incorporated by reference to Exhibit 10.7 to the Registrant's RegistrationStatement on Form S-1 filed with the Commission on February 4, 2014).10.19 Consent and Amendment to Loan and Security Agreement, dated May 22, 2012, by and among Silicon ValleyBank, the Registrant, and the other Borrowers thereunder (incorporated by reference to Exhibit 10.8 to theRegistrant's Registration Statement on Form S-1 filed with the Commission on February 4, 2014).10.20 First Amendment to Loan and Security Agreement, dated July 24, 2012, by and among Silicon Valley Bank,the Registrant, and the other Borrowers thereunder (incorporated by reference to Exhibit 10.9 to theRegistrant's Registration Statement on Form S-1 filed with the Commission on February 4, 2014).10.21 Assumption and Second Amendment to Loan and Security Agreement, dated September 14, 2012, by andamong Silicon Valley Bank, the Registrant, and the other Borrowers thereunder (incorporated by reference toExhibit 10.10 to the Registrant's Registration Statement on Form S-1 filed with the Commission on February 4,2014).10.22 Third Amendment to Loan and Security Agreement, dated September 28, 2012, by and among Silicon ValleyBank, the Registrant, and the other Borrowers thereunder (incorporated by reference to Exhibit 10.11 to theRegistrant's Registration Statement on Form S-1 filed with the Commission on February 4, 2014).10.23 Fourth Amendment to Loan and Security Agreement, dated February 8, 2013, by and among Silicon ValleyBank, the Registrant, and the other Borrowers thereunder (incorporated by reference to Exhibit 10.12 to theRegistrant's Registration Statement on Form S-1 filed with the Commission on February 4, 2014).10.24 Fifth Amendment to Loan and Security Agreement, dated September 30, 2013, by and among Silicon ValleyBank, the Registrant, and the other Borrowers thereunder (incorporated by reference to Exhibit 10.13 to theRegistrant's Registration Statement on Form S-1 filed with the Commission on February 4, 2014).10.25 Sixth Amendment to Loan and Security Agreement, dated December 19, 2013, by and among Silicon ValleyBank, the Registrant, and the other Borrowers thereunder (incorporated by reference to Exhibit 10.14 to theRegistrant's Registration Statement on Form S-1 filed with the Commission on February 4, 2014).10.26 Seventh Amendment to Loan and Security Agreement, dated July 29, 2015, by and among Silicon ValleyBank, the Registrant, and the other Borrowers thereunder (incorporated by reference to Exhibit 10.2 to theRegistrant's Quarterly Report on Form 10-Q filed with the Commission on August 5, 2015).10.27 Stock Pledge Agreement, dated October 3, 2013, by and between Silicon Valley Bank and the Registrant(incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form S-1 filed withthe Commission on February 4, 2014).10.28 First Amendment to Stock Pledge Agreement, dated July 29, 2015, by and between Silicon Valley Bank andthe Registrant (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Qfiled with the Commission on August 5, 2015).10.29 Stock Pledge Agreement, dated as of July 29, 2015, by and between Silicon Valley Bank and Rubicon ProjectUnlatch, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q filedwith the Commission on August 5, 2015).10.30 Additional Borrower Joinder Supplement, dated as of July 29, 2015, by and between Silicon Valley Bank, theRegistrant, and the Additional Borrowers thereunder (incorporated by reference to Exhibit 10.5 to theRegistrant's Quarterly Report on Form 10-Q filed with the Commission on August 5, 2015).10.31+ Form of Indemnification Agreement between the Registrant and each of its directors and executive officers(incorporated by reference to Exhibit 10.17 to the Registrant's Registration Statement on Form S-1/A filed withthe Commission on March 20, 2014).10.32+ Form of Executive Severance and Vesting Acceleration Agreement by and between the Registrant and certainof its executive officers (incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statementon Form S-1 filed with the Commission on February 4, 2014).10.33+ Form of Amendment No. 1 to Executive Severance and Vesting Acceleration Agreement by and between theRegistrant and certain of its executive officers (incorporated by reference to Exhibit 10.1 to the RegistrantQuarterly Report on Form 10-Q filed with the Commission on August 5, 2015).10.34 Sublease, dated January 9, 2013, by and between Fox Interactive Media, Inc. and the Registrant (incorporatedby reference to Exhibit 10.19 to the Company's Registration Statement on Form S-1 filed with the Commissionon February 4, 2014).21.1* List of Subsidiaries of The Rubicon Project, Inc.23.1* Consent of PricewaterhouseCoopers LLP.31.1* Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2* Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32*(1) Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.ins * XBRL Instance Document101.sch * XBRL Taxonomy Schema Linkbase Document101.cal * XBRL Taxonomy Calculation Linkbase Document101.def * XBRL Taxonomy Definition Linkbase Document101.lab * XBRL Taxonomy Label Linkbase Document101.pre * XBRL Taxonomy Presentation Linkbase Document * Filed herewith+ Indicates a management contract or compensatory plan or arrangement†Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplemental copies of any of theomitted schedules upon request by the Securities and Exchange Commission.(1) The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of theExchange Act of 1934, as amended (the "Exchange Act"), and is not to be incorporated by reference into any filing of The Rubicon Project, Inc. underthe Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, whether made before or after the date hereof, regardless of anygeneral incorporation language in such filing.EXHIBIT 21.1SUBSIDIARIES OF THE RUBICON PROJECT, INC.Rubicon Project Hopper, Inc. (Delaware) Rubicon Project Unlatch, Inc. (Delaware) Rubicon Project Turing, Inc. (Delaware) Advertising Automation Accelerator, LLC (Delaware) Rubicon Project Edison, Inc. (Delaware) Rubicon Project Curie, Inc. (Delaware) Rubicon Project Bell, Inc. (Delaware) Rubicon Project Franklin, Inc. (Delaware) 5monkeys, Inc. (Delaware) Audience Forensics, Inc. (Texas)Rubicon Project Daylight, Inc. (Delaware) Project Daylight, LLC (Delaware) The Rubicon Project Canada, Inc. (Canada) The Rubicon Project Ltd. (United Kingdom) The Rubicon Project GmbH (Germany) The Rubicon Project SARL (France) The Rubicon Project SRL (Italy) Rubicon Project K.K. (Japan) The Rubicon Project Singapore Pte. Ltd. (Singapore) The Rubicon Project Australia PTY Limited (Australia) Rubicon Project Serviços De Internet LTDA. (Brazil)EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S‑8 (No. 333-204012, 333-201174 and 333-195972) of TheRubicon Project, Inc. of our report dated March 14, 2017 relating to the financial statements, which appears in this Form 10‑K./s/ PricewaterhouseCoopers LLPLos Angeles, CAMarch 14, 2017Exhibit 31.1 Certification of Principal Executive Officerpursuant toExchange Act Rules 13a-14(a) and 15d-14(a),as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002I, Frank Addante, certify that: 1.I have reviewed this Annual Report on Form 10-K of The Rubicon Project, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on suchevaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Signature:/s/ Frank Addante Frank AddanteChief Executive Officer and Chairman of theBoard(Principal Executive Officer)Date: March 14, 2017 Exhibit 31.2 Certification of Principal Financial Officerpursuant toExchange Act Rules 13a-14(a) and 15d-14(a),as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 I, David Day, certify that: 1.I have reviewed this Annual Report on Form 10-K of The Rubicon Project, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on suchevaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Signature:/s/ David Day David DayChief Financial Officer and Chief AccountingOfficer(Principal Financial Officer)Date: March 14, 2017Exhibit 32 CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), Frank Addante, Chief Executive Officer and Chairman of the Board(Principal Executive Officer) of The Rubicon Project, Inc. (the "Company"), and David DAy, Chief Financial Officer and Chief Accounting Officer(Principal Financial Officer) of the Company, each hereby certifies that, to the best of his knowledge: 1. Our Annual Report on Form 10-K for the quarter ended December 31, 2016, to which this certification is attached as Exhibit 32 (the"Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Date: March 14, 2017 /s/ Frank Addante Frank AddanteChief Executive Officer and Chairman of theBoard(Principal Executive Officer) /s/ David Day David DayChief Financial Officer and Chief AccountingOfficer(Principal Financial Officer)The foregoing certifications are being furnished pursuant to 13 U.S.C. Section 1350. They are not being filed for purposes of Section 18 of theSecurities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, regardless of anygeneral incorporation language in such filing.

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