Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2016

 

OR

 

o       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to         

 

Commission File Number 001-35982

 

TREMOR VIDEO, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-5480343

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

1501 Broadway, Suite 801, New York, NY

 

10036

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (646) 723-5300

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during 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 filing requirements for the past 90 days. Yes x   No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  o

 

Accelerated filer x

 

 

 

Non-accelerated filer o
(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

As of November 3, 2016, there were 51,957,394 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

 

 

 



Table of Contents

 

TREMOR VIDEO, INC.

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

PAGE

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015

2

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited)

3

 

 

 

 

Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2016 and 2015 (unaudited)

4

 

 

 

 

Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2016 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)

6

 

Notes to Consolidated Financial Statements (unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A.

Risk Factors

33

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

34

 

 

 

Item 6.

Exhibits

35

 

 

 

SIGNATURES

 

 

 

 

CERTIFICATIONS

 

 

1



Table of Contents

 

Part I — FINANCIAL INFORMATION

 

Item 1. — Financial Statements

 

Tremor Video, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

September 30,

 

December 31,

 

 

 

2016

 

2015

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

47,552

 

$

59,887

 

Accounts receivable, net of allowance for doubtful accounts of $7 and $69 as of September 30, 2016 and December 31, 2015, respectively

 

60,364

 

70,778

 

Prepaid expenses and other assets

 

2,671

 

3,721

 

Total current assets

 

110,587

 

134,386

 

Long-term assets:

 

 

 

 

 

Deferred tax assets

 

3

 

 

Restricted cash

 

770

 

600

 

Property and equipment, net of accumulated depreciation of $10,134 and $6,716 as of September 30, 2016 and December 31, 2015, respectively

 

9,308

 

10,094

 

Intangible assets, net of accumulated amortization of $27,746 and $24,488 as of September 30, 2016 and December 31, 2015, respectively

 

8,128

 

11,469

 

Goodwill

 

10,863

 

10,781

 

Other assets

 

1,159

 

794

 

Total long-term assets

 

30,231

 

33,738

 

Total assets

 

$

140,818

 

$

168,124

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

49,053

 

$

58,742

 

Deferred rent, short-term

 

485

 

401

 

Contingent consideration on acquisition, short-term

 

1,608

 

987

 

Deferred revenue

 

48

 

108

 

Total current liabilities

 

51,194

 

60,238

 

Long-term liabilities:

 

 

 

 

 

Deferred rent

 

6,383

 

5,237

 

Contingent consideration on acquisition

 

 

443

 

Deferred tax liabilities

 

502

 

510

 

Other liabilities

 

 

264

 

Total liabilities

 

58,079

 

66,692

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001 par value: 250,000,000 shares authorized as of September 30, 2016 and December 31, 2015, respectively; 52,391,921 and 52,214,384 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively

 

5

 

5

 

Treasury stock, at cost — 799,508 and 0 shares, respectively

 

(1,516

)

 

Additional paid-in capital

 

282,630

 

279,136

 

Accumulated other comprehensive loss

 

(180

)

(55

)

Accumulated deficit

 

(198,200

)

(177,654

)

Total stockholders’ equity

 

82,739

 

101,432

 

Total liabilities and stockholders’ equity

 

$

140,818

 

$

168,124

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2



Table of Contents

 

Tremor Video, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended

 

Nine months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

41,281

 

$

41,624

 

$

112,953

 

$

122,080

 

Cost of revenue

 

22,698

 

24,024

 

60,952

 

70,277

 

Gross profit

 

18,583

 

17,600

 

52,001

 

51,803

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Technology and development

 

4,935

 

5,147

 

15,823

 

14,869

 

Sales and marketing

 

11,403

 

12,112

 

35,409

 

35,780

 

General and administrative

 

3,609

 

4,034

 

12,605

 

13,083

 

Depreciation and amortization

 

2,358

 

2,322

 

6,922

 

6,055

 

Impairment charges

 

 

22,665

 

 

22,665

 

Mark-to-market

 

6

 

 

1,095

 

 

 

Total operating expenses

 

22,311

 

46,280

 

71,854

 

92,452

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(3,728

)

(28,680

)

(19,853

)

(40,649

)

 

 

 

 

 

 

 

 

 

 

Interest and other (expense) income, net:

 

 

 

 

 

 

 

 

 

Interest expense

 

(4

)

(2

)

(19

)

(7

)

Other (expense) income, net

 

72

 

79

 

(213

)

102

 

Total interest and other (expense) income, net

 

68

 

77

 

(232

)

95

 

 

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes

 

(3,660

)

(28,603

)

(20,085

)

(40,554

)

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

(43

)

19

 

461

 

258

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(3,617

)

$

(28,622

)

$

(20,546

)

$

(40,812

)

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(.07

)

$

(0.55

)

$

(.39

)

$

(0.79

)

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

52,473,601

 

51,875,785

 

52,493,099

 

51,515,285

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



Table of Contents

 

Tremor Video, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

Nine months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Net loss

 

$

(3,617

)

$

(28,622

)

$

(20,546

)

$

(40,812

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(122

)

(125

)

(125

)

(176

)

Comprehensive loss

 

$

(3,739

)

$

(28,747

)

$

(20,671

)

$

(40,988

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

Tremor Video, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

(in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

 

Common Stock

 

Treasury

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders’

 

 

 

Share

 

Amount

 

Stock

 

Capital

 

Loss

 

Deficit

 

Equity

 

Balance as of December 31, 2015

 

52,214,384

 

$

5

 

$

 

$

279,136

 

$

(55

)

$

(177,654

)

$

101,432

 

Common stock issued for settlement of restricted stock unit awards (RSUs), net of 226,541 shares withheld to satisfy income tax withholding obligations

 

468,389

 

 

 

(105

)

 

 

(105

)

Common stock issuance in connection with employee stock purchase plan

 

350,283

 

 

 

500

 

 

 

500

 

Exercise of stock option awards

 

158,373

 

 

 

150

 

 

 

150

 

Treasury stock — repurchase of stock

 

(799,508

)

 

(1,516

)

 

 

 

(1,516

)

Stock-based compensation expense

 

 

 

 

2,949

 

 

 

2,949

 

Net loss

 

 

 

 

 

 

(20,546

)

(20,546

)

Foreign currency translation adjustment

 

 

 

 

 

(125

)

 

(125

)

Balance as of September 30, 2016

 

52,391,921

 

$

5

 

$

(1,516

)

$

282,630

 

$

(180

)

$

(198,200

)

$

82,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



Table of Contents

 

Tremor Video, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine months Ended

 

 

 

September 30,

 

 

 

2016

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(20,546

)

$

(40,812

)

Adjustments required to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Impairment charges

 

 

22,665

 

Depreciation and amortization expense

 

6,922

 

6,055

 

Loss from sublease

 

341

 

 

Bad debt recovery

 

(61

)

(8

)

Mark-to-market expense

 

1,095

 

 

Compensation expense related to the acquisition contingent consideration

 

2,751

 

 

Stock-based compensation expense

 

2,949

 

3,177

 

Stock-based long-term incentive compensation expense

 

 

262

 

Loss on disposal of property and equipment

 

23

 

 

Net changes in operating assets and liabilities:

 

 

 

 

 

Decrease (increase) in accounts receivable

 

10,590

 

(5,476

)

Decrease in contingent consideration on acquisition

 

(3,406

)

 

Decrease (increase) in prepaid expenses, other current assets and other long-term assets

 

682

 

(1,129

)

(Decrease) increase in accounts payable and accrued expenses

 

(9,815

)

8,009

 

Increase in deferred rent and security deposits payable

 

889

 

3,763

 

Decrease in deferred tax liability

 

(8

)

 

Increase in restricted cash

 

(170

)

 

(Decrease) increase in deferred revenue

 

(60

)

66

 

Net cash used in operating activities

 

(7,824

)

(3,428

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of property and equipment

 

(2,727

)

(7,154

)

Acquisition, net of cash acquired

 

 

(1,191

)

Net cash used in investing activities

 

(2,727

)

(8,345

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from common stock issuance

 

500

 

 

Decrease in contingent consideration on acquisition

 

(431

)

 

Proceeds from the exercise of stock options awards

 

150

 

106

 

Treasury stock — repurchase of stock

 

(1,516

)

 

Tax withholdings related to net share settlements of restricted stock unit awards (RSUs)

 

(405

)

(463

)

Net cash used in financing activities

 

(1,702

)

(357

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(12,253

)

(12,130

)

 

 

 

 

 

 

Effect of exchange rate changes in cash and cash equivalents

 

(82

)

(126

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

59,887

 

77,787

 

Cash and cash equivalents at end of period

 

$

47,552

 

$

65,531

 

 

 

 

 

 

 

Supplemental disclosure of cash flow activities:

 

 

 

 

 

Cash paid for income taxes

 

$

925

 

$

416

 

Cash paid for interest expense

 

$

10

 

$

5

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

Common stock issued for settlement of RSU’s

 

$

836

 

$

1,107

 

Contingent consideration on acquisition

 

$

 

$

956

 

Purchase of property and equipment in accounts payable and accrued expenses

 

$

110

 

$

157

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

1.       Organization and Description of Business

 

Tremor Video, Inc. (the “Company”) is an advertising technology company that provides software for video advertising effectiveness.  The Company’s buyer and seller platforms enable seamless transactions in a premium video marketplace by offering control and transparency to its clients.  The Company’s technology optimizes performance of video ad campaigns across all screens, including computers, smartphones, tablets and connected TVs, to make advertising more relevant to consumers and deliver maximum results for buyers and sellers.

 

On August 3, 2015 (the “Acquisition Date”), the Company acquired all of the outstanding shares of The Video Network Pty Ltd., an Australian proprietary limited company (“TVN”).  Refer to Note 6 for further discussion.

 

The Company is headquartered in the State of New York.

 

2.       Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements and footnotes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commissions (the “SEC”) regarding unaudited interim financial information.  In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s consolidated balance sheets, statements of operations, comprehensive loss and cash flows for the interim periods presented.  Operating results for the interim periods presented are not necessarily indicative of the results of operations to be expected for the full year or the results for any future periods due to seasonal and other factors.  Certain information and footnote disclosures normally included in the consolidated financial statements in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC.  Accordingly, these unaudited interim consolidated financial statements and footnotes should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company’s Form 10-K for the year ended December 31, 2015 filed with the SEC on March 15, 2016.

 

Prior Year Presentation

 

As discussed in our Form 10-K for the year ended December 31, 2015, filed with the SEC on March 15, 2016, the previously issued quarterly financial statements for the three and nine months ended September 30, 2015 have been restated to reflect the reporting of revenue attributable to the Company’s seller platform on a net instead of a gross basis.  The restatement has the effect of decreasing both revenue and cost of revenue in a like amount in such financial statements, and has no impact on reported gross profit and net loss.

 

Principles of Consolidation

 

The unaudited interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All significant inter-company balances and transactions have been eliminated in the accompanying unaudited interim consolidated financial statements.

 

Concentrations of Credit Risk

 

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

 

All of the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality.  The Company’s cash and cash equivalents may exceed federally insured limits at times.  The Company has not experienced any losses on cash and cash equivalents to date.

 

7



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

2.       Summary of Significant Accounting Policies (Continued)

 

The Company determines collectability by performing ongoing credit evaluations and monitoring its customers’ accounts receivable balances. For new customers and their agents, which may be advertising agencies or other third parties, the Company performs a credit check with an independent credit agency and may check credit references to determine creditworthiness. The Company only recognizes revenue when collection is reasonably assured.

 

During the three and nine months ended September 30, 2016 and 2015, there were no advertisers that accounted for more than 10% of revenue.  At September 30, 2016 and December 31, 2015, there were no advertisers that accounted for more than 10% of outstanding accounts receivable.

 

Recently Issued Accounting Pronouncements

 

FASB Accounting Standards Update No. 2016-15 — Classification of Certain Cash Receipts and Cash Payments

 

In August 2016, the FASB issued Accounting Standards Update (“ASU”), which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. This update is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that the update will have on its consolidated financial statements and related disclosures.

 

FASB Accounting Standards Update No. 2016-09 — Compensation — Stock Compensation (Topic 718)

 

In March 2016, the FASB issued Accounting Standards Update (“ASU”), which identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, with early adoption permitted.  The Company is currently evaluating the impact that the update will have on its consolidated financial statements and related disclosures.

 

FASB Accounting Standards Update No. 2016-02 — Leases (Topic 842)

 

In February 2016, the FASB issued an ASU, which clarifies and improves existing authoritative guidance related to leasing transactions.  This update will require the recognition of lease assets and lease liabilities on the balance sheet and disclosing information about material leasing arrangements.  This update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact that the update will have on its consolidated financial statements and related disclosures.

 

FASB Accounting Standards Update No. 2015-17 — Income Taxes (“Topic 740”): Balance Sheet Classification of Deferred Taxes

 

In November 2015, the FASB issued an ASU, which requires deferred tax assets and liabilities be classified and presented as non-current on the balance sheet. This update is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company adopted this update in the fourth quarter of 2015 on a prospective basis.  All prior year balances were not retrospectively adjusted.  The adoption of this update did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

FASB Accounting Standards Update No. 2015-16 — Business Combinations (“Topic 805”): Simplifying the Accounting for Measurement-Period Adjustments

 

In September 2015, the FASB issued an ASU, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Pursuant to this update, acquirers must recognize measurement-period adjustments in the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact that the update will have on its consolidated financial statements and related disclosures.

 

FASB Accounting Standards Update No. 2014-09 — Revenue from Contracts with Customers

 

In May 2014, the FASB issued an ASU that provides a comprehensive model for recognizing revenue with customers.  This update clarifies and replaces most existing revenue recognition guidance within U.S. GAAP and may be adopted retrospectively for all periods presented or adopted using a modified retrospective approach.  This update is effective for annual and interim periods beginning after December 15, 2016.  In July 2015, FASB deferred the effective date by one year to December 15, 2017 (beginning

 

8



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

2.       Summary of Significant Accounting Policies (Continued)

 

with the Company’s first quarter in 2018) and permitting early adoption of the standard, but not before the original effective date of December 15, 2016.  The Company is currently evaluating the adoption method to apply and the impact that the update will have on its consolidated financial statements and related disclosures.

 

FASB Accounting Standards Update No. 2014-15 — Presentation of Financial Statements—Going Concern

 

In August 2014, the FASB issued an ASU that provides accounting guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  This update is effective for annual and interim periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company is currently evaluating the adoption method to apply and the impact that the update will have on its consolidated financial statements and related disclosures.

 

3.       Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.  The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value.  If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.  The three-tiers are defined as follows:

 

·            Level 1. Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;

 

·            Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

 

·            Level 3. Unobservable inputs for which there is little or no market data requiring the Company to develop its own assumptions.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

33,675

 

$

 

$

 

$

33,675

 

$

41,584

 

$

 

$

 

$

41,584

 

Total assets

 

$

33,675

 

$

 

$

 

$

33,675

 

$

41,584

 

$

 

$

 

$

41,584

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration on acquisition liability(2)

 

$

 

 

$

 

 

$

1,608

 

$

1,608

 

$

 

$

 

$

1,430

 

$

1,430

 

Total liabilities

 

$

 

 

$

 

 

$

1,608

 

$

1,608

 

$

 

$

 

$

1,430

 

$

1,430

 

 


(1)         Money market funds are included within cash and cash equivalents in the Company’s consolidated balance sheets.  As short-term, highly liquid investments readily convertible to known amounts of cash, the Company’s money market funds have carrying values that approximates its fair value.  Amounts above do not include $13,877 and $18,303 of operating cash balances as of September 30, 2016 and December 31, 2015, respectively.

 

9



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

3.       Fair Value Measurements (Continued)

 

(2)         On the Acquisition Date, the Company acquired all of the outstanding shares of TVN.  In connection with the acquisition, the former stockholders of TVN (“TVN Sellers”) are eligible to receive future cash payments over a term of two years contingent on the operating performance of TVN in reaching certain financial milestones in each of the periods from July 1, 2015 to June 30, 2016 (the “Year 1 Earn-Out Period”) and the period from July 1, 2016 to June 30, 2017 (the “Year 2 Earn-Out Period”), a portion of which is also contingent on continued employment of certain TVN Sellers (the “TVN Employee Sellers”) by the Company. In estimating the fair value of the contingent consideration, the Company used a Monte-Carlo valuation model based on future expectations on reaching financial milestones, other management assumptions (including operating results, business plans, anticipated future cash flows, and marketplace data), and the weighted-probabilities of possible payments. These assumptions were based on significant inputs not observed in the market and, therefore, represent a Level 3 measurement. Subsequent to the date of acquisition, the Company re-measured the estimated fair value of the contingent consideration at each reporting date with any changes in fair value recorded in the Company’s statements of operations. Any changes in the unobservable inputs could significantly impact the estimated fair value of the contingent consideration.

 

Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

 

The following table represents the changes in the Company’s Level 3 instruments measured at fair value on a recurring basis for the nine months ended September 30, 2016:

 

 

 

2016

 

Beginning balance at January 1, 2016

 

$

1,430

 

Compensation expense(1) 

 

2,751

 

Mark-to-market expense(2) 

 

1,095

 

Contingent consideration payments(3) 

 

(3,837

)

Foreign currency translation adjustment

 

169

 

Ending balance at September 30, 2016

 

$

1,608

 

 


(1)         Represents contingent consideration attributable to the TVN Employee Sellers that has been recorded during the nine months ended September 30, 2016. As of September 30, 2016, the Company estimated the fair value of the remaining contingent consideration that may become due to the TVN Employee Sellers based on the performance of TVN during the Year 2 Earn-Out Period to be $3,250 Australian Dollars. The Company is recording this expense over the twelve month period ending June 30, 2017 and has recorded $813 Australian Dollars ($616 U.S. Dollars) for the three and nine month periods ended September 30, 2016 for the Year 2 Earn-Out Period. Refer to the table above regarding assumptions used for Level 3 instruments, and note 6 for further discussion of contingent consideration payments owed in connection with the Company’s acquisition of TVN.

 

(2)         Reflects expense incurred based on the Company’s re-measurement, at September 30, 2016, of the estimated fair value of the contingent consideration relating to the TVN Sellers that are not required to remain employed with the Company as a condition to earning such contingent consideration. Amounts recorded as mark-to-market expense relating to Level 3 instruments are recorded in operating expense.  Refer to the table above regarding assumptions used for Level 3 instruments, and note 6 for further discussion of contingent consideration payments owed in connection with the Company’s acquisition of TVN.

 

(3)         During the three months ended September 30, 2016, the Company paid the TVN Employee Sellers and other TVN Sellers, $2,741 and $1,096, respectively, based on the performance of TVN during the Year 1 Earn-Out Period.

 

10



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

4.       Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consisted of:

 

 

 

September 30,

 

December 31,

 

 

 

2016

 

2015

 

 

 

(unaudited)

 

 

 

Prepaid expenses and other current assets

 

$

1,400

 

$

2,790

 

Prepaid rent

 

20

 

165

 

Leasehold improvement incentives(1)

 

1,251

 

766

 

Total prepaid expenses and other current assets

 

$

2,671

 

$

3,721

 

 


(1)         This item represents amounts due to the Company related to its office lease for its new principal executive offices, with a corresponding amount recorded as part of deferred rent liability.

 

5.       Property and Equipment, Net

 

Property and equipment, net consisted of:

 

 

 

September 30,

 

December 31,

 

 

 

2016

 

2015

 

 

 

(unaudited)

 

 

 

Computer hardware

 

$

7,754

 

$

6,774

 

Furniture and fixtures

 

1,649

 

1,636

 

Leasehold improvements

 

8,441

 

6,863

 

Computer software

 

1,397

 

1,344

 

Office equipment

 

201

 

193

 

Total property and equipment

 

19,442

 

16,810

 

Less: accumulated depreciation

 

(10,134

)

(6,716

)

Total property and equipment, net of accumulated depreciation

 

$

9,308

 

$

10,094

 

 

The depreciation expense related to property and equipment was $1,213 and $1,036 for the three months ended September 30, 2016 and 2015, respectively, and $3,508 and $2,351 for the nine months ended September 30, 2016 and 2015, respectively.

 

For the three and nine months ended September 30, 2016, the Company recorded a net loss of $0 and $341, respectively on the subleasing of office space included within other (expense) income, net in the Company’s consolidated statements of operations.

 

The Company recorded a $566 (includes disposal costs of $22) impairment charge during the three and nine months ended September 30, 2015. This impairment charge represents the remaining net carrying value related to certain property and equipment located at its former headquarters, which were vacated in the second quarter of 2015, that were impaired during the third quarter of 2015 based on changes in expected use of the asset that indicated the carrying amount may not be recoverable.  Accordingly, the Company recorded a reduction of $2,251 to the cost and $1,707 to the accumulated depreciation balances

 

6.       Acquisition

 

On the Acquisition Date, the Company acquired all of the outstanding shares of TVN.  As consideration for the acquisition of the equity of TVN, the Company made an initial payment to the TVN Sellers of $3,040 Australian dollars ($2,217 U.S. dollars based on the currency exchange rate on the Acquisition Date), subject to certain adjustments as set forth in the acquisition agreement, and is required to make payments of $380 Australian dollars on each of the first and second anniversary of the closing, respectively. Subsequent to the Acquisition Date, the Company paid an additional $661 Australian dollars ($482 U.S. dollars based on the currency exchange rate on the payment date) to the TVN Sellers for certain working capital adjustments.

 

In addition, the TVN Sellers are eligible to receive future cash payments of up to $10,470 Australian Dollars over a term of two years contingent on the operating performance of TVN in reaching certain financial milestones in each of the Year 1 Earn-Out Period and Year 2 Earn-Out Period. As of the Acquisition Date, the Company estimated the fair value of the contingent consideration to be $2,822. During the three months ended September 30, 2016 the Company paid the TVN Sellers $4,990 Australian Dollars ($3,837 U.S. Dollars based on the currency exchange rate on the date of payment, August 16, 2016) based on the performance of TVN during the Year 1 Earn-Out Period.

 

11



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

6.       Acquisition (Continued)

 

As of September 30, 2016, the Company re-measured the fair value of the contingent consideration for the Year 2 Earn-Out Period to be $4,550 Australian Dollars ($3,464 U.S. Dollars). Refer to note 3 for further discussion on assumptions used to estimate the fair value of the contingent consideration.

 

For the TVN Employee Sellers, the payment of the contingent cash consideration is dependent upon continued employment through the date of payment. As a result, the fair value of the contingent cash consideration relating to such TVN Sellers was not recorded within goodwill and intangible assets as part of the purchase accounting; instead, such amounts have been or will be recorded within sales and marketing expenses over the Earn-Out Period.  For the TVN Sellers that are not required to maintain continued employment in order to earn contingent consideration, the Company recorded the contingent consideration as part of goodwill and intangible assets based on the fair value of the contingent consideration on the date of acquisition and subsequent changes in fair value are recorded as mark-to-market expense in the Company’s consolidated statements of operations. Refer to note 3 above.

 

The total consideration transferred in the acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed at the Acquisition Date, and are subject to adjustment during a measurement period of up to one year from the Acquisition Date. The measurement period provides the Company with the ability to adjust the fair values of acquired assets and liabilities assumed for new information that is obtained about events and circumstances that existed as of the Acquisition Date.  Goodwill recognized in the TVN acquisition is not deductible for tax purposes.

 

The results of operations of TVN have been included in the Company’s consolidated statements of operations since the Acquisition Date.

 

7.       Goodwill and Intangible Assets, Net

 

During the three months ended September 30, 2015, based on a decrease in the Company’s market capitalization below the carrying value of its net assets, the Company determined that an impairment indicator was present.  The Company performed an interim impairment test on its assets and, based on such test, recorded a goodwill impairment charge of $20,890 and an intangible asset impairment charge of $1,209 for the three and nine months ended September 30, 2015.

 

8.       Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consisted of:

 

 

 

September 30,

 

December 31,

 

 

 

2016

 

2015

 

 

 

(unaudited)

 

 

 

Trade accounts payable

 

$

37,900

 

$

42,692

 

Accrued compensation, benefits and payroll taxes(1)

 

4,597

 

8,423

 

Accrued cost of sales

 

5,370

 

5,127

 

Other payables and accrued expenses

 

1,186

 

2,500

 

Total accounts payable and accrued expenses

 

$

49,053

 

$

58,742

 

 


(1)         At December 31, 2015, accrued compensation, benefits and payroll taxes includes $491 of stock-based long-term incentive compensation expense related to the Company’s long-term sales incentive compensation plan for the 2015 plan year.  Payments earned under the plan for the 2015 plan year were made in stock-based awards to participants that were employed with the Company at June 30, 2016. This amount was paid in August 2016.

 

12



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

8.       Accounts Payable and Accrued Expenses  (Continued)

 

If any participant in the Company’s long-term sales incentive compensation plan was not employed on June 30, 2016, such participant forfeited any rights to receive payments under the plan for the 2015 plan year.  The Company terminated its long-term sales incentive compensation plan effective January 1, 2016.

 

9.       Changes in Accumulated Other Comprehensive (Loss) Income

 

The following tables provide the components of accumulated other comprehensive (loss) income:

 

 

 

Foreign

 

 

 

 

 

Currency

 

 

 

 

 

Translation

 

 

 

 

 

Adjustment

 

Total

 

Beginning balance at July 1, 2016

 

(58

)

$

(58

)

Other comprehensive loss(1)

 

(122

)

(122

)

Ending balance at September 30, 2016

 

$

(180

)

$

(180

)

 

 

 

Foreign

 

 

 

 

 

Currency

 

 

 

 

 

Translation

 

 

 

 

 

Adjustment

 

Total

 

Beginning balance at July 1, 2015

 

$

47

 

$

47

 

Other comprehensive loss(1)

 

(125

)

(125

)

Ending balance at September 30, 2015

 

$

(78

)

$

(78

)

 

 

 

Foreign

 

 

 

 

 

Currency

 

 

 

 

 

Translation

 

 

 

 

 

Adjustment

 

Total

 

Beginning balance at January 1, 2016

 

$

(55

)

$

(55

)

Other comprehensive loss(1)

 

(125

)

(125

)

Ending balance at September 30, 2016

 

$

(180

)

$

(180

)

 

 

 

Foreign

 

 

 

 

 

Currency

 

 

 

 

 

Translation

 

 

 

 

 

Adjustment

 

Total

 

Beginning balance at January 1, 2015

 

$

98

 

$

98

 

Other comprehensive loss(1)

 

(176

)

(176

)

Ending balance at September 30, 2015

 

$

(78

)

$

(78

)

 


(1)         For the three and nine months ended September 30, 2016 and 2015, there were no reclassifications to or from accumulated other comprehensive (loss) income.

 

13



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

10.       Commitments and Contingencies

 

Legal Contingencies

 

The Company is occasionally involved with various claims and litigation during the normal course of business. Reserves are established in connection with such matters when a loss is probable and the amount of such loss can be reasonably estimated. As of September 30, 2016 and December 31, 2015, no reserves were recorded.  The determination of probability and the estimation of the actual amount of any such loss are inherently unpredictable, and it is therefore possible that the eventual outcome of such claims and litigation could exceed the estimated reserves, if any.  Based upon the Company’s experience, current information and applicable law, it generally does not believe it is reasonably probable that any proceedings or possible related claims will have a material effect on its financial statements.

 

Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

 

In November 2013, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York (the “District Court”) against the Company, its directors and certain of its executive officers, alleging certain misrepresentations by the Company in connection with its initial public offering concerning its business and prospects.  On March 5, 2015, the District Court granted the Company’s motion to dismiss the lawsuit and entered judgment in the Company’s favor and on February 8, 2016, the United States Court of Appeals for the Second Circuit confirmed the judgment of the District Court.

 

11.  Stock-Based Compensation

 

The Company included stock-based compensation expense related to its stock-based awards in various operating expense categories for the three and nine months ended September 30, 2016 and 2015 as follows:

 

 

 

Three Months Ended

 

Nine months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

(unaudited)

 

Technology and development

 

$

237

 

$

209

 

$

699

 

$

641

 

Sales and marketing(1)

 

325

 

376

 

1,092

 

1,179

 

General and administrative

 

398

 

337

 

1,158

 

1,357

 

Total stock-based compensation expense

 

$

960

 

$

922

 

$

2,949

 

$

3,177

 

 


(1)         Includes $5 in stock-based compensation expense related to a non-employee consultant, which was settled in cash in lieu of stock during the nine months ended September 30, 2015.

 

14



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

11.  Stock-Based Compensation (continued)

 

Stock Option Awards Outstanding

 

The following table presents summary information of the Company’s stock option awards outstanding and exercisable under all plans as of September 30, 2016:

 

 

 

Number of

 

Weighted

 

 

 

Stock Option

 

Average

 

 

 

Awards

 

Exercise Price

 

 

 

Outstanding

 

Per Share

 

Stock option awards outstanding as of December 31, 2015(1)

 

7,006,472

 

$

3.79

 

Stock option awards granted(2)

 

325,000

 

1.69

 

Stock option awards forfeited

 

(538,272

)

4.57

 

Stock option awards exercised

 

(158,373

)

0.95

 

Stock option awards outstanding as of September 30, 2016

 

6,634,827

 

3.69

 

Stock option awards vested and exercisable as of September 30, 2016

 

5,068,777

 

4.04

 

 


(1)         Includes employment inducement awards granted to the Company’s newly appointed Chief Financial Officer (“CFO”), and Chief Technology Officer (“CTO”), on September 8, 2015 and October 20, 2015, respectively.  These awards were comprised of stock option awards issued to the CFO and CTO to purchase 570,000 shares of the Company’s common stock at an exercise price of $1.94 per share and 350,000 shares of the Company’s common stock at an exercise price of $1.90 per share, respectively. These awards were issued outside of the Company’s stockholder approved equity compensation plans, but are generally subject to the same terms and conditions as applied to awards granted under the Company’s 2013 Plan.

 

(2)         Includes employment inducement awards granted to the Company’s newly appointed Chief Marketing Officer (“CMO”) on September 26, 2016. These awards were comprised of stock option awards issued to the CMO to purchase 125,000 shares of the Company’s common stock at an exercise price of $1.59 per share. These awards were issued outside of the Company’s stockholder approved equity compensation plans, but are generally subject to the same terms and conditions as applied to awards granted under the Company’s 2013 Plan.

 

Stock option awards are generally granted at the fair market value of the Company’s common stock on the date of grant, generally vest over periods up to four years, have a one year cliff with monthly vesting thereafter, and have terms not to exceed 10 years.

 

15



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

11.  Stock-Based Compensation (Continued)

 

Other selected information is as follows:

 

 

 

Nine months Ended
September 30,

 

 

 

2016

 

2015

 

 

 

(unaudited)

 

Aggregate intrinsic value of stock option awards exercised

 

$

149

 

311

 

 

 

 

 

 

 

Weighted-average grant-date fair value per share of stock option awards granted

 

.57

 

.84

 

 

 

 

 

 

 

Cash proceeds received from stock option awards exercised

 

150

 

106

 

 

The fair value for stock option awards granted under all plans was estimated at the date of grant using a Black-Scholes option pricing model.  Calculating the fair value of the stock option awards requires subjective assumptions, including, but not limited to, the expected term of the stock option awards and stock price volatility. The Company estimates the expected life of stock option awards granted based on the simplified method, which the Company believes is representative of the actual characteristics of the awards. The Company estimates the volatility of its common stock on the date of grant based on the historic volatility of comparable companies in its industry.  Risk-free interest rates are based on yields from United States Treasury zero-coupon issues with a term consistent with the expected term of the awards in effect at the time of grant. Estimated forfeitures are based on actual historical pre-vesting forfeitures. The Company has never declared or paid any cash dividends and has no current plan to do so. Consequently, it used an expected dividend yield of zero.

 

There was $1,404 of total unrecognized compensation cost related to non-vested stock option awards granted under the Company’s equity incentive plans as of September 30, 2016.  This cost is expected to be recognized over a weighted-average period of 2.74 years.

 

Non-vested Restricted Stock Units (RSU) Awards Outstanding

 

The following table presents a summary of the Company’s non-vested restricted stock unit award activity under all plans and related information for the nine months ended September 30, 2016:

 

 

 

Number of

 

Weighted

 

 

 

Shares of

 

Average

 

 

 

Restricted

 

Grant Date

 

 

 

Stock Unit

 

Fair Value

 

 

 

Awards

 

Per Share

 

Non-vested restricted stock unit awards outstanding as of December 31, 2015

 

2,370,803

 

$

2.66

 

Restricted stock unit awards granted

 

2,764,731

 

1.81

 

Restricted stock unit awards forfeited

 

(762,977

)

2.22

 

Restricted stock unit awards vested

 

(694,930

)

2.41

 

Non-vested restricted stock unit awards outstanding as of September 30, 2016

 

3,677,627

 

2.09

 

 

There was $6,286 of total unrecognized compensation cost related to non-vested restricted stock unit awards granted under the Company’s equity incentive plans as of September 30, 2016.  This cost is expected to be recognized over a weighted-average period of 3.17 years.

 

Employee Stock Purchase Plan

 

In April 2014, the Company’s board of directors adopted the 2014 Employee Stock Purchase Plan (“2014 ESPP”), which was approved by the Company’s stockholders at the 2014 annual meeting of stockholders.  The 2014 ESPP allows eligible participants to purchase shares of the Company’s common stock generally at six-month intervals, or offering periods, at a price equal to 85% of the lower of (i) the fair market value at the beginning of the offering period or (ii) the fair market value at the end of the offering period, or the purchase date. The Company’s current offering period commenced in February 2016 and will end in August 2016.

 

16



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

11.  Stock-Based Compensation (Continued)

 

Employees purchase shares of common stock through payroll deductions, which may not exceed 15% of their total base salary.  The 2014 ESPP imposes certain limitations upon an employee’s right to purchase shares, including the following: (1) no employee may purchase more than 5,000 shares on any one purchase date and (2) no employee may purchase shares with a fair market value in excess of $25 in any calendar year.

 

During the nine months ended September 30, 2016, employees participated in two ESPP offerings for the six months ending in February and August. As part of these offerings, employees purchased 173,726 and 176,557 shares of common stock pursuant to the ESPP at an exercise price of $1.40 and $1.44 per share, respectively. No more than 2,000,000 shares of common stock are reserved for future issuance under the 2014 ESPP.

 

The fair value for each award under the 2014 ESPP is estimated at the date of grant, at the beginning of the offering period, using a Black-Scholes option pricing model.  Calculating the fair value of the ESPP awards requires subjective assumptions, including, but not limited to, the expected term of the ESPP award and stock price volatility. The Company estimates the expected life of the awards granted under the 2014 ESPP based on the duration of the offering periods, which is six months.  The Company estimates the volatility of its common stock on the date of grant based on the historic volatility of comparable companies in its industry. Risk-free interest rates are based on yields from United States Treasury zero-coupon issues with a term consistent with the expected term of the awards in effect at the time of grant. The Company has never declared or paid any cash dividends and has no current plan to do so. Consequently, it used an expected dividend yield of zero.

 

There was $62 of total unrecognized compensation cost related to awards under the 2014 ESPP as of September 30, 2016. This cost is expected to be recognized over a weighted-average period of less than one year.

 

12.  Stock Repurchases

 

On March 29, 2016 the Company announced that the Company’s Board of Directors approved a share repurchase program, under which the Company is authorized to purchase up to $15,000 of common stock over an eighteen month period commencing March 25, 2016. The repurchases may be made, from time to time, in the open market or by privately negotiated transactions, and are expected to be funded from cash on hand. The share repurchase program may be suspended, modified or discontinued at any time. During the three and nine months ending September 30, 2016, the Company has made open-market purchases totaling 621,528 and 799,508 shares of common stock, respectively for an aggregate purchase price of $1,183 and $1,516 respectively.

 

13.  Net Loss Per Share of Common Stock

 

 

 

Three Months Ended

 

Nine months Ended

 

 

 

September 30,

 

September 30,

 

 

 

 2016

 

2015

 

2016

 

2015

 

 

 

(unaudited)

 

Numerator:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(3,617

)

$

(28,622

)

$

(20,546

)

$

(40,812

)

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted-average number of shares of common stock outstanding for basic and diluted net loss per share

 

52,473,601

 

51,875,785

 

52,493,099

 

51,515,285

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(.07

)

$

(0.55

)

$

(.39

)

$

(0.79

)

 

17



Table of Contents

 

Tremor Video, Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

 

13.  Net Loss Per Share of Common Stock (Continued)

 

The following securities were outstanding during the periods presented below and have been excluded from the calculation of diluted net loss per share of common stock because the effect is anti-dilutive:

 

 

 

Three Months Ended

 

Nine months Ended

 

 

 

September 30,

 

September 30,

 

 

 

 2016

 

2015

 

2016

 

2015

 

 

 

(unaudited)

 

Warrants to purchase common stock

 

31,130

 

39,824

 

31,130

 

39,824

 

Stock option awards

 

6,634,827

 

6,790,097

 

6,634,827

 

6,790,097

 

Restricted stock unit awards

 

3,677,627

 

1,985,949

 

3,677,627

 

1,985,949

 

Total anti-dilutive securities

 

10,343,584

 

8,815,870

 

10,343,584

 

8,815,870

 

 

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

 

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (1) the unaudited interim consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (2) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2015 included in the Annual Report on Form 10-K filed with the SEC on March 15, 2016.  This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.  These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations.  Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors”, set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings, including our Annual Report on Form 10-K filed with the SEC on March 15, 2016.  You should not rely upon forward-looking statements as predictions of future events.  Furthermore, such forward-looking statements speak only as of the date of this report.  Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.  We will disclose material non-public information through one or more of the following channels: our investor relations website (http://investor.tremorvideo.com), the social media channels identified on our investor relations website, press releases, SEC filings, public conference calls and webcasts.

 

Overview

 

Tremor Video, Inc., we or us, provides software for video advertising effectiveness.  Our buyer and seller platforms enable seamless transactions in a premium video marketplace by offering control and transparency to our clients.  Our technology optimizes performance of video ad campaigns across all screens, including computers, smartphones, tablets and connected TVs, to make advertising more relevant for consumers and deliver maximum results for buyers and sellers of video advertising.

 

Our buyer platform enables advertisers, agencies and other buyers of advertising, which we collectively refer to as buyers, to discover, buy, optimize and measure the effectiveness of their video ad campaigns.  Our proprietary technology analyzes video content, detects viewer and system attributes, and leverages our large repository of stored and integrated third-party data to optimize the delivery of ad campaigns to achieve a broad spectrum of marketing goals — from targeted audience reach to more sophisticated goals such as engagement, brand lift and viewability.  Through our All-Screen optimization solution, buyers are able to choose a single campaign goal and our technology will optimize delivery of  the campaign across a broad inventory pool to find the right viewer wherever they may be watching video, eliminating the need to allocate campaign budgets to a specific screen or device.  Our advanced analytics suite enables buyers to gain a deep understanding of the drivers of campaign performance and obtain reporting on key brand performance metrics such as viewability, as well as TV-like metrics that measure reach and frequency of viewing by a particular audience.

 

We empower video ad buying however a buyer wants to transact. Buyers can purchase advertising on our buyer platform on a guaranteed and fully managed basis through the use of insertion orders. For these campaigns, our team of specialists manages the delivery of the campaign according to an agreed set of objectives at a pre-negotiated fixed price, and we are required to secure all inventory to fulfill the campaign.   In addition, buyers can transact directly on our buyer platform through the Tremor Video DSP, an intuitive and customizable user interface that allows them to actively manage the execution of their campaigns on a programmatic basis.  Campaigns run through the Tremor Video DSP are typically non-guaranteed and utilize our real-time bidding and optimization technology to maximize a buyer’s campaign spend for delivery against a given campaign objective.  The Tremor Video DSP is directly integrated with a number of video inventory sources, enabling buyers to dynamically purchase ad impressions through a robust auction environment as well as through private marketplaces that connect buyers directly to selected sellers.  The Tremor Video DSP can be accessed on a self-service basis or at varying levels of managed service, depending on the preferences of the buyer.

 

To better align our solutions with the brand performance needs of buyers on a given campaign, we offer a number of different pricing models through our buyer platform, including proprietary outcome-based pricing models such as cost per-engagement, or CPE, pricing where we are compensated only when viewers actively engage with buyers’ campaigns, or cost per brand-shift, or CPS, pricing, where we are compensated only when a campaign results in a positive shift in the consumer’s favorability or intent towards a brand.  Our outcome-based pricing models typically generate higher gross margins than other campaigns running through our buyer platform that are based on more traditional CPM (cost per thousand impressions) pricing models because we are often able to serve our clients’ outcome-based goals with a lower number of purchased impressions.

 

We also offer a seller platform, the Tremor Video SSP, which helps suppliers of video advertising inventory, or sellers, improve yield and maximize the value of their video inventory by enabling their programmatic sales efforts.  Sellers on the Tremor Video SSP can make inventory available to buyers through an open exchange where buyers bid on inventory in a robust auction environment, or through

 

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private marketplaces so that only a specific buyer or group of invited buyers have the opportunity to purchase inventory.  Through the Tremor Video SSP, we provide sellers with the tools and controls to manage their inventory across multiple devices and platforms and offer real-time reporting that allows sellers to effectively monitor bidding activity.  Buyers connect to sellers on the Tremor Video SSP through third-party demand side platforms that are integrated directly with our seller platform.  These server-to-server integrations significantly reduce latency and bid response time.  In addition, the Tremor Video SSP is one of many inventory sources that is connected to the Tremor Video DSP; accordingly, buyers on the Tremor Video DSP are able to dynamically purchase advertising inventory on the Tremor Video SSP.

 

In the first quarter of 2016, we determined, based on our review of relevant accounting guidance, that revenue attributable to the Tremor Video SSP should be reported net of costs of inventory rather than on a gross basis as had previously been reported.  As a result, we concluded that our previously issued quarterly financial statements as of and for each of the quarterly periods ending March 31, June 30, and September 30, 2015, should not be relied upon and should be restated to reflect the reporting of revenue attributable to the Tremor Video SSP on a net instead of a gross basis.  This correction had the effect of decreasing both revenue and cost of revenue in the same amount in our quarterly financial statements for each such period.  The restatement had no impact on our reported gross profit, net loss or Adjusted EBITDA for any period. Our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 15, 2016, included restated financial statements for each of the relevant periods and the financial statements included in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2015 reflect the restatement.

 

Advertising spend transacted on our platforms has grown significantly. During the three months ended September 30, 2016, as compared to the three months ended September 30, 2015, total spend (refer to “Key Metrics-Total spend”) increased 28.8%, from $49.3 million to $63.5 million. Over the same period, our revenue decreased slightly from $41.6 million to $41.3 million, while our gross margin increased from 42.3% to 45.0%. During the three months ended September 30, 2016, as compared to the three months ended September 30, 2015, our net loss decreased from $28.6 million to $3.6 and our Adjusted EBITDA (refer to “Key Metrics-Adjusted EBITDA”) increased from a loss of $1.5 million to a gain of $.03 million.

 

During the nine months ended September 30, 2016, as compared to the nine months ended September 30, 2015, total spend (refer to “Key Metrics-Total spend”) increased 24.7%,  from $135.9 million to $169.4 million. Over the same period, our revenue decreased from $122.1 million to $113.0 million, while our gross margin increased from 42.4% to 46.0%. During the nine months ended September 30, 2016, as compared to the nine months ended September 30, 2015, our net loss decreased from $40.8 million to $20.5 million, and our Adjusted EBITDA increased from a loss of $6.8 million to a loss of $5.4 million.

 

The decrease in our revenue and increase in our gross margin during the three and nine months ended September 30, 2016, compared to the three and nine months ended September 30, 2015, primarily reflects the change in the relative mix of the total spend being transacted through our buyer platform and our seller platform, the Tremor Video SSP. As noted above, revenue from the Tremor Video SSP is booked net of inventory costs, compared to revenue from our buyer platform, which we report on a gross basis. For the three and nine months ended September 30, 2015, our net loss included $22.7 million of non-cash impairment charges to goodwill, and certain intangible assets and property and equipment.

 

Key Metrics

 

We monitor the key metrics set forth in the table below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess our operational efficiencies. Total spend and Adjusted EBITDA are discussed immediately following the table below. Revenue, gross margin and net loss are discussed under the headings “Components of our Results of Operations.”

 

 

 

Three Months Ended

 

Nine months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016 

 

2015

 

2016

 

2015

 

 

 

(dollars in thousands)

 

 

 

(unaudited)

 

Revenue

 

$

41,281

 

$

41,624

 

$

112,953

 

$

122,080

 

Gross margin

 

45.0

%

42.3

%

46.0

%

42.4

%

Net loss

 

$

(3,617

)

$

(28,622

)

$

(20,546

)

$

(40,812

)

Total spend

 

$

63,474

 

$

49,273

 

$

169,373

 

$

135,948

 

Adjusted EBITDA

 

$

35

 

$

(1,515

)

$

(5,427

)

$

(6,767

)

 

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Total spend

 

We define total spend as the aggregate gross spend transacted through our platforms. Total spend does not represent revenue earned by us and is a non-GAAP financial measure.  We believe total spend is a meaningful measurement of our operating performance because it represents the total dollar volume being spent through our platforms, and our ability to increase gross profit and cash flow is strongly correlated to our ability to increase total spend.  Total spend is a key measure used by management to assess our market share and scale, and is used to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.  However, use of total spend has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. One of the limitations of total spend is that other companies, including companies in our industry, may calculate total spend or similarly titled measures differently, which reduces its usefulness as a measure of comparison to other companies in our industry.

 

The following table presents a reconciliation of revenue to total spend, the most directly comparable U.S. GAAP measure, for each of the periods indicated:

 

 

 

Three Months Ended

 

Nine months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016 

 

2015

 

2016

 

2015

 

 

 

 (dollars in thousands)

 

Revenue

 

$

41,281

 

$

41,624

 

$

112,953

 

$

122,080

 

Add: Seller platform inventory costs(1)

 

22,193

 

7,649

 

56,420

 

13,868

 

Total spend

 

$

63,474

 

$

49,273

 

$

169,373

 

$

135,948

 

 


(1)         We record revenue from our buyer platform on a gross basis, including costs of inventory.  Accordingly, for revenue generated from our buyer platform, total spend is equivalent to revenue.  We record revenue from our seller platform, the Tremor Video SSP net of inventory costs. Total spend through the Tremor Video SSP is equal to the revenue generated from the Tremor Video SSP plus associated costs of inventory.

 

Within total spend, we closely monitor the percentage contributions among the following operational metrics: programmatic; non-programmatic higher function; and non-programmatic media.   Programmatic includes all spend attributable to the Tremor Video SSP, Tremor Video DSP and agency trading desks.  We define non-programmatic higher-function as non-programmatic spend running through our buyer platform that utilizes our higher-function products, including our all-screen optimization solution, advanced data targeting solutions, and our proprietary outcome-based pricing models.  We define non-programmatic media as non-programmatic spend running through our buyer platform that is purchased without any of our higher-function products.  We track these operational metrics in order to better understand how our clients are transacting on our platforms, which informs decisions as to the allocation of resources and capital.  The table below shows the dollar and percentage contribution to total spend from each of programmatic; non-programmatic higher-function; and non-programmatic media.

 

 

 

Three Months Ended

 

Nine months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016 

 

2015

 

2016

 

2015

 

 

 

 (dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Programmatic spend

 

35,490

 

17,019

 

88,667

 

$

38,270

 

Non-programmatic higher-function spend

 

22,239

 

22,372

 

65,050

 

62,125

 

Non-programmatic media spend

 

5,745

 

9,882

 

15,656

 

35,553

 

Total spend

 

$

63,474

 

$

49,273

 

$

169,373

 

$

135,948

 

 

Total spend increased 28.8%, from $49.3 million during the three months ended September 30, 2015 to $63.5 million during the three months ended September 30, 2016, and increased 24.6% from $135.9 million during the nine months ended September 30, 2015 to $169.3 million during the nine months ended September 30, 2016. The increase in total spend was primarily driven by an increase in programmatic spend, which was partially offset by a decrease in non-programmatic media spend. Within programmatic spend, there was a substantial increase in spend running through our seller platform, which was partially offset by a decrease in programmatic spend from agency trading desks using our buyer platform on a managed service basis through insertion orders. We believe that programmatic spend will continue to increase in future periods, driven primarily by increases in spend from the Tremor SSP, partially offset by a decrease in spend from agency trading desks using our buyer platform on a managed service basis. We believe that total spend from

 

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non-programmatic media will continue to decline as a percentage of our total spend, as buyers continue to look towards automated solutions for the buying and selling of video advertising.

 

Adjusted EBITDA

 

Adjusted EBITDA represents our net loss before interest and other (income) expense, net, provision for income taxes, depreciation and amortization expense, and adjusted to eliminate the impact of non-cash stock-based compensation expense, non-cash stock-based long-term incentive compensation expense, impairment charges, executive severance costs, acquisition-related costs, litigation costs associated with class action securities litigation, mark-to-market expense and other adjustments.  Adjusted EBITDA is a key measure used by management to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.  In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and excludes items that we do not consider to be indicative of our core operating performance.

 

Adjusted EBITDA is a non-GAAP financial measure. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (a) although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash and capital expenditure requirements for such replacements or for new capital expenditure requirements; (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (c) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (d) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; (e) Adjusted EBITDA does not reflect litigation costs associated with class action securities litigation, executive severance costs, non-cash impairment charges, or costs related to other adjustments; and (f) other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.  Because of these and other limitations, you should consider Adjusted EBITDA alongside our other U.S. GAAP-based financial performance measures, net loss and our other U.S. GAAP financial results. The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable U.S. GAAP measure, for each of the periods indicated:

 

 

 

Three Months Ended

 

Nine months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016 

 

2015

 

2016

 

2015

 

 

 

 (dollars in thousands)

 

 

 

(unaudited)

 

Net loss

 

$

(3,617

)

$

(28,622

)

$

(20,546

)

$

(40,812

)

Adjustments:

 

 

 

 

 

 

 

 

 

Impairment charges(1)

 

 

22,665

 

 

22,665

 

Depreciation and amortization expense

 

2,358

 

2,322

 

6,922

 

6,055

 

Stock-based compensation expense

 

960

 

922

 

2,949

 

3,177

 

Executive severance costs(2)

 

(9

)

508

 

163

 

870

 

Other adjustments(3)

 

 

 

520

 

 

Acquisition-related costs(4)

 

616

 

337

 

2,764

 

559

 

Provision for income taxes

 

(43

)

19

 

461

 

258

 

Mark-to-market expense(5)

 

6

 

 

1,095

 

 

Litigation costs

 

13

 

226

 

194

 

294

 

Stock-based long-term incentive compensation(6)

 

(183

)

185

 

(183

)

262

 

Total interest and other expense (income), net

 

(68

)

(77

)

232

 

(95

)

Total net adjustments

 

3,650

 

27,107

 

15,117

 

34,045

 

Adjusted EBITDA

 

$

33

 

$

(1,515

)

$

(5,429

)

$

(6,767

)

 


(1)         Reflects $22.7 million of non-cash impairment charges to goodwill, and certain intangible assets and property and equipment.

(2)         Reflects severance costs related to the termination of certain executives.

(3)         Reflects amounts accrued in connection with a one-time change in our employee vacation policy.

(4)         Reflects acquisition-related costs incurred in connection with our acquisition of The Video Network Pty Ltd. (“TVN”).  Includes $616 and $2,751 for the three and nine months ended September 30, 2016, respectively of compensation-related expenses related to contingent consideration payments that have been paid or may become due to certain TVN sellers that are subject to continued employment.  Refer to notes 3 and 6 in notes to consolidated financial statements.

 

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(5)         Reflects expense incurred based on the Company’s re-measurement, at September 30, 2016, of the estimated fair value of contingent consideration payments that have been paid or may become due in connection with the acquisition of TVN and which are not conditioned on continued employment with the Company. Refer to notes 3 and 6 in notes to consolidated financial statements.

(6)         Reflects amounts accrued for the 2015 plan year, net of forfeitures.

 

Components of Operating Results

 

We operate in one segment, online video advertising services.  The key elements of our operating results include:

 

Revenue

 

We generate revenue from buyers and sellers who use our platforms for the purchase and sale of video advertising inventory.

 

Through our buyer platform, we generate revenue by delivering video advertising campaigns for buyers.   We offer a number of different pricing models for buyers, including outcome-based pricing models where we are compensated only when viewers take certain actions or when certain campaign results are achieved, CPM-based pricing models based on the total number of ad impressions delivered, and campaigns priced with a guaranteed demographic reach, or demo guarantees, where a buyer pays based on the number of ad impressions delivered to a specific demographic.  For campaigns sold on a CPM-basis we recognize revenue upon delivery of impressions, and for campaigns priced with demo guarantees we recognize revenue upon delivery of impressions to a specific target demographic.  With respect to our outcome-based pricing models, we recognize revenue only when the specified action is taken or campaign result is achieved.  Revenue generated from our buyer platform is reported on a gross basis, based primarily on our determination that we act as the primary obligor in the delivery of advertising campaigns for buyers on our buyer platform.

 

Through our seller platform, which was launched in 2015, we generate revenue by providing sellers with programmatic tools to improve yield and maximize the value of their video inventory. For transactions executed through our seller platform, we act as the agent on behalf of the seller that is making its inventory available to buyers.  Revenue is recognized when the buyer purchases video advertising inventory from the seller on our seller platform.  Revenue generated from the Tremor Video SSP is reported net of inventory costs that we remit to sellers.

 

In prior periods we also generated revenue through the licensing of our analytics.  The license fees for our licensed analytics solutions were based on the number of impressions being analyzed in a given month.  We have discontinued selling our licensed analytics solutions as of December 31, 2015.

 

Cost of Revenue, Gross Profit and Gross Margin

 

Our cost of revenue primarily represents video advertising inventory costs, research costs, third-party hosting fees, and third-party serving fees incurred to deliver video ads.  Cost of revenue also includes costs from our licenses from third-party data providers utilized in our platforms.  We recognize cost of revenue on a seller-by-seller basis upon delivery of an ad impression. Substantially all of our cost of revenue for our buyer platform is attributable to video advertising inventory costs under seller contracts. Cost of revenue from our seller platform primarily consists of third party hosting fees.

 

Certain of our contracts with sellers contain minimum percentage fill rates on qualified video ad requests, which effectively means that we must purchase this inventory from our exclusive publishers even if we lack a video advertising campaign to deliver.  We recognize the difference between our contractually required fill rate and the number of video ads actually delivered by us on the seller’s website, if any, as a cost of revenue as of the end of each applicable monthly period.  Historically, the impact of the difference between the contractually required fill rate and the number of ads delivered has not been material.  Costs owed to sellers but not yet paid are recorded in our consolidated balance sheets and included as part of accounts payable and accrued expenses.

 

Gross margin is our gross profit expressed as a percentage of our total revenue. For our buyer platform, our gross margin is primarily impacted by video advertising inventory costs associated with delivering our advertiser’s campaigns relative to the revenue we generate from delivering such campaigns. Historically our gross margin on our buyer platform has been positively affected by the relative contribution to our revenue from non-programmatic higher-function campaigns compared to non-programmatic media campaigns, which are purchased on a CPM or demo guaranteed basis. Because we book campaigns from our seller platform net of inventory costs, campaigns running through the Tremor Video SSP generate substantially higher margins than campaigns running through our buyer platform, which is reported on a gross basis. As a result, our gross margin is significantly influenced by the relative mix of revenue from

 

23



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our seller platform and buyer platform.

 

Operating Expenses

 

Operating expenses consist of technology and development, sales and marketing, general and administrative, and depreciation and amortization expenses.  Salaries, incentive compensation, stock-based compensation and other personnel-related costs are the most significant components of each of these expense categories other than depreciation and amortization expenses.  We include stock-based compensation expense in connection with the grant of stock option awards or restricted stock unit awards in the applicable operating expense category based on the respective equity award recipient’s function.

 

Technology and Development Expense. Technology and development expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for development, network operations and engineering personnel.  Additional expenses in this category include costs related to the development, quality assurance and testing of new technology and maintenance and enhancement of existing technology and infrastructure as well as consulting, travel and other related overhead.  We engage third-party consulting firms for various technology and development efforts, such as documentation, quality assurance and support.  Due to the rapid development and changes in our business, we have expensed technology and development expenses in the same period that the costs are incurred.  We intend to continue to invest in our technology and development efforts,  by strategically hiring additional personnel and by using outside consulting firms for various initiatives.  We believe continuing to invest in technology and development efforts is essential to maintaining our competitive position.

 

Sales and Marketing Expense.  Sales and marketing expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for our marketing, creative and sales and sales support employees.  Additional expenses in this category include marketing programs, consulting, travel and other related overhead.  We expect our sales and marketing expense to increase in the foreseeable future to support our continued growth.

 

General and Administrative Expense. General and administrative expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for business operations, administration, finance and accounting, legal, information systems and human resources employees.  Included in general and administrative expenses are consulting and professional fees, including legal, accounting and investor relations fees, insurance, and costs associated with compliance with the Sarbanes-Oxley Act and other public company corporate expenses, travel and other related overhead.  We expect our general and administrative expenses to increase in absolute dollars as a result of the continuing growth of our business.

 

Depreciation and Amortization Expense. Depreciation and amortization expense primarily consists of our depreciation expense related to investments in property, equipment and software as well as the amortization of certain intangible assets.

 

Mark-to-Market Expense. Mark-to-market expense consists primarily of expense related to contingent consideration incurred in connection with our acquisition of TVN in August 2015 (refer to notes 3 and 6 in notes to consolidated financial statements).

 

Impairment Charges.  Impairment charges consist of write downs to goodwill and intangible assets recorded in connection with interim impairment testing conducted on our goodwill and intangible asset balance during the three months ended September 30, 2015, as a result of certain interim impairment indicators that were present, as well as charges recorded in connection with the impairment of certain property and equipment located at our former headquarters that we vacated (refer to notes 5 and 7 in notes to consolidated financial statements).

 

Interest and Other (Expense) Income, Net

 

Interest and other (expense) income, net consist primarily of interest income, interest expense, and foreign exchange transaction gains and losses.  Interest income is derived from interest received on our cash and cash equivalents.  Interest expense consists primarily of the interest incurred on our then-outstanding borrowings under our credit facility.  As of September 30, 2016 and 2015, we did not have any outstanding borrowings under our credit facility.

 

Provision for Income Taxes

 

Provision for income taxes consists of minimum U.S. state and local taxes, income taxes in foreign jurisdictions in which we conduct business and deferred income taxes.

 

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Table of Contents

 

Results of Operations

 

The following table is a summary of our consolidated statements of operations data for each of the periods indicated.  The period-to-period comparisons of the results are not necessarily indicative of our results for future periods.

 

 

 

Three Months Ended

 

Nine months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

Percentage

 

 

 

Percentage

 

 

 

Percentage

 

 

 

Percentage

 

 

 

Amount

 

of Revenue

 

Amount

 

of Revenue

 

Amount

 

of Revenue

 

Amount

 

of Revenue

 

 

 

(dollars in thousands)

 

Consolidated Statements of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

41,281

 

100.0

%

$

41,624

 

100.0

%

$

112,953

 

100.0

%

$

122,080

 

100.0

%

Cost of revenue

 

22,698

 

55.0

 

24,024

 

57.7

 

60,952

 

54.0

 

70,277

 

57.6

 

Gross profit

 

18,583

 

45.0

 

17,600

 

42.3

 

52,001

 

46.0

 

51,803

 

42.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Technology and development

 

4,935

 

12.0

 

5,147

 

12.4

 

15,823

 

14.0

 

14,869

 

12.2

 

Sales and marketing

 

11,403

 

27.6

 

12,112

 

29.1

 

35,409

 

31.3

 

35,780

 

29.3

 

General and administrative

 

3,609

 

8.7

 

4,034

 

9.7

 

12,605

 

11.2

 

13,083

 

10.7

 

Depreciation and amortization

 

2,358

 

5.7

 

2,322

 

5.6

 

6,922

 

6.1

 

6,055

 

5.0

 

Mark-to-market

 

6

 

 

 

 

1,095

 

1.0

 

 

 

Impairment Charges

 

 

 

22,665

 

54.5

 

 

 

22,665

 

18.6

 

Total operating expenses

 

22,311

 

54.0

 

46,280

 

111.2

 

71,854

 

63.6

 

92,452

 

75.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(3,728

)

(9.0

)

(28,680

)

(68.9

)

(19,853

)

(17.6

)

(40,649

)

(33.3

)

Total interest and other (expense) income, net

 

68

 

0.1

 

77

 

0.2

 

(232

)

(.2

)

95

 

0.1

 

Loss before provision for income taxes

 

(3,660

)

(8.9

)

(28,603

)

(68.7

)

(20,085

)

(17.8

)

(40,554

)

(33.2

)

Provision for income taxes

 

(43

)

(0.1

)

19

 

0.1

 

461

 

0.4

 

258

 

0.2

 

Net loss

 

$

(3,617

)

(8.8

)%

$

(28,622

)

(68.8

)%

$

(20,546

)

(18.2

)%

$

(40,812

)

(33.4

)%

 

Comparison for the Three and Nine months Ended September 30, 2016 and 2015

 

 

 

Three Months Ended

 

Change

 

Nine months Ended

 

Change

 

 

 

September 30,

 

Increase/ (Decrease)

 

September 30,

 

Increase/ (Decrease)

 

 

 

2016

 

2015

 

Amount

 

Percentage

 

2016

 

2015

 

Amount

 

Percentage

 

 

 

(dollars in thousands)

 

Revenue

 

$

41,281

 

$

41,624

 

$

(343

)

(.8

)%

$

112,953

 

$

122,080

 

$

(9,127

)

(7.5

)%

 

Revenue

 

Our revenue during the three months ended September 30, 2016 decreased to $41.3 million from $41.6 million for the same period in 2015, despite an increase in total spend during the three months ended September 30, 2016 to $63.5 million from $49.3 million for the same period in 2015.  Refer to “Key Metrics-Total Spend”.

 

Our revenue during the nine months ended September 30, 2016 decreased to $113.0 million from $122.1 million for the same period in 2015, despite an increase in total spend during the nine months ended September 30, 2016 to $169.4 million from $136.0 million for the same period in 2015.  Refer to “Key Metrics-Total spend”.

 

The decrease in our revenue for the three and nine months ended September 30, 2016, compared to the three and nine months ended September 30, 2015, was primarily attributable to a change in the relative mix of the total spend being transacted through our buyer platform and the Tremor Video SSP. Revenue from the Tremor Video SSP is booked net of inventory costs, compared to revenue from our buyer platform, which we report on a gross basis. Accordingly, each dollar spent through our buyer platform equates to a dollar of recognized revenue, while for our seller platform only a fraction of each dollar spent is recognized as revenue.

 

 

 

Three Months Ended

 

Change

 

Nine months Ended

 

Change

 

 

 

September 30,

 

Increase / (Decrease)

 

September 30,

 

Increase / (Decrease)

 

 

 

2016

 

2015

 

Amount

 

Percentage

 

2016

 

2015

 

Amount

 

Percentage

 

 

 

(dollars in thousands)

 

Cost of revenue

 

$

22,698

 

$

24,024

 

$

(1,326

)

(5.5

)%

$

60,952

 

$

70,277

 

(9,325

)

(13.3

)%

Gross profit

 

18,583

 

17,600

 

983

 

5.6

%

52,001

 

51,803

 

198

 

0.4

%

Gross margin

 

45.0

%

42.3

%

 

 

 

 

46.0

%

42.4

%

 

 

 

 

 

25



Table of Contents

 

Cost of Revenue, Gross Profit and Gross Margin

 

Our cost of revenue during the three months ended September 30, 2016 decreased to $22.7 million from $24.0 million for the same period in 2015.  The decrease reflects a $3.3 million reduction in video advertising inventory costs, which were partially offset by a $1.9 million increase in costs related to data, ad serving, hosting and research driven by an increase in the total spend being transacted through our platform. Our gross profit increased by $1.0 million compared to the prior year period, reflecting a decrease in our cost of revenue of $1.3, million which was partially offset by a decrease in revenue of $0.3 million year-over-year.

 

Our cost of revenue during the nine months ended September 30, 2016 decreased to $61.0 million from $70.3 million for the same period in 2015.  The decrease reflects a $12.2 million reduction in video advertising inventory costs, which were partially offset by a $2.9 million increase in costs related to data, ad serving, hosting and research driven by an increase in the total spend being transacted through our platform. Our gross profit increased by $0.2 million compared to the prior year period, reflecting a decrease in our cost of revenue of $9.3 million which was partially offset by a decrease in revenue of $9.1 million year-over-year

 

Our gross margin increased to 45.0 % for the three months ended September 30, 2016 from 42.3% for the three months ended September 30, 2015, and increased to 46.0 % for the nine months ended September 30, 2016 from 42.4 % for the nine months ended September 30, 2015.  The increase in our gross margin is largely due to a change in the relative mix of the total spend being transacted through our buyer platform and the Tremor Video SSP compared to the prior year period.  Revenue from the Tremor Video SSP generates substantially higher gross margins than our buyer platform since it is recorded net of inventory costs.

 

 

 

Three Months Ended

 

Change

 

Nine months Ended

 

Change

 

 

 

September 30,

 

Increase / (Decrease)

 

September 30,

 

Increase / (Decrease)

 

 

 

2016

 

2015

 

Amount

 

Percentage

 

2016

 

2015

 

Amount

 

Percentage

 

 

 

(dollars in thousands)