UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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:
(Exact Name of Registrant as Specified in its Charter)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
|||
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer |
|
☐ |
|
|
☒ |
|
Non-Accelerated filer |
|
☐ |
|
Smaller reporting company |
|
|
Emerging growth company |
|
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 2, 2023, the registrant had
Table of Contents
|
|
Page |
|
|
|
PART I. |
3 |
|
|
|
|
Item 1. |
3 |
|
|
Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 |
3 |
|
4 |
|
|
5 |
|
|
6 |
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
33 |
|
Item 4. |
33 |
|
|
|
|
PART II. |
33 |
|
|
|
|
Item 1. |
33 |
|
Item 1A. |
33 |
|
Item 2. |
33 |
|
Item 3. |
33 |
|
Item 4. |
33 |
|
Item 5. |
34 |
|
Item 6. |
34 |
|
|
||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
ADTHEORENT HOLDING COMPANY, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets |
|
|
|
|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Income tax recoverable |
|
|
|
|
|
|
||
Prepaid expenses |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Investment in SymetryML Holdings |
|
|
|
|
|
|
||
Customer relationships, net |
|
|
|
|
|
|
||
Other intangible assets, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Deferred income taxes, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued compensation |
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
Operating lease liabilities, current |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Warrants |
|
|
|
|
|
|
||
Seller's Earn-Out |
|
|
|
|
|
|
||
Operating lease liabilities, non-current |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Stockholders’ equity |
|
|
|
|
|
|
||
Preferred stock, $ |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
|
||
Total stockholders' equity |
|
|
|
|
|
|
||
Total liabilities and stockholders’ equity |
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
3
ADTHEORENT HOLDING COMPANY, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Revenue |
|
$ |
|
|
$ |
|
||
Operating expenses: |
|
|
|
|
|
|
||
Platform operations |
|
|
|
|
|
|
||
Sales and marketing |
|
|
|
|
|
|
||
Technology and development |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
||
Loss from operations |
|
|
( |
) |
|
|
( |
) |
Interest income (expense), net |
|
|
|
|
|
( |
) |
|
Gain (loss) on change in fair value of Seller's Earn-Out |
|
|
|
|
|
( |
) |
|
Loss on change in fair value of warrants |
|
|
( |
) |
|
|
( |
) |
Gain on deconsolidation of SymetryML |
|
|
|
|
|
|
||
Loss on change in fair value of SAFE Notes |
|
|
|
|
|
( |
) |
|
Loss on fair value of investment in SymetryML Holdings |
|
|
( |
) |
|
|
|
|
Other expense, net |
|
|
( |
) |
|
|
( |
) |
Total other income (expense), net |
|
|
|
|
|
( |
) |
|
Net loss before income taxes |
|
|
( |
) |
|
|
( |
) |
(Provision) benefit for income taxes |
|
|
( |
) |
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Less: Net loss attributable to noncontrolling interest |
|
|
|
|
|
|
||
Net loss attributable to AdTheorent Holding Company, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
Loss per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted-average common shares outstanding: |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
See accompanying notes to condensed consolidated financial statements.
4
ADTHEORENT HOLDING COMPANY, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except for number of shares)
(unaudited)
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
Additional |
|
|
Retained |
|
|
Noncontrolling |
|
|
Total |
|
||||||
December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||||
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Exercises of options |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Vesting of restricted stock, net of shares withheld for taxes |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Shares issued under employee stock purchase plan |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
Additional |
|
|
Retained |
|
|
Noncontrolling |
|
|
Total |
|
||||||
December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|||||
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Seller's Earn-Out equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Conversion of SAFE Notes into SymetryML preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
SymetryML preferred stock issuance |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Deconsolidation of SymetryML Holdings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
See accompanying notes to condensed consolidated financial statements.
5
ADTHEORENT HOLDING COMPANY, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Provision for credit losses |
|
|
|
|
|
|
||
Amortization expense |
|
|
|
|
|
|
||
Depreciation expense |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
(Gain) loss on change in fair value of Seller's Earn-Out |
|
|
( |
) |
|
|
|
|
Loss on change in fair value of warrants |
|
|
|
|
|
|
||
Gain on deconsolidation of SymetryML |
|
|
|
|
|
( |
) |
|
Loss on change in fair value of SAFE Notes |
|
|
|
|
|
|
||
Loss on fair value of investment in SymetryML Holdings |
|
|
|
|
|
|
||
Deferred tax benefit |
|
|
( |
) |
|
|
( |
) |
Equity-based compensation |
|
|
|
|
|
|
||
Seller's Earn-Out equity-based compensation |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Income taxes recoverable |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
( |
) |
|
|
( |
) |
Accrued compensation, accrued expenses, and other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
|
||
Capitalized software development costs |
|
|
( |
) |
|
|
( |
) |
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Decrease in cash from deconsolidation of SymetryML |
|
|
|
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Cash received for exercised options |
|
|
|
|
|
|
||
Payment of revolver borrowings |
|
|
|
|
|
( |
) |
|
Proceeds from SAFE Notes |
|
|
|
|
|
|
||
Proceeds from SymetryML preferred stock issuance |
|
|
|
|
|
|
||
Taxes paid related to net settlement of restricted stock awards |
|
|
( |
) |
|
|
|
|
Proceeds from employee stock purchase plan |
|
|
|
|
|
|
||
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net increase (decrease) in cash |
|
|
|
|
|
( |
) |
|
Cash at beginning of period |
|
|
|
|
|
|
||
Cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
||
Increase in lease liabilities from obtaining right-of-use assets - ASC 842 adoption |
|
$ |
|
|
$ |
|
||
Non-cash investing and financial activities |
|
|
|
|
|
|
||
Capitalized software and property and equipment, net included in accounts payable |
|
$ |
|
|
$ |
|
||
Equity-based compensation included in capitalized software development costs |
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
6
ADTHEORENT HOLDING COMPANY, INC AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares/units and per share/unit data)
(unaudited)
AdTheorent Holding Company Inc. and its subsidiaries (the “Company”, “AdTheorent”), is a digital media platform which focuses on performance-first, privacy-forward methods to execute programmatic digital advertising campaigns, serving both advertising agency and brand customers. The Company uses machine learning and advanced data science to organize, analyze and operationalize non-sensitive data to deliver real-world value for customers. Central to its ad-targeting and campaign optimization methods, the Company builds custom machine learning models for each campaign using historic and real-time data to predict future consumer conversion actions for every digital ad impression. The Company’s machine learning models are customized for every campaign and the platform “learns” over the course of each campaign as it processes more data related to post media view conversion experience. AdTheorent is a Delaware corporation headquartered in New York, New York.
Basis of Presentation and Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the operations of the Company. All intercompany transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of March 31, 2023 and for the three months ended March 31, 2023 and 2022. The Condensed Consolidated Balance Sheet as of December 31, 2022, has been derived from the Company's audited consolidated financial statements as of that date. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which include a complete set of footnote disclosures, including the Company's significant accounting policies. The results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.
Summary of Significant Accounting Policies
There have been no material changes in the Company's significant accounting policies during the three months ended March 31, 2023, as compared to the significant accounting policies described in Note 2 to the Consolidated Financial Statements for the year ended December 31, 2022, except as detailed below.
Accounts Receivable and Allowance for Credit Losses (formerly Allowance for Doubtful Accounts)
Accounts receivable are recorded at the invoiced amount, are unsecured, and do not bear interest. The allowance for credit losses is based on the best estimate of the amount of probable credit losses in existing accounts receivable. The Company reviews the allowance for credit losses on a quarterly basis. The allowance for credit losses is determined based on historical collection experience, the review in each period of the status of the then outstanding accounts receivable, while taking into consideration current customer information, and other macroeconomic and industry factors. Account balances are written off against the allowance when the Company believes it is probable the receivable will not be recovered.
Liquidity
As of March 31, 2023, the Company had cash of $
7
Emerging Growth Company
From time to time, new accounting pronouncements, or Accounting Standard Updates (“ASU”) are issued by the Financial Accounting Standards Board (“FASB”), or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.
The Company is an emerging growth company (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. This means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company has the option to adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company has elected to use the extended transition period for complying with new or revised accounting standards unless the Company otherwise early adopts select standards.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
ASU No. 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes (Topic 740)
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”), which is part of the FASB’s overall simplification initiative to reduce the costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 simplifies accounting guidance for intra-period allocations, deferred tax liabilities, year-to-date losses in interim periods, franchise taxes, step-up in tax basis of goodwill, separate entity financial statements, and interim recognition of tax laws or rate changes. ASU 2019-12 is effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326)
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to estimate all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The updated guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company
ASC 606, Revenue from Contracts with Customers
Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company measures revenue based on the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation.
The Company’s revenue streams include Managed Programmatic revenue and Direct Access revenue. The Direct Access offerings are new to the market and not yet material to the Company from a financial reporting perspective.
8
For its Managed Programmatic revenue, the Company negotiates insertion orders (“IOs”) with the advertising agency or brand, which specifies the material terms of the campaign. IOs are subject to cancellation by the client, usually with no penalty, for the unfilled portion of the IO. The Company’s performance obligation is to deliver digital advertisements in accordance with the terms of the IO. The Company has concluded that this constitutes a single performance obligation for financial reporting purposes and that such obligation is recognized over the time, using the output method, for which the Company is transferring value to the customer through delivered advertising units. Managed Programmatic revenue is recorded on a gross basis. The Company is responsible for fulfilling advertising delivery, including optimization and reporting, establishes the selling price for the delivery, and the Company performs billing and collections, including ultimately retaining credit risk. The Company has therefore determined that it serves as a principal and that gross presentation of revenue is appropriate.
Direct Access customers access the Company’s platform directly and manage all aspects of their advertising campaigns. The Company provides advertiser and marketer customers direct access to the platform so that they can execute and manage advertising campaigns and is not primarily responsible for the purchase of advertising inventory, third party data, and other related expenses. Revenue for customers working with the Company on this basis are recorded net of the amount incurred and payable to suppliers for the cost of advertising inventory, third party data and other add-on features, as the Company does not control the purchase nor have pricing discretion with regard to these items. The Company bills clients for their purchases through its platform and the associated platform fees. For the Company’s Direct Access Plus offering, which is used as a higher-touch on-boarding level of service for Direct Access customers who desire greater implementation support, the Company is primarily responsible for the purchase of advertising inventory, third party data, and other related expenses. The Company has therefore determined that the customer serves as a principal and that gross presentation of revenue is appropriate.
Contract assets and contract liabilities related to the Company’s revenue streams were not significant to the accompanying Condensed Consolidated Financial Statements.
Accounts receivable, net consisted of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Other receivables |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Less: allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
The provision for credit losses on accounts receivable was $
The following table presents changes in the allowance for credit losses:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Reserve for credit losses |
|
|
|
|
|
|
||
Write-offs, net of recoveries |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
||
9
Prepaid expenses consisted of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Insurance |
|
$ |
|
|
$ |
|
||
Platform operations |
|
|
|
|
|
|
||
Software |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Property and equipment, net consisted of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Computers and equipment |
|
$ |
|
|
$ |
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
||
Depreciation expense on Property and equipment was $
Intangible assets, net consisted of the following:
|
|
|
|
|
March 31, 2023 |
|
||||||||||
|
|
Remaining Weighted Average Useful Life (in years) |
|
|
Gross amount |
|
|
Accumulated amortization |
|
|
Net carrying amount |
|
||||
Software |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Capitalized software costs |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Customer relationships |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Trademarks/tradename |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
December 31, 2022 |
|
||||||||||
|
|
Remaining Weighted Average Useful Life (in years) |
|
|
Gross amount |
|
|
Accumulated amortization |
|
|
Net carrying amount |
|
||||
Software |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Capitalized software costs |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Customer relationships |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Trademarks/tradename |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
10
Amortization expense was included in the Company’s Condensed Consolidated Statements of Operations as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Platform operations |
|
$ |
|
|
$ |
|
||
Sales and marketing |
|
|
|
|
|
|
||
Technology and development |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Total amortization expense for the three months ended March 31, 2023 and 2022 was $
Estimated future amortization of intangible assets as of March 31, 2023 is as follows:
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
The Company is a reporting unit. The goodwill balance as of March 31, 2023 and December 31, 2022 was $
While the Company did not identify a goodwill impairment indicator during the three months ended March 31, 2023 to necessitate the performance of an interim impairment test, at times the Company’s market capitalization, excluding a control premium, fell below its carrying value. The Company has concluded that
Accrued expenses consisted of the following:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Income taxes |
|
|
|
|
|
|
||
Campaign costs |
|
|
|
|
|
|
||
Platform operations |
|
|
|
|
|
|
||
Deferred revenues |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
11
On December 22, 2021, the Company entered into a senior secured credit facilities credit agreement (the “Senior Secured Agreement”) with Silicon Valley Bank (“SVB”). The Senior Secured Agreement allows for the Company to borrow up to $
On March 10, 2023, SVB was seized by regulators and placed under the receivership of the Federal Deposit Insurance Corporation (“FDIC”). Two days after the failure, the FDIC announced jointly with other agencies that all depositors would have full access to their funds the next morning. The FDIC reopened SVB on March 13, 2023 as a newly organized bridge bank, Silicon Valley Bridge Bank, N.A (“SVBB”) and on March 27, 2023, First Citizens Bank acquired SVBB. The Company’s Senior Secured Agreement remains available to the Company with no amendments to the original agreement with SVB, which is now a division of First Citizens Bank.
The company is subject to customary representations, warranties, and covenants. The Senior Secured Agreement requires that the Company meet certain financial and non-financial covenants which include, but are not limited to, (i) delivering audited consolidated financial statements to the lender within 90 days after year-end commencing with the fiscal year ending December 31, 2022 financial statements, (ii) delivering unaudited quarterly consolidated financial statements within 45 days after each fiscal quarter, commencing with the quarterly period ending on March 31, 2022 and (iii) maintaining certain leverage ratios and liquidity coverage ratios. As of March 31, 2023 and December 31, 2022, we were in full compliance with the terms of the Senior Secured Agreement.
As of March 31, 2023 and December 31, 2022, the Company had one letter of credit for $
For the three months ended March 31, 2023 and 2022, the Company recorded an income tax (provision) benefit of ($
The AETR for the three months ended March 31, 2023 was lower than the statutory rate of
Stock Option Award Activity
For three months ended March 31, 2023 and 2022, $
The following table summarizes stock option activity for the three months ended March 31, 2023:
|
|
Stock Options |
|
|
Weighted-Average Exercise Price |
|
||
Outstanding as of December 31, 2022 |
|
|
|
|
$ |
|
||
Exercised |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Outstanding as of March 31, 2023 |
|
|
|
|
$ |
|
||
Exercisable as of March 31, 2023 |
|
|
|
|
$ |
|
||
Restricted Stock Units (“RSUs”)
The vesting conditions for the RSUs are a mix of time-based and performance-based vesting conditions. The RSUs with performance-based vesting conditions are based on achievement of revenue or certain annual Adjusted Earnings Before Interest, Income Tax, Depreciation and Amortization (“Adjusted EBITDA”) targets.
12
on the RSUs with performance-based vesting conditions (“PSUs”) for the three months ended March 31, 2023 as there were no unvested PSUs outstanding in the period.
The following summarizes RSU activity for the three months ended March 31, 2023:
|
|
Restricted Stock Units |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Outstanding as of December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Outstanding as of March 31, 2023 |
|
|
|
|
$ |
|
||
Employee Stock Purchase Plan
On December 21, 2021, the Company’s stockholders approved the AdTheorent Holding Company, Inc. Employee Stock Purchase Plan (the “ESPP”) and the ESPP became effective on such date with an authorized
Total compensation expense related to the ESPP was $
The fair value of the purchase rights granted under the ESPP for the offering period beginning January 14, 2023 was $
|
January 14, 2023 |
|
|
Grant price |
$ |
|
|
Expected term |
|
||
Expected volatility |
|
% |
|
Risk-free interest rate |
|
% |
|
Expected dividend yield |
|
% |
|
Grant price - Closing stock price on the first day of the offering period
Expected Term - The expected term is based on the end date of the purchase period of each offering period, which is three months from the commencement of each new offering period.
Expected volatility - The expected volatility is based on historical volatility of the Company’s stock as well as the implied volatility from publicly traded options on the Company’s stock.
Risk-free interest rate - The risk-free interest rate is based on a U.S. Treasury rate in effect on the date of grant with a term equal to the expected term.
13
Equity-Based Compensation Expense
The following table summarizes the total equity-based compensation expense included in the Condensed Consolidated Statements of Operations:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Platform operations |
|
$ |
|
|
$ |
|
||
Sales and marketing |
|
|
|
|
|
|
||
Technology and development |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total equity-based compensation expense |
|
$ |
|
|
$ |
|
||
As of March 31, 2023 and 2022, equity-based compensation included in capitalized software development costs was $
As of March 31, 2023, there was $
As of March 31, 2023, there was $
The Company has authorized a total of
The Company’s common stockholders are entitled to
The Company’s Board is authorized to issue shares of preferred stock, without stockholder approval, with such designations, voting and other rights and preferences as they may determine. As of March 31, 2023 and December 31, 2022, there were
The estimated fair value of the Seller’s Earn-Out, as defined in Note 15 – Seller’s Earn-Out included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, was determined using a Monte Carlo simulation valuation model using the most reliable information available.
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Stock price |
$ |
|
|
$ |
|
||
Dividend yield |
|
% |
|
|
% |
||
Volatility |
|
% |
|
|
% |
||
Risk-free rate |
|
% |
|
|
% |
||
Forecast period (in years) |
|
|
|
|
|
||
14
Dividend yield - The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not intend to pay dividends.
Expected Volatility - The expected volatility assumption was determined by examining the Company’s historical volatility, the historical volatilities of a group of industry peers, and the implied volatility from the market price of the Public Warrants.
Risk-free rate - The risk-free rate assumption is based on the U.S. Treasury instruments, the terms of which were consistent with the expected term of the Seller’s Earn-Out.
Forecast period – The forecast period represents the time until expiration of the Seller’s Earn-Out.
Seller’s Earn-Out to equity holders and vested Exchanged Options as of Close:
The Seller’s Earn-Out is recorded on the Condensed Consolidated Balance Sheet as a non-current liability since the expected date of achievement based on the valuation model is over twelve months as of March 31, 2023.
|
Seller's Earn-Out |
|
|
Balance at December 31, 2022 |
$ |
|
|
Change in fair value |
|
( |
) |
Balance at March 31, 2023 |
$ |
|
|
Seller’s Earn-Out to Exchanged Option and Exchanged Unit holders as of Close:
For the three months ended March 31, 2023 and 2022, there was $
Equity-based compensation expense related to the Seller’s Earn-Out to Exchanged Option and Exchanged Unit holders was included in the Company’s Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 as follows:
|
March 31, 2022 |
|
|
Platform operations |
$ |
|
|
Sales and marketing |
|
|
|
Technology and development |
|
|
|
General and administrative |
|
|
|
Total |
$ |
|
|
The following table summarizes the number of outstanding Public Warrants and Private Placement Warrants and the corresponding exercise price:
|
|
|
|
|
|
|
|
|
|
|
|||
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|
Exercise Price |
|
|
Expiration Date |
|||
Public Warrants |
|
|
|
|
|
|
$ |
|
|
||||
Private Placement Warrants |
|
|
|
|
|
|
$ |
|
|
||||
Of the
15
Measurement of Public Warrants
The Public Warrants are measured at fair value on a recurring basis. The measurement of the Public Warrants as of March 31, 2023 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker ADTHW.
Measurement of Private Placement Warrants
The Private Placement Warrants are measured at fair value on a recurring basis. As of March 31, 2023, a Black-Scholes Option Pricing model (“BSM”) was used to determine fair value and as of December 31, 2022, a Monte Carlo simulation model is used to determine fair value. The measurement of the Private Placement Warrants is classified as Level 2.
The key inputs into the BSM and Monte Carlo simulation model as of March 31, 2023 and December 31, 2022, respectively, for the Private Placement Warrants were as follows:
|
March 31, |
|
|
December 31, |
|
||
|
2023 |
|
|
2022 |
|
||
Risk-free interest rate |
|
% |
|
|
% |
||
Dividend yield |
|
% |
|
|
% |
||
Expected term (years) |
|
|
|
|
|
||
Expected Volatility |
|
% |
|
|
% |
||
Exercise Price |
$ |
|
|
$ |
|
||
Stock Price |
$ |
|
|
$ |
|
||
The volatility utilized in estimating the fair value of the Company’s Private Placement Warrant liability as of March 31, 2023, was based on a weighted average of the implied volatility, the guideline public company volatility, and the Company’s historical volatility. The implied volatility was calculated from the public warrants and using the Monte Carlo simulation approach. The guideline public company volatility was estimated based on historical lookback volatility of guideline public companies over a term commensurate with the expected term of the warrant, as well as consideration to implied volatilities sourced from Bloomberg, L.P. The Company’s historical volatility was estimated based on the historical lookback of AdTheorent’s volatility over the time since the Company was publicly traded.
The volatility utilized in estimating the fair value of the Company’s Private Placement Warrant liability as of December 31, 2022, was based on a weighted average of the implied volatility and guideline public company volatility. The implied volatility was estimated by calibrating to the market price of the public warrants as of December 31, 2022, using a binomial lattice model. The guideline public company volatility was estimated based on historical lookback volatility of guideline public companies over a term commensurate with the expected term of the warrant, as well as consideration to implied volatilities sourced from Bloomberg, L.P.
Key assumptions are as follows:
Risk-free interest rate - The risk-free rate assumption is based on the U.S. Treasury instruments, the terms of which were consistent with the expected term of the Private Placement Warrants.
Dividend yield - The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not intend to pay dividends.
Expected term – The forecast period represents the time until expiration of the Private Placement Warrants.
Expected Volatility - The expected volatility assumption was determined by examining the Company’s historical volatility, the historical volatilities of a group of industry peers, and the implied volatility from the market price of the Public Warrants.
16
Warrant liability
On March 31, 2023, the fair values of the Public Warrants and Private Placement Warrants outstanding were determined to be $
The following table presents the changes in the fair value of the Public and Private Placement Warrants:
|
Public Warrants |
|
|
Private Placement Warrants |
|
|
Total Warrant Liabilities |
|
|||
Fair value as of December 31, 2022 |
$ |
|
|
$ |
|
|
$ |
|
|||
Change in valuation inputs or other assumptions |
|
|
|
|
|
|
|
|
|||
Fair value as of March 31, 2023 |
$ |
|
|
$ |
|
|
$ |
|
|||
SymetryML Holdings, LLC (“SymetryML Holdings”) was a subsidiary of Legacy AdTheorent after a contribution of Legacy AdTheorent’s SymetryML department in exchange for membership interest. Class B interests in SymetryML Holdings that vest over time, comprising
SymetryML Holdings and SymetryML was ultimately deconsolidated as of March 31, 2022 through a series seed preferred financing transaction (“Deconsolidation”), resulting in a gain of $
The following table shows the amounts related to the accounting for the Deconsolidation:
|
|
For the Three Months Ended March 31, 2022 |
|
|
Fair value of consideration received |
|
$ |
|
|
Fair value of retained noncontrolling interest |
|
|
|
|
Carrying amount of deconsolidated noncontrolling interest |
|
|
|
|
Less: Carrying amount of deconsolidated net assets |
|
|
( |
) |
Gain on Deconsolidation |
|
$ |
|
|
The Deconsolidation resulted in the removal of the noncontrolling interest presentation and therefore there is
VIE Determination
Based on the Company’s assessment, after the Deconsolidation, SymetryML is considered a variable interest entity (“VIE”) because it does not have sufficient equity at risk to finance its activities without additional subordinated financial support. SymetryML Holdings is not the primary beneficiary as it no longer has the power to direct the activities that most significantly impact SymetryML’s economic performance.
Based on the Company’s assessment, SymetryML Holdings, after the Deconsolidation, is considered a VIE because the holders of the equity investment at risk, as a group, lack the power to direct the activities of SymetryML Holdings that most significantly impact its economic performance. This is due to the conclusion that Class B equity interests do not meet the definition of equity at risk because the Class B interests were issued by Legacy AdTheorent to SymetryML management as founders’ equity to compensate for past and future services to SymetryML. The Company further concluded that the Company is not the primary beneficiary as it no longer has the power to direct the activities that most significantly impact SymetryML economic performance.
17
As a result of the Deconsolidation of SymetryML and SymetryML Holdings, the Company has retained a noncontrolling investment in SymetryML Holdings that provides the Company the ability to exercise significant influence over both VIEs. The entities continue to be considered related parties of the Company following the Deconsolidation.
Retained Fair Value Option Investments in SymetryML and SymetryML Holdings
For its retained noncontrolling investment in SymetryML Holdings, the Company has made an irrevocable election to account for its investment at fair value with changes in fair value reported in earnings. The Company elected to apply fair value accounting to the retained investment in SymetryML Holdings because the Company believes that fair value is the most relevant measurement attribute for these investments, as well as to reduce operational and accounting complexity. The Company’s election to apply fair value accounting to these investments may cause fluctuations in the Company’s earnings from period to period. The fair value of the Company’s retained investment was $
The fair value measurements involve significant unobservable inputs, which include total equity value of SymetryML, volatility, risk-free rate, equity holder required rate of return, and discount for lack of marketability (“DLOM”). The total equity value of SymetryML was calculated using the Backsolve Method under the Market Approach. The volatility was based on guideline public companies and adjusted for differences in size and leverage. The risk-free rate was based on U.S. Treasury securities with a term commensurate with the time to exit. The equity holder required rate of return was based on private equity and venture capital rate of return studies. The DLOM was estimated based on put option models and series volatility.
The Company’s maximum exposure to loss as a result of its involvement with these VIEs is limited to the carrying amount of its investment which is recorded at fair value each reporting period as described above. There are not any explicit or implicit contracts, guarantees, or commitments that would require the Company to provide financial support to the investees or any other arrangements that could expose the Company to losses beyond the fair value of its current investment.
SAFE Notes
During the three months ended March 31, 2023 and 2022, the Company raised $
The following tables summarize the Company's assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy:
|
March 31, 2023 |
|
|||||||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Investment in SymetryML Holdings(2) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Public warrants(1) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Private placement warrants(1) |
|
|
|
|
|
|
|
|
|
|
|
||||
Seller's Earn-Out(1) |
|
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
18
|
December 31, 2022 |
|
|||||||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Investment in SymetryML Holdings(2) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Public warrants(1) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Private placement warrants(1) |
|
|
|
|
|
|
|
|
|
|
|
||||
Seller's Earn-Out(1) |
|
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following tables present a rollforward of the Company's assets and liabilities classified as Level 3 for three months ended March 31, 2023 and 2022.
|
Three Months Ended |
|
|||||
|
Investment in SymetryML Holdings |
|
|
Seller's Earn-Out Liability |
|
||
Balance as December 31, 2022 |
$ |
|
|
$ |
|
||
Measurement adjustments |
|
( |
) |
|
|
( |
) |
Balance as of March 31, 2023 |
$ |
|
|
$ |
|
||
|
Three Months Ended |
|
|||||
|
Investment in SymetryML Holdings |
|
|
Seller's Earn-Out Liability |
|
||
Balance as December 31, 2021 |
$ |
|
|
$ |
|
||
Additions |
|
|
|
|
|
||
Measurement adjustments |
|
|
|
|
|
||
Balance as of March 31, 2022 |
$ |
|
|
$ |
|
||
The computation of net loss per share was as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net loss attributable to AdTheorent Holding Company, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Weighted-average common shares outstanding - basic |
|
|
|
|
|
|
||
Effect of dilutive equity-based awards |
|
|
|
|
|
|
||
Weighted-average common shares outstanding - diluted |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Loss per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
19
The following outstanding potentially dilutive securities were excluded from the calculation of diluted net loss per common stockholder because their impact would have been anti-dilutive for the period presented, or their contingency conditions were not met:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Stock options |
|
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
|
||
Public warrants |
|
|
|
|
|
|
||
Private placement warrants (1) |
|
|
|
|
|
|
||
Seller's Earn-Out |
|
|
|
|
|
|
||
Sponsor Earn-Out |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
The Company has operating lease agreements for office space in the United States (“U.S.”). With the exception of the New York headquarters office lease, the Company’s leases expire at various times through September 2024 and certain leases may be extended at the Company’s option. The New York headquarters office lease expires in
Additionally, the Company has short-term leases with an initial term of twelve months or less that are not recorded on the Condensed Consolidated Balance Sheets.
Lease expense is allocated to operating expense categories (Platform operations, Sales and marketing, Technology and development, General and administrative) in the Condensed Consolidated Statements of Operations in proportion to headcount in each of these categories.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Short term lease cost |
|
$ |
|
|
$ |
|
||
Variable lease cost |
|
$ |
|
|
$ |
|
||
Supplemental cash flow information related to the Company’s operating leases for the three months ended March 31, 2023 and 2022 were as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Operating cash flows used for operating leases |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for new operating lease obligations |
|
$ |
|
|
$ |
|
||
Supplemental balance sheet information related to the Company’s operating leases as of March 31, 2023 and December 31, 2022 were as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Weighted average remaining lease term (years) |
|
|
|
|
|
|
||
Weighted average discount rate (%) |
|
|
% |
|
|
% |
||
20
Approximate future minimum lease payments for the Company’s operating leases are as follows as of March 31, 2023:
|
|
March 31, 2023 |
|
|
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total operating lease payments |
|
|
|
|
Less: Imputed interest |
|
|
( |
) |
Total operating lease liabilities |
|
$ |
|
|
In connection with one lease agreement, the Company maintains a letter of credit in the total amount of $
Petition Filed for Authorization of Common Stock
On February 21, 2023, the Company filed a petition (the “Petition”) in the Delaware Court of Chancery (the “Court of Chancery”) pursuant to Section 205 of the General Corporation Law of the State of Delaware (the “DGCL”). The Petition sought an order validating and declaring effective (1) the provisions of the Second Amended and Restated Certificate of Incorporation of the Company that set forth the number of authorized shares of the Company (the “Authorized Share Charter Provisions”) and (2) the shares of the Company’s common stock issued in reliance on such provisions of the Second Amended and Restated Certificate of Incorporation of the Company.
At a special meeting of the stockholders of the Company held on December 21, 2021, a majority of the then-outstanding shares of the Company’s Class A common stock and Class B common stock, voting as a single class, voted to approve the Company’s Second Amended and Restated Certificate of Incorporation, which, among other things, increased the authorized shares of the Company’s Class A common stock from
A decision of the Court of Chancery in February 2023 created uncertainty regarding the validity of the Authorized Share Charter Amendment and whether a separate vote of the majority of the then-outstanding shares of the Company’s Class A common stock would have been required under Section 242(b)(2) of the DGCL.
On March 14, 2023, the Court of Chancery issued a final order granting the Petition, thereby validating the Authorized Share Charter Provisions and the Company shares of common stock, including securities exercisable for, convertible into or settleable in shares of Company common stock, issued in reliance on the Authorized Share Charter Provisions, eliminating the previous uncertainty that had been introduced by the earlier Court of Chancery decision.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
We discuss many of these risks in our Annual Report on Form 10-K for the year ended December 31, 2022 in greater detail under the heading “Item 1A. Risk Factors” and in other filings we make from time to time with the Securities and Exchange Commission (“SEC”). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.
Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2022, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
References to “Notes” are notes included in our unaudited Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Unless otherwise indicated, the terms “AdTheorent,” “Company,” “we,” “us,” or “our” refer to AdTheorent Holding Company, Inc., together with its consolidated subsidiaries.
Business Overview
Founded in 2012, we are a digital media platform which focuses on performance-first, privacy-forward methods to execute programmatic digital advertising campaigns, serving both advertising agency and brand customers. Without relying on individualized profiles or sensitive personal data for targeting, we utilize machine learning and advanced data analytics to make programmatic digital advertising more effective and efficient at scale, delivering measurable real-world value for advertisers. Our differentiated advertising capabilities and superior campaign performance, measured by customer-defined business metrics or KPIs, have helped fuel our customer adoption and year-after-year growth.
We use machine learning and advanced data science to organize, analyze and operationalize non-sensitive data to deliver real-world value for customers. Central to our ad-targeting and campaign optimization methods, we build custom machine learning models for each campaign using historic and real-time data to predict future consumer conversion actions for every digital ad impression. We have integrations with Digital Ad Exchanges, or Supply Side Platforms (“SSPs”), from which we are sent ad impression opportunities for evaluation and purchase. We predictively score all ad impression opportunities for the purpose of deciding which ad impressions will likely drive valuable conversions or engagement activity for our customers. Our predictive platform scores over one million digital ad impressions per second and 75 billion to 90 billion digital ad impressions per day, assigning a “predictive score” to each. Each predictive score is determined by correlating non-individualized data attributes associated with the particular impression with data corresponding to previously purchased impressions that yielded consumer conversion or engagement activity. Such non-individualized attributes include variables such as publisher, content and URL keywords, device make, device operating system and other device attributes, ad position, geographic data, weather, demographic signals, creative type and size, etc. The “predictive scores” generated by our platform allow us and our advertising clients to determine which ad impressions are more likely or less likely to result in client-desired KPIs. Our
22
machine learning models are customized for every campaign and our platform “learns” over the course of each campaign as it processes more data related to post media view conversion experience. Based on these statistical probabilities or “predictive scores,” our platform automatically determines bidding optimizations to drive conversions and advertiser return on investment (“ROI”) or return on advertising spend (“ROAS”), bidding on less than .001 of the evaluated impressions. Our use of machine learning and data science helps us to maximize efficiency and performance, enabling our customers to avoid wasted ad spend related to suboptimal impressions such as impressions that are predicted to be at a greater risk for fraud/invalid traffic or impressions with a higher likelihood of being unviewable, unmeasurable, or not brand safe, among other factors.
Our capabilities extend across the digital ecosystem to identify and engage digital impressions with the highest likelihood of completing customer-desired actions, including online sales, other online actions, and real-world actions such as physical location visitation, in-store sales or vertical specific KPI's such as prescription fills/lift or submitted credit card applications. Our custom and highly impactful campaign executions encompass popular digital screens — mobile, desktop, tablet, connected TV (“CTV”), Digital Out of Home (“DOOH”) — and all digital ad formats, including display, rich media, video, native and streaming audio. We actively manage our digital supply to provide advertisers with scale and reach, while minimizing redundant inventory, waste and other inefficiencies. Our CTV capability delivers scale and reach supplemented by innovative and industry recognized machine-learning optimizations towards real-world actions and value-added measurement services.
Our platform and machine learning-based targeting provide privacy advantages that are lacking from alternatives which rely on individual user profiles or cookies employing a “one-to-one” approach to digital ad targeting. Our core targeting approach is statistical, not individualized, and as a result we do not need to compile or maintain user profiles, and we do not rely on cookies or user profiles for targeting. Our solution-set is especially valuable to regulated customers, such as financial institutions and pharmaceutical or health companies, and other privacy-forward advertisers who desire efficient and effective digital ad-targeting without individualized or personal targeting data. We adhere to data usage protocols and model governance processes which help to ensure that each customer’s data is safeguarded and used only for that customer’s benefit, and we take a consultative and collaborative approach to data use best practices with all of our customers.
Supplementing our core machine learning-powered platform capabilities, we offer customized vertical solutions to address the needs of advertisers in specialized industries. These specialized solutions feature vertical-specific capabilities related to targeting, measurement and audience validation. Our broader health offering, which encompasses engagements with customers in the verticals and sub-verticals of healthcare, pharmaceutical, pharmacy, over-the-counter brands, and health-related government (collectively, “AdTheorent Health”), harnesses the power of machine learning to drive superior performance on campaigns targeting both healthcare providers and patients, leveraging Health Insurance Portability and Accountability Act (“HIPAA”) compliant methods and targeting practices that comply with Network Advertising Initiative Code and other self-regulatory standards. In the third quarter of 2022, we launched our AdTheorent Health Predictive Audience Builder, a new-to-market solution which allows programmatic advertisers to use aggregated health data to research and target “audiences” in a more precise, data-driven and less opaque manner than what is currently available across the industry. This solution leverages primary-sourced health data and machine learning to create statistical representations of audiences, but notably is not ID-based and does not include Personal Health Information. These features allow AdTheorent Health Predictive Audiences to be built for performance, with the goal of achieving health advertisers' KPIs, while being privacy forward and HIPAA-compliant by design. Subsequently, in the fourth quarter and part of our strategy to establish a scalable foundation for the deployment of innovative verticalized solutions, we launched AdTheorent Predictive Audience Builder, a platform tool that allows advertisers to build customizable, machine learning-based audiences for other key verticals such as banking, financial services and insurance (“BFSI”) and retail. We have also created additional offerings tailored to address the unique challenges and opportunities in a growing range of other verticals.
Factors Affecting Our Performance
Growth of the Programmatic Advertising Market
Our operating results and prospects will be impacted by the overall continued adoption of programmatic advertising by inventory owners and content providers, as well as advertisers and the agencies that represent them. Programmatic advertising has grown rapidly in recent years; however, recent negative macro-economic sentiment has impacted advertiser spending. Any acceleration, or slowing, of programmatic advertising growth, due to macro-economic factors or otherwise, would affect our operating and financial performance. In addition, even if the programmatic advertising market continues to grow at its current rate, our ability to successfully position ourself within the market will impact the future growth of the business.
23
Investment in Platform and Solutions to Provide Continued Differentiation in Evolving Market
We believe that the capabilities and differentiation of our platform and solutions has been critical to our historical growth. Continued innovation in an evolving programmatic marketplace will be an important driver of our future growth. We anticipate that operating expenses will increase in the foreseeable future as the Company invests in platform operations and technology, data science and machine learning capabilities, and data infrastructure and tools to enhance our custom solutions and value-added offerings. We believe that these investments will contribute to our long-term growth, although they may have a negative impact on profitability in the near-term.
Growth in and Retention of Customer Spend
We plan to make incremental investments in sales and marketing to acquire new customers and increase existing customers’ usage of our platform and solutions. We believe that there is significant room for growth within our existing customers, which include many large global brands and advertising agencies. Future revenue and profitability growth depends upon our ability to cost effectively on-board new customers and our on-going ability to retain and scale existing customers.
Our growth has and may continue to be impacted by macroeconomic factors beyond our control such as inflation, rising interest rates, pandemic related factors, global geopolitical uncertainties, among other things, as well as possible year-over-year declines in our acquisition of new customers.
Ability to Continue to Access High Performing Media Inventory in Existing and Emerging Channels
Our ability to deliver upon clients’ targeted key performance indicators is reliant upon our ability to access high quality media inventory across multiple advertising channels at scale. Our future growth will depend on our ability to maintain and grow spend on existing and emerging channels, including advertising on display, rich media, native, video and audio ad formats across mobile, desktop, and CTV formats.
Development of International Markets
Although almost all of our historic revenue is attributable to campaigns and operations in the United States and Canada, we plan to continue to explore opportunities to serve new international markets, including serving the global needs of existing customers. We believe that the global opportunity for programmatic advertising is significant and should continue to expand as publishers and advertisers outside the United States and Canada increasingly seek to adopt the benefits that programmatic advertising provides. We believe that our privacy-forward approach to ad targeting and data usage will provide desired differentiation and value in highly and increasingly regulated markets such as the European Union, which is subject to the General Data Protection Regulation. Our ability to efficiently expand into new markets will affect our operating results.
Managing Seasonality
The global advertising industry experiences seasonal trends that affect the vast majority of participants in the digital advertising ecosystem. Most notably, advertisers have historically spent relatively more in the fourth quarter of the calendar year to coincide with the holiday shopping season, and relatively less in the first quarter. In addition to the impact on revenue, increased fourth quarter demand for advertising inventory applies additional upward pressure on fourth quarter media costs, which adversely impacts profitability. We expect seasonality trends to continue, and our ability to manage resources in anticipation of these trends could affect operating results.
Key Business Metric
To analyze our business performance, determine financial forecasts and help develop long-term strategic plans, we review the following key business metric:
Active Customers
We track active customers, which are defined as our customers who spent over $5,000 during the previous twelve months. We monitor active customers to help understand our revenue performance. Additionally, monitoring active customers helps us understand the nature and extent to which the active customer base is growing, which assists management in establishing operational goals.
24
The number of active customers as of March 31, 2023 was 346 and as of March 31, 2022 was 315, increasing by 31 customers, or 10%, respectively, year over year. The number of active customers as of December 31, 2022 was 347.
Results of Operations
The period-to-period comparisons of our results of operations have been prepared using the historical periods included in our Condensed Consolidated Financial Statements. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related notes included elsewhere in this document as well as the Consolidated Financial Statements within our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, for additional information regarding the components of our results of operations and our accounting policies.
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
The following table summarizes our historical results of operation for the periods presented:
|
|
Three Months Ended |
|
|||||||||||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||||||||||
|
|
(in thousands) |
|
|
(% of Revenue) |
|
|
(in thousands) |
|
|
(% of Revenue) |
|
||||
Revenue |
|
$ |
32,674 |
|
|
|
100.0 |
% |
|
$ |
34,241 |
|
|
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Platform operations |
|
|
18,387 |
|
|
|
56.3 |
% |
|
|
17,772 |
|
|
|
51.9 |
% |
Sales and marketing |
|
|
10,307 |
|
|
|
31.5 |
% |
|
|
10,330 |
|
|
|
30.2 |
% |
Technology and development |
|
|
3,291 |
|
|
|
10.1 |
% |
|
|
4,285 |
|
|
|
12.5 |
% |
General and administrative |
|
|
3,936 |
|
|
|
12.0 |
% |
|
|
5,601 |
|
|
|
16.4 |
% |
Total operating expenses |
|
|
35,921 |
|
|
|
109.9 |
% |
|
|
37,988 |
|
|
|
110.9 |
% |
Loss from operations |
|
|
(3,247 |
) |
|
|
-9.9 |
% |
|
|
(3,747 |
) |
|
|
-10.9 |
% |
Interest income (expense), net |
|
|
619 |
|
|
|
1.9 |
% |
|
|
(109 |
) |
|
|
-0.3 |
% |
Gain (loss) on change in fair value of Seller's Earn-Out |
|
|
233 |
|
|
|
0.7 |
% |
|
|
(24,656 |
) |
|
|
-72.0 |
% |
Loss on change in fair value of warrants |
|
|
(269 |
) |
|
|
-0.8 |
% |
|
|
(15,936 |
) |
|
|
-46.5 |
% |
Gain on deconsolidation of SymetryML |
|
|
— |
|
|
|
0.0 |
% |
|
|
1,939 |
|
|
|
5.7 |
% |
Loss on change in fair value of SAFE Notes |
|
|
— |
|
|
|
0.0 |
% |
|
|
(788 |
) |
|
|
-2.3 |
% |
Loss on fair value of investment in SymetryML Holdings |
|
|
(168 |
) |
|
|
-0.5 |
% |
|
|
— |
|
|
|
0.0 |
% |
Other expense, net |
|
|
(41 |
) |
|
|
-0.1 |
% |
|
|
(18 |
) |
|
|
-0.1 |
% |
Total other income (expense), net |
|
|
374 |
|
|
|
1.1 |
% |
|
|
(39,568 |
) |
|
|
-115.6 |
% |
Loss from operations before income taxes |
|
|
(2,873 |
) |
|
|
-8.8 |
% |
|
|
(43,315 |
) |
|
|
-126.5 |
% |
(Provision) benefit for income taxes |
|
|
(2,350 |
) |
|
|
-7.2 |
% |
|
|
1,025 |
|
|
|
3.0 |
% |
Net loss |
|
$ |
(5,223 |
) |
|
|
-16.0 |
% |
|
$ |
(42,290 |
) |
|
|
-123.5 |
% |
Revenue
|
|
|
|
|
|
Change |
|
|||||||
($ in thousands) |
2023 |
|
2022 |
|
$ |
|
|
% |
|
|||||
Three Months Ended March 31, |
|
$ |
32,674 |
|
$ |
34,241 |
|
$ |
(1,567 |
) |
|
|
-4.6 |
% |
Total revenue decreased $1.6 million, or 4.6%, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The largest drivers of the decrease were in the BFSI and government/education/nonprofit verticals, which collectively decreased by $6.4 million, or 50.9%. The BFSI vertical was impacted by negative macroeconomic conditions affecting automotive finance and insurance and the decrease in the government/education/nonprofit vertical was driven by declines in public health campaigns related to the COVID-19 pandemic. Offsetting these decreases were increases in the healthcare/pharmaceutical, travel, retail, and certain other verticals totaling approximately $4.3 million, or 30.0%. Also included was the continued increase of CTV revenue, which grew $0.4 million, or 16.5% with some offsetting decreases in digital share from other device types.
25
Operating expenses
|
|
|
|
|
|
Change |
|
|||||||
($ in thousands) |
2023 |
|
2022 |
|
$ |
|
|
% |
|
|||||
Three Months Ended March 31, |
|
$ |
35,921 |
|
$ |
37,988 |
|
$ |
(2,067 |
) |
|
|
-5.4 |
% |
Operating expenses decreased $2.1 million, or 5.4%, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. Refer to the discussion below for further details of these variances.
Platform operations
|
|
|
|
|
|
Change |
|
|||||||
($ in thousands) |
2023 |
|
2022 |
|
$ |
|
|
% |
|
|||||
Three Months Ended March 31, |
|
$ |
18,387 |
|
$ |
17,772 |
|
$ |
615 |
|
|
|
3.5 |
% |
Platform operations expenses increased by $0.6 million, or 3.5%, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The increase was mainly attributable to revenue driven traffic acquisition costs which increased approximately $0.5 million, or 4.6%. There was also an increase in our data infrastructure expense, attributable to data used in our platform which is not related to any specific campaign of $0.4 million. The increases were offset by a decrease of $0.2 million in lower headcount primarily related our personnel who set up and monitor campaign performance and volume-driven decreases in hosting expense of approximately $0.1 million.
Sales and marketing
|
|
|
|
|
|
Change |
|
|||||||
($ in thousands) |
2023 |
|
2022 |
|
$ |
|
|
% |
|
|||||
Three Months Ended March 31, |
|
$ |
10,307 |
|
$ |
10,330 |
|
$ |
(23 |
) |
|
|
-0.2 |
% |
Sales and marketing expenses remained relatively flat for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, with only a 0.2% decrease period over period. Variances in the expense consisted of a decrease of $0.1 million in employee costs primarily related to lower headcount in our sales and customer support teams, a $0.2 million decrease in Seller’s Earnout equity-based compensation and an offsetting increase of $0.3 million for travel-related expenses.
Technology and development
|
|
|
|
|
|
Change |
|
|||||||
($ in thousands) |
2023 |
|
2022 |
|
$ |
|
|
% |
|
|||||
Three Months Ended March 31, |
|
$ |
3,291 |
|
$ |
4,285 |
|
$ |
(994 |
) |
|
|
-23.2 |
% |
Technology and development expenses decreased $1.0 million, or 23.2%, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was mainly due to a $0.4 million decrease in technology and development expenses related to the deconsolidation of SymetryML Holdings on March 31, 2022, a $0.3 million decrease in employee related costs due to an increase in hours worked on capitalizable projects, and a decrease of $0.2 million in equity-based compensation.
For further information on the deconsolidation of SymetryML Holdings, refer to Note 16 — SymetryML and SymetryML Holdings of our Condensed Consolidated Financial Statements, included elsewhere in this Form 10-Q.
General and administrative
|
|
|
|
|
|
Change |
|
|||||||
($ in thousands) |
2023 |
|
2022 |
|
$ |
|
|
% |
|
|||||
Three Months Ended March 31, |
|
$ |
3,936 |
|
$ |
5,601 |
|
$ |
(1,665 |
) |
|
|
-29.7 |
% |
General and administrative expenses decreased $1.7 million, or 29.7%, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to a $1.2 million decrease in professional fees such as audit, legal, and professional consulting fees related to initial costs as a publicly traded company. Additionally, decreases of $0.3 million in equity-based compensation, and $0.3 million of insurance expense, mainly driven by decrease in directors and officers insurance.
26
Interest income (expense)
|
|
|
|
|
|
Change |
|
|||||||
($ in thousands) |
2023 |
|
2022 |
|
$ |
|
|
% |
|
|||||
Three Months Ended March 31, |
|
$ |
619 |
|
$ |
(109 |
) |
$ |
728 |
|
|
|
667.9 |
% |
Interest income, net was $0.6 million for the three months ended March 31, 2023 compared to interest expense, net of $0.1 million for the three months ended March 31, 2022. The net change of $0.7 million was primarily due to an increase in interest income earned of $0.6 million related to a money market mutual fund account opened in January 2022.
Gain (loss) on change in fair value of Seller's Earn-Out
|
|
|
|
|
|
Change |
|
|||||||
($ in thousands) |
2023 |
|
2022 |
|
$ |
|
|
% |
|
|||||
Three Months Ended March 31, |
|
$ |
233 |
|
$ |
(24,656 |
) |
$ |
24,889 |
|
|
|
100.9 |
% |
For the three months ended March 31, 2023, the Seller's Earn-Out liability decreased $0.2 million in fair value, resulting in a gain for that amount for the period, while in the three months ended March 31, 2022, the Seller’s Earn-out liability increased in fair value by $24.7 million, resulting in a loss for that amount. These changes in fair value were primarily driven by updates to certain variables such as stock price, stock volatility, risk-free rate, and remaining life.
The Seller's Earn-Out was a result of the Business Combination on December 22, 2021, as detailed in Note 3 – Business Combination included in our Annual Report on Form 10-K for the year ended December 31, 2022, (“Business Combination”).
Loss on change in fair value of warrants
|
|
|
|
|
|
Change |
|
|||||||
($ in thousands) |
2023 |
|
2022 |
|
$ |
|
|
% |
|
|||||
Three Months Ended March 31, |
|
$ |
(269 |
) |
$ |
(15,936 |
) |
$ |
15,667 |
|
|
|
98.3 |
% |
For the three months ended March 31, 2023, the fair value of the warrants liability increased by $0.3 million resulting in a loss for the period, while in the three months ended March 31, 2022, the fair value of the warrants liability increased $15.9 million, resulting in a loss for that amount. These changes in fair value were primarily driven by updates to certain variables such as stock price, stock volatility, risk-free rate, and remaining life.
The warrants were assumed by the Company in connection with the Business Combination.
(Provision) benefit for income taxes
|
|
|
|
|
|
Change |
|
|||||||
($ in thousands) |
2023 |
|
2022 |
|
$ |
|
|
% |
|
|||||
Three Months Ended March 31, |
|
$ |
(2,350 |
) |
$ |
1,025 |
|
$ |
(3,375 |
) |
|
|
-329.3 |
% |
Provision for income taxes was $2.4 million for the three months ended March 31, 2023, compared to a benefit for income taxes of $1.0 million for the three months ended March 31, 2022.
The AETR for the three months ended March 31, 2023 was less than the statutory rate of 21% primarily due to state and local income taxes, meals and entertainment and executive equity-based compensation not deductible for tax purposes. Additionally, we did not include any fair value adjustments not reasonably estimable for the full-year in the calculation of our AETR, such as the Seller's Earn-out and warrant liabilities as we cannot project the full-year impact of these specific items.
Non-GAAP Financial Information
We calculate and monitor certain non-GAAP financial measures to help set budgets, establish operational goals, analyze financial results and performance, and make strategic decisions. We also believe that the presentation of these non-GAAP financial measures provides an additional tool for investors to use in comparing our results of operations over multiple periods. However, the non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated. The non-GAAP financial measures presented should not be considered as the sole measure of our performance, and should not be considered in isolation from, or a substitute for, comparable financial measures calculated in accordance with GAAP.
The information in the table below sets forth the non-GAAP financial measures that we monitor. Because of the limitations associated with these non-GAAP financial measures, “Adjusted Gross Profit,” “EBITDA,” “Adjusted EBITDA,” “Adjusted Gross Profit as a percentage of Revenue” and “Adjusted EBITDA as a percentage of Adjusted Gross Profit” should
27
not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures on a supplemental basis. You should review the reconciliation of the non-GAAP financial measures below and not rely on any single financial measure to evaluate our business.
Adjusted Gross Profit
Adjusted Gross Profit is a non-GAAP profitability measure. Adjusted Gross Profit is a non-GAAP financial measure of campaign profitability, monitored by management and the Board, used to evaluate our operating performance and trends, develop short- and long-term operational plans, and make strategic decisions regarding the allocation of capital. We believe this measure provides a useful period to period comparison of campaign profitability and is useful information to investors and the market in understanding and evaluating our operating results in the same manner as our management and Board. Gross profit is the most comparable GAAP measurement, which is calculated as revenue less platform operations costs. In calculating Adjusted Gross Profit, we add back other platform operations costs, which consist of amortization expense related to capitalized software, depreciation expense, allocated costs of personnel which set up and monitor campaign performance, and platform hosting, license, and maintenance costs, to gross profit.
The following table presents the calculation of gross profit and reconciliation of gross profit to Adjusted Gross Profit for the three months ended March 31, 2023 and 2022.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Revenue |
|
$ |
32,674 |
|
|
$ |
34,241 |
|
Less: Platform operations |
|
|
18,387 |
|
|
|
17,772 |
|
Gross Profit |
|
|
14,287 |
|
|
|
16,469 |
|
Add back: Other platform operations |
|
|
6,610 |
|
|
|
6,516 |
|
Adjusted Gross Profit (1) |
|
$ |
20,897 |
|
|
$ |
22,985 |
|
EBITDA and Adjusted EBITDA
EBITDA is a non-GAAP financial measure defined by us as net loss, before interest (income) expense, net; depreciation, amortization; and income tax provision (benefit). Adjusted EBITDA is defined as EBITDA before equity-based compensation expense, transaction costs related to the Business Combination, non-core operations, and other non-recurring items.
Collectively these non-GAAP financial measures are key profitability measures used by our management and Board to understand and evaluate our operating performance and trends, develop short-and long-term operational plans, measure performance goals in employee equity incentive awards, and make strategic decisions regarding the allocation of capital. We believe that these measures can provide useful period-to-period comparisons of campaign profitability. Accordingly, we believe that these measures provide useful information to investors and the market in understanding and evaluating our operating results in the same manner as our management and the Board.
28
The following table sets forth a reconciliation of net loss to Adjusted EBITDA for the three months ended March 31, 2023 and 2022.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Net loss |
|
$ |
(5,223 |
) |
|
$ |
(42,290 |
) |
Interest (income) expense, net |
|
|
(619 |
) |
|
|
109 |
|
Tax provision (benefit) |
|
|
2,350 |
|
|
|
(1,025 |
) |
Depreciation and amortization |
|
|
2,108 |
|
|
|
2,088 |
|
EBITDA (1) |
|
$ |
(1,384 |
) |
|
$ |
(41,118 |
) |
Equity-based compensation |
|
|
1,480 |
|
|
|
1,988 |
|
Seller's Earn-Out equity-based compensation |
|
|
— |
|
|
|
492 |
|
Transaction costs (2) |
|
|
166 |
|
|
|
140 |
|
(Gain) loss on change in fair value of Seller's Earn-Out (3) |
|
|
(233 |
) |
|
|
24,656 |
|
Loss on change in fair value of warrants (4) |
|
|
269 |
|
|
|
15,936 |
|
Gain on deconsolidation of SymetryML (5) |
|
|
— |
|
|
|
(1,939 |
) |
Loss on change in fair value of SAFE Notes (6) |
|
|
— |
|
|
|
788 |
|
Loss on fair value of investment in SymetryML Holdings |
|
|
168 |
|
|
|
— |
|
Non-core operations (7) |
|
|
— |
|
|
|
351 |
|
Adjusted EBITDA (1) |
|
$ |
466 |
|
|
$ |
1,294 |
|
Adjusted EBITDA as a Percentage of Adjusted Gross Profit and Adjusted Gross Profit as a Percentage of Revenue
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands, except for percentages) |
|
|||||
Gross Profit |
|
$ |
14,287 |
|
|
$ |
16,469 |
|
Net loss |
|
$ |
(5,223 |
) |
|
$ |
(42,290 |
) |
Net loss as a percentage of Gross Profit |
|
|
-36.6 |
% |
|
|
-256.8 |
% |
Adjusted Gross Profit (1) |
|
$ |
20,897 |
|
|
$ |
22,985 |
|
Adjusted EBITDA (1) |
|
$ |
466 |
|
|
$ |
1,294 |
|
Adjusted EBITDA as a percentage of Adjusted Gross Profit (1) |
|
|
2.2 |
% |
|
|
5.6 |
% |
Gross Profit |
|
$ |
14,287 |
|
|
$ |
16,469 |
|
Revenue |
|
$ |
32,674 |
|
|
$ |
34,241 |
|
Gross Profit as a percentage of Revenue |
|
|
43.7 |
% |
|
|
48.1 |
% |
Revenue |
|
$ |
32,674 |
|
|
$ |
34,241 |
|
Adjusted Gross Profit (1) |
|
$ |
20,897 |
|
|
$ |
22,985 |
|
Adjusted Gross Profit as a percentage of Revenue (1) |
|
|
64.0 |
% |
|
|
67.1 |
% |
29
Liquidity and Capital Resources
Our business requires substantial amounts of cash for operating activities, including salaries and wages paid to our employees, development expenses, general and administrative expenses, and others. As of March 31, 2023, we had $75.3 million in cash.
As of March 31, 2023, our working capital was $100.1 million. All amounts previously drawn on our Revolving Credit Facility, as defined below were re-paid in January 2022 and we do not anticipate a need to borrow on this facility in the immediate future. We believe we have sufficient sources of liquidity, including cash generated from operations as well as the capacity on the Revolving Credit Facility, to support our operating needs, capital requirements, and debt service requirements for the next twelve months.
The accompanying Condensed Consolidated Financial Statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
Our purchase commitments per our standard terms and conditions with our suppliers and vendors are cancellable in whole or in part with or without cause prior to delivery. If we terminate an order, we will have no liability beyond payment of any balances owing for goods or services delivered previously.
Silicon Valley Bank Revolver
On December 22, 2021, we entered into a Senior Secured Agreement with SVB which allows us to borrow up to $40.0 million in a Revolving Credit Facility, including a $10.0 million sub-limit for letters of credit and a swing line sub-limit of $10.0 million. The Revolving Credit Facility commitment termination date is December 22, 2026. We accounted for the Senior Secured Agreement as a debt modification.
In accordance with the Senior Secured Agreement there are two types of revolving loan, either a Secured Overnight Financing Rate Loan (“SOFR Loan”) loan or an ABR Alternate Base Rate Loan (“ABR Loan”). The revolving loans may from time to time be SOFR Loans or ABR Loans, as determined by the Company. Interest shall be payable quarterly based on the type of loan.
In addition, the Senior Secured Agreement has a commitment fee in relation to the non-use of available funds ranging from 0.25% to 0.35% per annum based on the leverage ratio of the Company.
All obligations under the Senior Secured Agreement are secured by a first priority lien on substantially all assets of the Company.
We are subject to customary representations, warranties, and covenants. The Senior Secured Agreement requires that the Company meet certain financial and non-financial covenants which include, but are not limited to, (i) delivering audited consolidated financial statements to the lender within 90 days after year-end commencing with the fiscal year ending December 31, 2022 financial statements, (ii) delivering unaudited quarterly consolidated financial statements within 45 days after each fiscal quarter, commencing with the quarterly period ending on March 31, 2022 and (iii) maintaining certain leverage ratios and liquidity coverage ratios. As of March 31, 2023, we were in full compliance with the terms of the Senior Secured Agreement.
30
As of March 31, 2023, we had one letter of credit for approximately $1.0 million and no amounts were drawn on the Revolving Credit Facility.
Cash Flows
Days payable outstanding (“DPO”) is calculated by dividing the average accounts payable for the period presented by the expense activity classified as platform operations less allocated costs of our personnel and allocated depreciation and amortization for the periods presented multiplied by the number of days in the period. We are generally contractually required to pay suppliers of advertising inventory and data within a negotiated period of time, regardless of whether our customers pay on time, or at all. While we attempt to negotiate long payment periods with our suppliers and shorter periods from our customers, it is not always successful. As a result, our accounts payable are often due on shorter cycles than our accounts receivables, requiring us to remit payments from our own funds, and accept the risk of bad debt. Our standard payment terms range from 30 to 60 days.
Days sales outstanding (“DSO”) is calculated by dividing average accounts receivable for the period by revenue recorded for the period multiplied by the number of days in the period. Our standard payment terms range from 30 to 60 days. For the periods presented, our DSO has exceeded the standard payment terms of customers, because like many companies in our industry, we often experience slow payment by advertising agencies, such that advertising agencies typically collect payment from their customers before remitting payment to us. We evaluate the creditworthiness of customers on a regular basis.
Accounts receivable are recorded at the invoiced amount, are unsecured, and do not bear interest. The allowance for credit losses is based on the best estimate of the amount of probable credit losses in existing accounts receivable. We individually review all balances that exceed 90 days from the invoice date and assesses for provisions for credit losses based on an assessment of the balance that will not be collected. Factors considered include the aging of the receivable, historical write off experience, the creditworthiness of each agency customer, and general economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is remote.
We expect to continue generating strong positive cash flows as we scale our operations.
The following table summarizes our cash flows for the periods indicated:
|
|
Three Months Ended March 31, |
|||||||
|
|
2023 |
|
|
2022 |
|
|
||
|
|
(in thousands) |
|||||||
Net cash provided by operating activities |
|
$ |
4,111 |
|
|
$ |
2,830 |
|
|
Net cash used in investing activities |
|
$ |
(1,219 |
) |
|
$ |
(789 |
) |
|
Net cash used in financing activities |
|
$ |
(170 |
) |
|
$ |
(38,417 |
) |
|
Operating Activities
Net cash provided by operating activities increased $1.3 million for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The increase was primarily due to the following:
Offsetting decreases in operating cash included the following:
31
Investing Activities
Net cash used in investing activities during the three months ended March 31, 2023 was $1.2 million, primarily consisting of capitalized software development costs.
Net cash used in investing activities during the three months ended March 31, 2022 was $0.8 million, primarily consisting of capitalized software development costs of $0.6 million.
Financing Activities
Net cash used in financing activities during the three months ended March 31, 2023 was $0.2 million, consisting primarily of cash paid for restricted stock withheld for taxes of $0.4 million. Offsetting these payments were proceeds related to cash received from issuance of shares under the Employee Stock Purchase Plan of $0.2 million, and cash received from stock option exercises of $0.1 million
Net cash used in financing activities during the three months ended March 31, 2022 was $38.4 million, consisting primarily of the re-payment of revolver borrowings of $39.0 million. We also received proceeds from the SAFE Notes of $0.2 million and proceeds related to a SymetryML issuance of preferred stock of $0.4 million.
Critical Accounting Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. Preparation of the financial statements requires our management to make judgments, estimates and assumptions that impact the reported amount of revenue and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our Condensed Consolidated Financial Statements.
We have not identified any critical accounting estimates other than estimates and assumptions related to the input values in the valuation models used in the valuation of the Company’s Private Placement Warrants, classified as a Level 2 liability and the Seller’s Earn-out liability, classified as a Level 3 liability. Critical accounting estimates are specifically related to expected stock-price volatility, expected term, dividend yield, and risk-free interest rate.
For the Private Placement Warrants, a BSM was used to determine the fair value, respectively. The expected volatility assumption was determined using a weighted average of the Company’s historical volatility, the historical volatilities of a group of industry peers, and the implied volatility from the market price of the Public Warrants. The risk-free rate assumption is based on the U.S. Treasury instruments, the terms of which were consistent with the expected term of the Private Placement Warrants. The expected term represents the time until expiration of the Private Placement Warrants. The dividend yield is based on the Company’s history, which we anticipate to remain at zero.
For the Seller’s Earn-out, a Monte Carlo simulation valuation model is used to determine the fair value. The expected volatility assumption was determined using a weighted average of the Company’s historical volatility, the historical volatilities of a group of industry peers, and the implied volatility from the market price of the Public Warrants. The risk-free rate is based on the U.S. Treasury instruments, the terms of which were consistent with the expected term of the Seller’s Earn-Out. The forecasted period represents the time until expiration of the Seller’s Earn-Out. The dividend yield is based on the Company’s history, which we anticipate to remain at zero.
We evaluate such estimates and assumptions each reporting period and reflect changes in the valuation methodologies that we use.
For further discussion on these items and their impact included in our financial statements refer to Note 14 — Seller's Earn-Out and Note 15 — Warrants, included elsewhere in this Form 10-Q.
32
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures: We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired controls.
As of March 31, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures defined above. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting: There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are made aware of legal allegations arising in the ordinary course of our business. We are not currently a party to any actions, claims, suits or other legal proceedings the outcome of which, if determined adversely to AdTheorent, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.
Item 1A. Risk Factors
There have not been any material changes to the information related to the ITEM 1A. “Risk Factors” disclosure in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Our business involves significant risks. You should carefully consider the risks and uncertainties described in our Annual Report, together with all of the other information in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report. The risks and uncertainties described in our Annual Report are not the only ones we face.
Additional risk and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives. In that event, the market price of our common stock could decline and you could lose part or all of your investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
33
Item 5. Other Information
None.
Exhibit |
|
Description |
31.1* |
|
|
31.2* |
|
|
32.1* |
|
|
32.2* |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ADTHEORENT HOLDING COMPANY, INC.
|
|
By: |
/s/ James Lawson |
|
|
|
James Lawson |
|
|
|
Chief Executive Officer and Director |
|
|
|
(principal executive officer) |
Date: May 9, 2023 |
|
|
|
|
|
|
|
|
|
By: |
/s/ Patrick Elliott |
|
|
|
Patrick Elliott |
|
|
|
Chief Financial Officer |
|
|
|
(principal financial and accounting officer) |
Date: May 9, 2023 |
|
|
|
35
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Lawson, certify that:
Date: May 9, 2023 |
|
By: |
/s/ James Lawson |
|
|
|
James Lawson |
|
|
|
Chief Executive Officer and Director |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Patrick Elliott, certify that:
Date: May 9, 2023 |
|
By: |
/s/ Patrick Elliott |
|
|
|
Patrick Elliott |
|
|
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AdTheorent Holding Company, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 9, 2023 |
|
By: |
/s/ James Lawson |
|
|
|
James Lawson |
|
|
|
Chief Executive Officer and Director |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AdTheorent Holding Company, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 9, 2023 |
|
By: |
/s/ Patrick Elliott |
|
|
|
Patrick Elliott |
|
|
|
Chief Financial Officer |