MAGNITE, INC.
This Quarterly Report on Form 10-Q and related statements by the Company contain
forward-looking statements, including statements based upon or relating to our
expectations, assumptions, estimates, and projections. In some cases, you can
identify forward-looking statements by terms such as "may," "might," "will,"
"objective," "intend," "should," "could," "can," "would," "expect," "believe,"
"design," "anticipate," "estimate," "predict," "potential," "plan" or the
negative of these terms, and similar expressions. Forward-looking statements may
include, but are not limited to, statements concerning the potential impacts of
the COVID-19 pandemic on our business operations, financial condition, and
results of operations and on the world economy; our anticipated financial
performance, including, without limitation, revenue, advertising spend,
profitability, net loss, loss per share, and cash flow; anticipated benefits or
effects related to the consummation of the merger with Telaria, including
estimated synergies and cost savings resulting from the merger; strategic
objectives, including focus on header bidding, connected television ("CTV"),
mobile, video, Demand Manager, identity solutions, and private marketplace
opportunities; investments in our business; development of our technology;
industry growth rates for ad-supported CTV and the shift in video consumption
from linear TV to CTV; introduction of new offerings; the impact of transparency
initiatives we may undertake; the impact of our traffic shaping technology on
our business; the effects of our cost reduction initiatives; scope and duration
of client relationships; the fees we may charge in the future; business mix and
expansion of our CTV, mobile, video and private marketplace offerings; sales
growth; client utilization of our offerings; our competitive differentiation;
our market share and leadership position in the industry; market conditions,
trends, and opportunities; user reach; certain statements regarding future
operational performance measures including ad requests, fill rate, paid
impressions, average CPM, take rate, and advertising spend; benefits from supply
path optimization; and other statements that are not historical facts. These
statements are not guarantees of future performance; they reflect our current
views with respect to future events and are based on assumptions and estimates
and 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.
These risks include, but are not limited to:
•the severity, magnitude, and duration of the COVID-19 pandemic, including
impacts of the pandemic and of responses to the pandemic by governments,
business and individuals on our operations, personnel, buyers, sellers, and on
the global economy and the advertising marketplace;
•our ability to successfully integrate the Telaria business and realize the
anticipated benefits of the merger;
•our ability to grow and to manage our growth effectively;
•our ability to develop innovative new technologies and remain a market leader;
•our ability to attract and retain buyers and sellers of digital advertising
inventory, or publishers, and increase our business with them;
•our vulnerability to loss of, or reduction in spending by, buyers;
•our reliance on large sources of advertising demand, including demand side
platforms ("DSPs") that may have or develop high-risk credit profiles or fail to
pay invoices when due, including as a result of general liquidity constraints
experienced by buyers from the COVID-19 pandemic, which has caused certain
buyers to delay payments or seek revised payment terms;
•our ability to maintain and grow a supply of advertising inventory from sellers
and to fill the increased inventory;
•the effect on the advertising market and our business from difficult economic
conditions or uncertainty;
•the freedom of buyers and sellers to direct their spending and inventory to
competing sources of inventory and demand;
•our ability to cause buyers and sellers to use our solution to purchase and
sell higher value advertising and to expand the use of our solution by buyers
and sellers utilizing evolving digital media platforms, including CTV;
•our reliance on large aggregators of advertising inventory, and the
concentration of CTV among a small number of large publishers that enjoy
significant negotiating leverage;
•our ability to introduce new offerings and bring them to market in a timely
manner, and otherwise adapt in response to client demands and industry trends,
including shifts in linear TV to CTV, digital advertising growth from desktop to
mobile channels and other platforms and from display to video formats and the
introduction and market acceptance of Demand Manager;
•uncertainty of our estimates and expectations associated with new offerings,
including CTV, header bidding, private marketplace, mobile, video, Demand
Manager, and traffic shaping;
•the possibility of lower take rates and the need to grow through increasing the
volume and/or value of transactions on our platform and increasing our fill
rate;
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•our vulnerability to the depletion of our cash resources as a result of the
adverse impacts of the COVID-19 pandemic, or as we incur additional investments
in technology required to support the increased volume of transactions on our
exchange and to develop new offerings;
•our ability to support our growth objectives with reduced resources from our
cost reduction initiatives;
•our ability to raise additional capital if needed and/or renew our working
capital line of credit;
•our limited operating history and history of losses;
•our ability to continue to expand into new geographic markets and grow our
market share in existing markets;
•our ability to adapt effectively to shifts in digital advertising;
•increased prevalence of ad-blocking or cookie-blocking technologies and the
slow adoption of common identifiers;
•the development and use of proprietary identity solutions as a replacement for
third party cookies and other identifiers currently used in our platform;
•the slowing growth rate of desktop display advertising;
•the growing percentage of online and mobile advertising spending captured by
owned and operated sites (such as Facebook, Google, and Amazon);
•industry growth rates for ad-supported CTV and the shift in video consumption
from linear TV to digital mediums such as CTV and over-the-top ("OTT");
•the adoption of programmatic advertising by CTV publishers;
•the effects, including loss of market share, of increased competition in our
market and increasing concentration of advertising spending, including mobile
spending, in a small number of very large competitors;
•the effects of consolidation in the ad tech industry;
•acts of competitors and other third parties that can adversely affect our
business;
•our ability to differentiate our offerings and compete effectively in a market
trending increasingly toward commodification, transparency, and
disintermediation;
•requests for discounts, fee concessions or revisions, rebates, refunds,
favorable payment terms and greater levels of pricing transparency and
specificity;
•our ability to ensure a high level of brand safety for our clients and to
detect "bot" traffic and other fraudulent or malicious activity;
•the effects of seasonal trends on our results of operations;
•costs associated with defending intellectual property infringement and other
claims;
•our ability to attract and retain qualified employees and key personnel;
•political uncertainty and the ability of the company to attract political
advertising spend;
•our ability to identify future acquisitions of or investments in complementary
companies or technologies and our ability to consummate the acquisitions and
integrate such companies or technologies; and
•our ability to comply with, and the effect on our business of, evolving legal
standards and regulations, particularly concerning data protection and consumer
privacy and evolving labor standards.
We discuss many of these risks and additional factors that could cause actual
results to differ materially from those anticipated by our forward-looking
statements under the headings "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this report and in other filings we have made and will make from time to time
with the Securities and Exchange Commission , or SEC , including our Annual Report
on Form 10-K for the year ended December 31, 2019 and subsequent Quarterly
Reports on Form 10-Q for 2020. These forward-looking statements represent our
estimates and assumptions only as of the date of the report in which they are
included. 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. Without limiting the
foregoing, any guidance we may provide will generally be given only in
connection with quarterly and annual earnings announcements, without interim
updates, and we may appear at industry conferences or make other public
statements without disclosing material nonpublic information in our possession.
Given these uncertainties, investors should not place undue reliance on these
forward-looking statements.
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Investors should read this Quarterly Report on Form 10-Q and the documents that
we reference in this report and have filed or will file with the SEC 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.
The following discussion should be read in conjunction with our unaudited
condensed consolidated financial statements and notes thereto appearing
elsewhere in this Quarterly Report on Form 10-Q.
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Overview
Magnite, Inc. , formerly known as The Rubicon Project, Inc. ("we," or "us"), was
formed and began operations in April 2007 . On April 1, 2020 , we completed a
stock-for-stock merger ("Merger") with Telaria, Inc. , ("Telaria"), a leading
provider of connected television ("CTV") technology, creating what we believe is
the world's largest independent sell-side advertising platform, offering a
single partner for transacting globally across all channels, formats, and
auction types.
We provide a technology solution to automate the purchase and sale of digital
advertising inventory. Our platform features applications and services for
sellers of digital advertising inventory, or publishers, that own or operate
websites, applications, CTV channels, and other digital media properties, to
manage and monetize their inventory; applications and services for buyers,
including advertisers, agencies, agency trading desks, and demand side platforms
("DSPs"), to buy digital advertising inventory; and a transparent, independent
marketplace that brings buyers and sellers together and facilitates intelligent
decision making and automated transaction execution at scale. Our clients
include many of the world's leading publishers and buyers of digital advertising
inventory. We believe our platform reaches approximately one billion users
creating a global, scaled, independent alternative to walled gardens, who both
own and sell inventory and maintain control on the demand side.
Digital advertising inventory, or advertising units, can be monetized across
multiple channels, including CTV, mobile, and desktop and digital out-of-home,
and takes various formats, including video, display, and audio. Publishers
monetize their inventory through our platform by seamlessly connecting to a
global market of integrated buyers that transact through real-time bidding,
which includes direct sale of premium inventory to a buyer, which we refer to as
private marketplace ("PMP"), and open auction bidding, where buyers bid against
each other in a real-time auction for the right to purchase a publisher's
inventory, which we refer to as open marketplace ("OMP"). Real-time bidding, or
programmatic, transactions automate the publishers' sales process and improve
workflow capabilities to increase productivity, while increasing revenue
opportunities by enabling buyers and publishers to directly communicate and
share data to deliver more valuable targeted advertising.
We provide a full suite of tools for publishers to control their advertising
business and protect the consumer viewing experience. These controls are
particularly important to CTV publishers who need to ensure a TV-like viewing
and advertising experience for consumers. For instance, our "ad-pod" feature
provides publishers with a tool analogous to commercial breaks in traditional
linear television so that they can request and manage several ads at once from
different demand sources. Using this tool, publishers can establish business
rules such as competitive separation of advertisers to ensure that competing
brand ads do not appear during the same commercial break. In addition, we offer
audio normalization tools to control for the volume of an ad relative to
content, frequency capping to avoid exposing viewers to repetitive ad
placements, and creative review so that a publisher can review and approve the
ad units being served to its properties.
At the same time, buyers leverage our platform to manage their advertising
spending and reach their target audiences, simplify order management and
campaign tracking, obtain actionable insights into audiences for their
advertising, and access impression-level purchasing from thousands of sellers.
Following the Merger, we believe that we will be an essential omni-channel
partner for buyers to reach target audiences at scale, optimizing the supply
path with industry-leading transparency, robust support for identity solutions
and brand-safe premium inventory.
We generate revenue from the use of our platform for the purchase and sale of
digital advertising inventory. Digital advertising inventory is created when
consumers access sellers' content. Sellers provide digital advertising inventory
to our platform in the form of advertising requests, or ad requests. When we
receive ad requests from sellers, we send bid requests to buyers, which enable
buyers to bid on sellers' digital advertising inventory. Winning bids can create
advertising, or paid impressions, for the seller to present to the consumer. The
volume of paid impressions measured as a percentage of ad requests is referred
to as fill rate. The price that buyers pay for each thousand paid impressions
purchased is measured in units referred to as CPM, or cost per thousand.
The total volume of spending between buyers and sellers on our platform is
referred to as advertising spend. We keep a percentage of that advertising spend
as a fee, and remit the remainder to the seller. The fee that we retain from the
gross advertising spend on our platform is recognized as revenue. The fee earned
on each transaction is based on the pre-existing agreement between us and the
seller and the clearing price of the winning bid. We also refer to revenue
divided by advertising spend as our take rate.
We operate our business on a worldwide basis, with an established operating
presence in North America , Australia , and Europe and a developing presence in
Asia and South America . Substantially all of our assets are U.S. assets. Our
non-U.S. subsidiaries and operations perform primarily sales, marketing, and
service functions.
At the closing of the Merger, each share of Telaria common stock issued and
outstanding as of the effective time of the Merger was converted into the right
to receive 1.082 shares of Magnite common stock. Accordingly, on April 1, 2020 ,
we issued 52,098,945 shares of common stock to the former stockholders of
Telaria. On June 8, 2020 , we voluntarily delisted our common stock from the New
York Stock Exchange ("NYSE") and commenced listing on the Nasdaq Global Select
Market of The Nasdaq Stock Market LLC . On June 30, 2020 , we changed our name
from "The Rubicon Project, Inc. " to "Magnite, Inc. " In connection with the name
change, we also changed our ticker symbol from "RUBI" to "MGNI."
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Trends in Our Business
Macroeconomic Factors - COVID-19 Pandemic Impact on the Economy and the Business
The COVID-19 pandemic and resulting global disruptions have affected our
business and the businesses of the buyers and sellers with whom we work and have
also caused significant economic challenges and volatility in financial markets.
Adverse economic conditions and general uncertainty about economic recovery or
growth, particularly in North America and Europe , where we do most of our
business, has caused a significant number of advertisers to reduce their
advertising budgets, in particular with respect to certain categories of
advertising that were particularly impacted by the pandemic and resulting
stay-at-home orders. Our business depends on the overall demand for advertising
and on the economic health of our current and prospective sellers and buyers. If
advertisers' overall advertising spend is reduced, our revenue, and results of
operations, cash flows, and financial condition will be adversely impacted. The
economic health of our current and prospective buyers also impacts the
collectability of our accounts receivable. To the extent we are unable to
collect our accounts receivable on a timely basis or if buyers face financial
difficulties that result in the delay in payment or non-payment of accounts
receivable, our working capital could be adversely impacted. Given the current
economic environment, mainly impacted by the COVID-19 pandemic worldwide, our
liquidity may be severely impacted as we may need additional time to collect
from buyers, which will impact our ability to pay sellers. While a significant
number of advertisers have reduced their advertising budgets, the amount of ad
requests that we process has spiked, as people around the world spend more time
at home and in front of internet-connected devices. The increase in ad requests
increases our costs, and our infrastructure may not be capable of processing the
increased volume of ad requests.
Due to the substantial uncertainties associated with the COVID-19 pandemic, the
extent to which the pandemic (and actions taken in response to it by
governments, businesses, and individuals) will ultimately impact our business is
currently unknown; however, in the short term we have experienced a significant
negative effect on our revenue. We experienced some recovery in revenue in the
latter half of the second quarter, which has accelerated in the third quarter;
however, these trends may not continue as the impact of the COVID-19 pandemic on
our business and operations remains uncertain and depends on various factors,
including the spread of the virus, public health measures, travel and business
restrictions, quarantines, shelter-in-place orders, and shutdowns.
In addition to the United States , we have personnel and operations in England ,
Canada , France , Australia , New Zealand , Germany , Italy , Japan , Singapore , and
Brazil , and each of these countries has been affected by the outbreak and taken
measures to try to contain it. Our global workforce maintained a work from home
policy for the entirety of the second quarter of 2020 and this expected to
continue in the foreseeable future for the majority of our employees. We intend
to approach returning to our offices with caution and to prioritize the safety
and health of our employees, while following the guidance set by local
authorities and our landlords. Prior to returning to work, we expect to
institute a number of protective measures and policies. These measures may
increase our expenses as we modify our office spaces to accommodate social
distancing, provision personal protective equipment, and rollout enhanced
communication software to provide messaging to our employees. We believe that
our employees have been able to work productively during the time period in
which our global offices have been shut down. However, to the extent we have
continued extended work from home requirements, or that work patterns are
permanently altered, it is unclear how productivity may be impacted in the
long-term, and we may have reduced workforce productivity which could increase
our costs.
We may utilize a range of financing methods to fund our operations and capital
expenditures if needed, and expect to continue to maintain financing flexibility
in the current market conditions. However, due to the rapidly evolving global
situation, it is not possible to predict whether unanticipated consequences of
the COVID-19 pandemic are reasonably likely to materially affect our liquidity
and capital resources in the future.
There can be no assurance that any decrease in sales resulting from the COVID-19
pandemic will be offset by increased sales in subsequent periods, or that our
recently observed partial revenue recovery will continue or will be sustainable
over the longer term. The full magnitude of the impact of the COVID-19 pandemic
on our business and operations remains uncertain and depends on various factors,
including the spread of the virus, public health measures, travel and business
restrictions, quarantines, shelter-in-place orders, and shutdowns. Refer to Part
II, Item 1A: "Risk Factors" for additional information related to this risk
factor.
CTV, Mobile, and Desktop Trends
Publishers use our technology to monetize their content across all digital
channels, including CTV, mobile and desktop. Each of these channels has its own
industry growth rate, with CTV and mobile projected to continue to grow
steadily, while desktop growth flattens. Prior to the COVID-19 pandemic, MAGNA
had estimated compound annual growth rates from 2019 to 2023 for mobile and
desktop at 22% and 1%, respectively, and over the same period, eMarketer
projected CTV to grow at a 19% compound annual growth rate.
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Following the Merger, we expect CTV to be a significant driver of our revenue
growth. CTV refers to the viewing of digital content on internet connected
televisions, including through stand-alone streaming devices, gaming consoles
and smart TV operating systems.
CTV viewership is growing rapidly. A June 2020 study from Leichtman Research
Group found that 80 percent of TV-owning households in the U.S. have at least
one internet-connected TV device. The adoption of CTV has disrupted the
traditional linear TV distribution model, as eMarketer estimates that
approximately 50 million people in the U.S. have "cut-the-cord" (i.e., canceled
a pay TV service and continue without it) as of the end of 2019, with
approximately 34% of US households not reachable through traditional TV. This
disruption has created new options for consumers and new economic opportunities
for content publishers to compete with traditional linear TV.
Despite the growth in CTV viewership, the CTV advertising market, in particular
programmatic advertising, is still in its early stages. Historically, the
largest streaming applications have been subscription-based. Moreover, CTV
publishers with ad-supported models have been slower to adopt programmatic
solutions compared to desktop and mobile publishers due to a variety of
technical and business reasons. CTV inventory tends to be concentrated among
larger publishers who often have their own direct sales forces and manage a
number of media properties. Many of these publishers have backgrounds in cable
or broadcast television and have limited experience with online advertising. For
these publishers, it is extremely important to protect the quality of the viewer
experience, to maintain brand goodwill and ensure that online advertising
efforts do not create sales channel conflicts with their other media properties
or otherwise detract from their direct sales efforts. In this regard,
programmatic advertising presents a number of potential challenges, including
the ability to ensure that ads are brand safe, comply with business rules around
competitive separation, are not overly repetitive, are played at the appropriate
volume, do not cause delays in load-time of content and can accommodate spikes
in video consumption around landmark live events.
Our platform was built to solve these challenges with features such as
ad-podding, frequency capping, dynamic live insertion, audio normalization and
creative review. In addition, we have invested significant time and resources
cultivating relationships with CTV publishers. The sales cycle for these
publishers tends to be longer and often involves a competitive process, as these
publishers tend to work with fewer partners than digital and mobile publishers.
In order to deepen our relationships with CTV partners, our sales engineers
often serve a consultative role within a client's sales organization to help
establish best practices and evangelize the benefits of programmatic CTV, and
for certain larger CTV publishers, we may build custom features or functionality
to help drive deeper adoption. For the foregoing reasons, we believe we compete
favorably for CTV inventory and believe that we will be able to grow CTV revenue
faster than industry growth rates.
As the number of CTV channels continues to proliferate, we believe that
ad-supported models or hybrid models that rely on a combination of subscription
fees and advertising revenue will continue to gain traction. Furthermore, as the
CTV market continues to mature, we believe that a greater percentage of CTV
advertising inventory will be sold programmatically, similar to trends that
occurred in desktop and mobile. Although we expect the COVID-19 pandemic to
cause temporary headwinds relating to demand challenges, we believe that the
pandemic and resulting shelter-in-place orders have the potential to accelerate
these long-term CTV trends. With people spending more time at home, we have seen
a large increase in viewership on CTV. This increase in viewership has the
potential to create long-term changes in viewing habits. At the same time,
macroeconomic challenges are driving consumers away from pay subscriptions
towards ad supported models. Prolonged macroeconomic challenges may also lead
CTV advertisers and publishers to more readily embrace programmatic advertising
as they look to create economic efficiencies and reduce costs.
We believe that as streaming continues to become mainstream and ad supported
models become more prevalent, brand advertisers looking to engage with streaming
viewers will continue to shift their budgets from linear to CTV. This inventory
is highly sought after, as it combines a traditional TV-like viewing experience
with the significant advantage of digital advertising, including the ability to
target audiences and measure performance in real-time.
Due primarily to the impact of the COVID-19 pandemic, revenue from our mobile
and desktop channels decreased year-over-year during the three months ended June
30, 2020 . In future periods, we expect our mobile business will grow at a higher
rate than desktop, consistent with industry trends and our historical results.
Our mobile business consists of two components, mobile web and mobile
applications. Initially our mobile business consisted primarily of mobile web,
which is similar to our desktop business, but our mobile application business is
the growth driver behind our mobile business, and prior to the coronavirus
pandemic showed growth rates in excess of industry projections. Lower industry
growth rates in desktop will make growth of desktop revenue more challenging;
however, in future periods we believe we will be able to grow our desktop
business in excess of industry projections by capturing market share through
Supply Path Optimization ("SPO") and expansion of publisher relationships.
For the three months ended June 30, 2020 , mobile, desktop and CTV represented
45%, 36%, and 19% of our revenue, respectively. Due to the higher growth rates
for CTV and mobile, we expect our desktop business to decline as an overall
percentage of our revenue. However, we expect our traditional desktop display
business to continue to represent a significant part of our revenue in the near
term. Therefore, the mix of our desktop display business will continue to have a
significant effect on our growth rate until our advertising spend mix has
shifted more fully to growth areas.
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Supply Path Optimization
SPO refers to efforts by buyers to consolidate the number of vendors they work
with to find the most effective and cost-efficient paths to procure media. This
practice emerged in 2018 and continues to gain momentum. SPO is important to
buyers because it can increase the proportion of their advertising ultimately
spent on working media, with the goal of increasing return on their advertising
spending, and can help them gain efficiencies by reducing the number of vendors
they work with in a complex ecosystem. There are a number of criteria that
buyers use to evaluate supply partners, including transparency, cost, quality
and breadth of inventory, access to unique inventory and to CTV inventory,
privacy standards, brand safety standards, including compliance with ads.txt and
similar industry standards, and fraudulent traffic prevention policies. We
believe we are well positioned to benefit from supply path optimization in the
long run as a result of our transparency, our pricing tools, which reduce the
overall cost of working with us, our broad inventory supply across all channels
and formats, buyer tools such as traffic shaping, and our brand safety measures.
Our SPO positioning was further enhanced by the Merger with Telaria, which
operates a leading sell-side video monetization platform built specifically for
CTV, with strong research and development capabilities, differentiated
technology and premium partner relationships. Following the combination, we
offer buyers a single omni-channel partner to reach target audiences globally
across all channels, including CTV, mobile, desktop, and digital out-of-home,
and formats, including video, display, and audio. We believe the COVID-19
pandemic, and the resulting economic downturn, has the potential to accelerate
SPO as buyers and publishers seek to work with established, trusted partners who
have a strong balance sheet during times of uncertainty.
We believe that benefits from successful outcomes in the SPO process could drive
meaningful increases of ad spend across our platform. In order to achieve
increased ad spend, we may negotiate discounts to our seller fees with agencies
and advertisers, and we have increasingly been receiving requests from buyers
for discounts, rebates, or similar incentives in order to move more advertising
spending to our platform. We believe that because our business has many fixed
costs, increases in ad spend volume create opportunity to disproportionately
improve net income, even with increased seller fee discounts. However, our
results could be negatively impacted if our advertising spend increases and cost
leverage is not adequate to compensate for discounted fees.
Impact of Header Bidding
Header bidding is a programmatic technique where publishers offer inventory to
multiple ad exchanges, such as Magnite , at the same time. Header bidding has
been rapidly adopted in recent years in the desktop and mobile channels, and
while the rise and rapid adoption of header bidding increased revenue for
sellers, it also created new challenges. Managing multiple exchanges on the page
is technically complex, and in the early days of header bidding this complexity
was exacerbated by the lack of independent technology standards. In 2017, we
began to address these issues through our support of Prebid, a free and open
source suite of software products designed by advertising community developers
to enable publishers to implement header bidding on their websites and from
within their apps. Despite Prebid's adoption by a number of the world's largest
sellers, deploying and customizing it still requires dedicated technical
resources. In the second quarter of 2019, we announced the beta program for
Demand Manager. Demand Manager helps sellers effectively monetize their
advertising inventory through configuration tools and analytics to make it
easier to deploy, configure, and optimize Prebid-based header bidding solutions.
In October 2019 , we acquired RTK.io, a provider of header bidding solutions, to
complement and further bolster our Demand Manager technology. We believe that
adoption of these tools will further strengthen our relationship with sellers
and contribute to our future revenue growth. We charge sellers a fee for Demand
Manager that is based on all of the sellers' advertising spending managed
through Demand Manager, whether the actual inventory monetization runs through
our exchange or otherwise.
Privacy Regulation and Identification Solutions
Our business is highly susceptible to emerging privacy regulations and oversight
concerning the collection, use and sharing of data. Data protection authorities
in a number of territories have expressed a desire to focus on the advertising
technology ecosystem. In particular, this scrutiny has focused on the use of
technology (including "cookies") to collect or aggregate information about
Internet users' online browsing activity. Because we, and our clients, rely upon
large volumes of such data, it is essential that we monitor developments in this
area domestically and globally, and engage in responsible privacy practices.
The use of and transfer of personal data in EU member states is currently
governed by the General Data Protection Regulation (the "GDPR"). The GDPR sets
out higher potential liabilities for certain data protection violations and
establishes significant new regulatory requirements resulting in a greater
compliance burden for us in the course of delivering our solution in the
European Union . While data protection authorities have started to clarify
certain requirements under GDPR, significant uncertainty remains as to how the
regulation will be applied and enforced.
In addition to the GDPR, a number of new privacy regulations will or have
already come into effect in 2020. The California legislature passed the
California Consumer Privacy Act ("CCPA") in 2018, which became effective January
1, 2020 . This regulation imposes new obligations on businesses that handle the
personal information of California residents. The
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obligations imposed require us to maintain ongoing significant resources for
compliance purposes. Certain requirements remain unclear due to ambiguities in
the drafting of or incomplete guidance. Adding to the uncertainty facing the ad
tech industry, a new initiative slated for California's November ballot, titled
the California Privacy Rights Act ("CPRA"), would impose additional notice and
opt out obligations on the digital advertising space. If the CPRA passes (as it
is widely expected to do), it will cause us to incur additional compliance costs
and may impose additional restrictions on us and on our industry partners. These
ambiguities and resulting impact on our business will need to be resolved over
time. In addition, other privacy bills have been introduced at both the state
and federal level. Certain international territories are also imposing new or
expanded privacy obligations. In the coming years, we expect further consumer
privacy regulation worldwide.
Until prevailing compliance practices standardize, the impact of worldwide
privacy regulations on our business and, consequently, our revenue could be
negatively impacted.
In addition to privacy regulations restricting the collection of data through
identifiers (such as cookies), other industry participants in the advertising
technology ecosystem have taken or may take action to eliminate or restrict the
use of cookies and other identifiers. For instance, Google has announced plans
to fully eliminate the use of third-party cookies, while Apple has further
restricted the use of mobile identifiers on its devices. It is possible that
these companies may rely on proprietary algorithms or statistical methods to
track web users without cookies, or may utilize log-in credentials entered by
users into other web properties owned by these companies, such as their digital
email services, to track web usage, including usage across multiple devices,
without cookies. Alternatively, such companies may build different and
potentially proprietary user tracking methods into their widely-used web
browsers and mobile operating systems.
While these new identification solutions will likely provide some level of
consistency and compatibility with our platform, they are unreleased and
unproven, and will require substantial development and commercial changes for us
to support. There is also further risk that the changes will disproportionately
benefit the owners of these platforms or the large walled gardens that have
access to large amounts of first party data. To prepare for these risks, we are
actively working with publishers to develop solutions that could leverage their
first party data. We are also leading efforts through prebid.org, with industry
support, to create standardized open identity solutions that ensure a smooth
transition to a cookieless environment, and offer an alternative to proprietary
solutions. Prebid.org is an independent organization designed to ensure and
promote fair, transparent, and efficient header bidding across the industry.
We support privacy initiatives and believe they will be beneficial to consumers'
confidence in advertising, which will ultimately be positive for the advertising
ecosystem in the long term. In the short term, however, these changes could
create some variability in our revenue across certain buyers or sellers,
depending on the timing of changes and developed solutions. As the largest
independent supply side platform, we believe we are well positioned to take a
leadership position in driving open identity solutions that will benefit buyers
and sellers on our platform.
Merger Costs Synergies and Expense Reduction Initiatives
In connection with the Merger, which closed on April 1, 2020 , we previously
announced expected annual run rate cost synergies to exceed $20 million , with
expected areas of synergy to include duplicative public company costs, vendor
rationalization, overlapping general and administrative costs, and other
operational streamlining. As a result of these efforts, we reduced our headcount
by approximately 8% of our combined workforce during the second quarter of 2020
and expect some additional reductions for individuals involved in integration
and transition activities later in the year. Given the timing in implementing
these synergies and the impact of one-time severance and other costs, the
majority of the cost reductions will not be realized until late 2020 but should
be fully realized in early 2021.
In addition, given the significant impact resulting from the COVID-19 pandemic,
we have taken additional short-term actions, including compensation reductions,
a hiring freeze, and deferment of certain capital expenditures; and, as
expected, we will have lower costs from marketing events and travel. We expect
that the timing of the temporary reductions will benefit us immediately and
remain in place until such time we see a sustainable recovery in revenue.
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Components of Our Results of Operations
We report our financial results as one operating segment. Our consolidated
operating results are regularly reviewed by our chief operating decision maker,
principally to make decisions about how we allocate our resources and to measure
our consolidated operating performance.
Revenue
We generate revenue from the purchase and sale of digital advertising inventory
through our platform. We also generate revenue from the fee we charge clients
for use of our Demand Manager product, which generally is a percentage of the
client's advertising spending on any advertising marketplace. We recognize
revenue upon the fulfillment of our contractual obligations in connection with a
completed transaction, subject to satisfying all other revenue recognition
criteria. For substantially all transactions executed through our platform, we
act as an agent on behalf of the publisher that is monetizing its inventory, and
revenue is recognized net of any advertising inventory costs that we remit to
publishers. With respect to certain revenue streams acquired in connection with
the Merger with Telaria, we report revenue on a gross basis, based primarily on
our determination that the Company acts as the primary obligor in the delivery
of advertising campaigns for our buyer clients with respect to such
transactions. The revenue that we recognized on a gross basis was less than 2%
of total revenue during the three months ended June 30, 2020 . Our revenue
recognition policies are discussed in more detail in Note 3 of the accompanying
Notes to the Condensed Consolidated Financial Statements.
Expenses
We classify our expenses into the following categories:
Cost of Revenue. Our cost of revenue consists primarily of data center costs,
bandwidth costs, ad protection costs, depreciation and maintenance expense of
hardware supporting our revenue-producing platform, amortization of software
costs for the development of our revenue-producing platform, amortization
expense associated with acquired developed technologies, personnel costs,
facilities-related costs, and cloud computing costs. Personnel costs included in
cost of revenue include salaries, bonuses, and stock-based compensation, and are
primarily attributable to personnel in our network operations group who support
our platform. We capitalize costs associated with software that is developed or
obtained for internal use and amortize the costs associated with our
revenue-producing platform in cost of revenue over their estimated useful lives.
We amortize acquired developed technologies over their estimated useful lives.
Sales and Marketing. Our sales and marketing expenses consist primarily of
personnel costs, including salaries, bonuses, and stock-based compensation, as
well as marketing expenses such as brand marketing, travel expenses, trade shows
and marketing materials, professional services, and amortization expense
associated with client relationships and backlog from our business acquisitions,
and to a lesser extent, facilities-related costs and depreciation and
amortization. Our sales organization focuses on increasing the adoption of our
solution by existing and new buyers and sellers. We amortize acquired
intangibles associated with client relationships and backlog from our business
acquisitions over their estimated useful lives.
Technology and Development. Our technology and development expenses consist
primarily of personnel costs, including salaries, bonuses, and stock-based
compensation, as well as professional services associated with the ongoing
development and maintenance of our solution, and to a lesser extent,
facilities-related costs and depreciation and amortization. These expenses
include costs incurred in the development, implementation, and maintenance of
internal use software, including platform and related infrastructure. Technology
and development costs are expensed as incurred, except to the extent that such
costs are associated with internal use software development that qualifies for
capitalization, which are then recorded as internal use software development
costs, net, on our consolidated balance sheets. We amortize internal use
software development costs that relate to our revenue-producing activities on
our platform to cost of revenue and amortize other internal use software
development costs to technology and development costs or general and
administrative expenses, depending on the nature of the related project. We
amortize acquired intangibles associated with technology and development
functions from our business acquisitions over their estimated useful lives.
General and Administrative. Our general and administrative expenses consist
primarily of personnel costs, including salaries, bonuses, and stock-based
compensation, associated with our executive, finance, legal, human resources,
compliance, and other administrative personnel, as well as accounting and legal
professional services fees, facilities-related costs and depreciation and
amortization, and other corporate-related expenses. General and administrative
expenses also include amortization of internal use software development costs
and acquired intangible assets from our business acquisitions over their
estimated useful lives that relate to general and administrative functions.
Merger and Restructuring Costs. Our merger and restructuring costs consist
primarily of professional services fees associated with the Merger and employee
termination costs, including stock-based compensation charges, associated with
the Merger and restructuring activities.
Other (Income), Expense
Interest (Income) Expense, Net. Interest income consists of interest earned on
our cash equivalents and marketable securities. Interest expense is mainly
related to our credit facility.
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Other Income. Other income consists primarily of rental income from commercial
office space we hold under lease and have sublet to other tenants.
Foreign Currency Exchange (Gain) Loss, Net. Foreign currency exchange (gain)
loss, net consists primarily of gains and losses on foreign currency
transactions. We have foreign currency exposure related to our accounts
receivable and accounts payable that are denominated in currencies other than
the U.S. Dollar, principally the British Pound and the Euro.
Provision (Benefit) for Income Taxes
We are subject to income taxes in the U.S. (federal and state) and numerous
foreign jurisdictions. Tax laws, regulations, administrative practices,
principles, and interpretations in various jurisdictions may be subject to
significant change, with or without notice, due to economic, political, and
other conditions, and significant judgment is required in evaluating and
estimating our provision and accruals for these taxes. There are many
transactions that occur during the ordinary course of business for which the
ultimate tax determination is uncertain. Our effective tax rates could be
affected by numerous factors, such as changes in our business operations,
acquisitions, investments, entry into new businesses and geographies,
intercompany transactions, the relative amount of our foreign earnings,
including earnings being lower than anticipated in jurisdictions where we have
lower statutory rates and higher than anticipated in jurisdictions where we have
higher statutory rates, losses incurred in jurisdictions for which we are not
able to realize related tax benefits, the applicability of special tax regimes,
changes in foreign currency exchange rates, changes in our stock price, changes
in our deferred tax assets and liabilities and their valuation, changes in the
laws, regulations, administrative practices, principles, and interpretations
related to tax, including changes to the global tax framework, competition, and
other laws and accounting rules in various jurisdictions.
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Results of Operations
The following table sets forth our condensed consolidated results of
operations:
Three Months Ended Six Months Ended
June 30, 2020 June 30, 2019 Change % June 30, 2020 June 30, 2019 Change %
(in thousands) (in thousands)
Revenue $ 42,348 $ 37,870 12 % $ 78,643 $ 70,286 12 %
Expenses (1)(2):
Cost of revenue 21,545 15,085 43 % 35,548 30,201 18 %
Sales and marketing 20,029 11,519 74 % 31,298 22,111 42 %
Technology and development 13,063 9,839 33 % 23,756 19,555 21 %
General and administrative 15,780 10,027 57 % 24,907 20,307 23 %
Merger and restructuring
costs 12,493 - 100 % 14,423 - 100 %
Total expenses 82,910 46,470 78 % 129,932 92,174 41 %
Loss from operations (40,562) (8,600) (372) % (51,289) (21,888) (134) %
Other income, net (1,722) (403) 327 % (2,573) (437) 489 %
Loss before income taxes (38,840) (8,197) (374) % (48,716) (21,451) (127) %
Provision (benefit) for
income taxes 288 84 243 % 87 (624) (114) %
Net loss $ (39,128) $ (8,281) (373) % $ (48,803) $ (20,827) (134) %
(1) Stock-based compensation expense included in our expenses was as follows:
Three Months Ended Six Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(in thousands) (in thousands)
Cost of revenue $ 189 $ 106 $ 290 $ 198
Sales and marketing 2,534 1,459 3,619 2,804
Technology and development 2,225 1,166 3,408 2,225
General and administrative 3,743 2,064 5,431 3,937
Merger and restructuring costs 1,200 - 1,200 -
Total stock-based compensation expense
(2) Depreciation and amortization expense included in our expenses was as follows:
Three Months Ended Six Months Ended
June 30,
June 30, 2020 June 30, 2019 June 30, 2020 2019
(in thousands) (in thousands)
Cost of revenue $ 9,817 $ 7,758 $ 16,828 $ 15,803
Sales and marketing 4,365 113 4,645 238
Technology and development 97 178 197 374
General and administrative 278 125 411 399
Total depreciation and amortization expense
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The following table sets forth our condensed consolidated results of
operations for the specified periods as a percentage of our revenue for those
periods presented:
Three Months Ended Six Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 51 40 45 43
Sales and marketing 47 30 40 31
Technology and development 31 26 30 28
General and administrative 37 27 32 29
Merger and restructuring costs 30 - 18 -
Total expenses 196 123 165 131
Loss from operations (96) (23) (65) (31)
Other income, net (5) (1) (3) -
Loss before income taxes (91) (22) (62) (31)
Provision (benefit) for income taxes 1 - - (1)
Net loss (92) % (22) % (62) % (30) %
Comparison of the Three and Six Months Ended
Revenue
Revenue increased$4.5 million , or 12%, for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 . Our revenue growth was driven primarily by the Merger, completed onApril 1, 2020 , which contributed$13.1 million in revenue during the three months endedJune 30, 2020 . Excluding the impact of the Merger, our revenue decreased 23%, primarily due to the impact of the COVID-19 pandemic, which led to an overall decrease in advertiser demand. For the six months endedJune 30, 2020 , revenue increased$8.4 million , or 12%, compared to the prior year period, primarily due to the Merger. Excluding the impact of the Merger, our revenue decreased 7%, primarily due to the impact of the COVID-19 pandemic. Revenue is impacted by shifts in the mix of advertising spend by transaction type and channel, changes in the fees we charge for our services, and other factors such as changes in the market, our execution of the business, and competition. In addition, an increase in PMP transactions as a percentage of the transactions on our platform could also result in reduced revenue, if not offset by increased volume, because PMP transactions can carry lower fees than OMP transactions. We expect the percentage of PMP transactions to increase following the Merger since CTV is largely transacted through PMP. Industry dynamics are challenging due to market and competitive pressures and make it difficult to predict the near-term effect of our growth initiatives. As a result of the Merger, we expect revenue to increase in 2020 compared to 2019, specifically related to CTV. However, these increases have been tempered, and may be partially offset in the future, by reductions in revenue resulting from the economic impact of the COVID-19 pandemic. We experienced some recovery in revenue in the latter half of the second quarter, which has accelerated in the third quarter; however, these trends may not continue as the impact of the COVID-19 pandemic on our business and operations remains uncertain and depends on various factors, including the spread of the virus, public health measures, travel and business restrictions, quarantines, shelter-in-place orders, and shutdowns. There can be no assurance that any decrease in sales resulting from the COVID-19 pandemic will be offset by increased sales in subsequent periods in the year. Although the full magnitude of the impact of the COVID-19 pandemic on our business and operations remains uncertain, the continued spread of COVID-19, the imposition of related public health measures, and travel and business restrictions will adversely impact the combined company's forecasted business, financial condition, operating results and cash flows. Refer to Part II, Item 1A: "Risk Factors" for additional information related to this risk factor and the impact it may have on our business. Cost of Revenue Cost of revenue increased$6.5 million or 43% for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 , primarily due to the Merger. Cost of revenue increased by$3.2 million in data and bandwidth expenses,$2.1 million in depreciation and amortization, and$0.6 million in personnel costs during the three months endedJune 30, 2020 compared to the same period in the prior year. 35 -------------------------------------------------------------------------------- Table of Contents For the six months endedJune 30, 2020 , cost of revenue increased$5.3 million , or 18%, compared to the prior year period primarily due to the Merger. Cost of revenue increased by$2.7 million in data and bandwidth expenses,$1.0 million in depreciation and amortization, and$0.9 million in personnel costs during the three months endedJune 30, 2020 compared to the same period in the prior year. We expect cost of revenue to be higher in 2020 compared to 2019 in absolute dollars due to the increased amortization of intangible assets resulting from the Merger in addition to increased expenses as we continue to expand select data center operations to cloud service providers to accelerate innovation and gain efficiencies, and to support the growth of our business. These increases will be partially offset by a decrease in cost of revenue in the remainder of the year associated with merger synergies and our expense reduction initiatives. For details surrounding our expense reduction initiatives, refer to "Merger Costs Synergies and Expense Reduction Initiatives" discussed above. Cost of revenue may fluctuate from quarter to quarter and period to period, on an absolute dollar basis and as a percentage of revenue, depending on revenue levels and the volume of transactions we process supporting those revenues, and the timing and amounts of depreciation and amortization of equipment and software. Sales and Marketing Sales and marketing expenses increased$8.5 million , or 74%, for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 , primarily due to the Merger and associated increases in headcount and the amortization of acquired intangibles and other assets. Sales and marketing expenses increased by$5.9 million related to personnel expenses and by$4.3 million related to depreciation and amortization associated with the Merger. For the six months endedJune 30, 2020 , sales and marketing expenses increased$9.2 million , or 42%, compared to the prior year period for the same reasons above. Sales and marketing expenses increased by$6.3 million related to personnel expenses and by$4.4 million related to depreciation and amortization associated with the Merger. Sales and marketing expense increases during the three and six months endedJune 30, 2020 compared to the prior year periods were partially offset by decreases in travel and industry events due to the impact of the COVID-19 pandemic. We expect sales and marketing expenses to increase in 2020 compared to 2019 in absolute dollars as a result of the Merger, primarily due to additional headcount. These increases will be partially offset by a decrease in sales and marketing expenses in the remainder of the year associated with merger synergies and our expense reduction initiatives. For details surrounding our expense reduction initiatives, refer to "Merger Costs Synergies and Expense Reduction Initiatives" discussed above. Sales and marketing expenses may fluctuate quarter to quarter and period to period, on an absolute dollar basis and as a percentage of revenue, based on revenue levels, the timing of our investments and seasonality in our industry and business. Technology and Development Technology and development expenses increased$3.2 million , or 33%, for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 , due to an increase of$3.4 million in personnel costs as a result of the increased headcount associated with the Merger. For the six months endedJune 30, 2020 , technology and development expenses increased$4.2 million , or 21%, compared to the prior year period, due to an increase of$4.3 million in personnel costs primarily for the same reasons above. We expect technology and development expenses to continue to increase in 2020 compared to 2019 in absolute dollars as a result of the Merger, primarily due to additional headcount. These increases will be partially offset by a decrease in technology and development expenses in the remainder of the year associated with merger synergies and our expense reduction initiatives. For details surrounding our expense reduction initiatives, refer to "Merger Costs Synergies and Expense Reduction Initiatives" discussed above. The timing and amount of our capitalized development and enhancement projects may affect the amount of development costs expensed in any given period. As a percentage of revenue, technology and development expense may fluctuate from quarter to quarter and period to period based on revenue levels, the timing and amounts of technology and development efforts, the timing and the rate of the amortization of capitalized projects and the timing and amounts of future capitalized internal use software development costs. 36 -------------------------------------------------------------------------------- Table of Contents General and Administrative General and administrative expenses increased by$5.8 million , or 57%, for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 , primarily due to increases of$3.5 million in personnel expenses,$2.0 million in facilities related expenses, and$0.7 million in professional services primarily associated with the Merger. For the six months endedJune 30, 2020 , general and administrative expenses increased$4.6 million , or 23%, compared to the prior year period, primarily due to increases of$3.5 million in personnel expenses,$1.9 million in facilities related expenses, and$0.7 million in professional services for the same reasons above. The increase was partially offset by a decrease of$0.9 million related to bad debt. We expect general and administrative expenses to continue to increase in 2020 compared to 2019 in absolute dollars as a result of the Merger, primarily due to the additional headcount. These increases will be partially offset by a decrease in general and administrative expenses in the remainder of the year associated with merger synergies and our expense reduction initiatives. For details surrounding our expense reduction initiatives, refer to "Merger Costs Synergies and Expense Reduction Initiatives" discussed above. General and administrative expenses may fluctuate from quarter to quarter and period to period based on the timing and amounts of expenditures in our general and administrative functions as they vary in scope and scale over periods. Such fluctuations may not be directly proportional to changes in revenue. Merger and Restructuring Costs We incurred merger and restructuring costs of$12.5 million and$14.4 million during the three and six months endedJune 30, 2020 , respectively. These costs included professional fees of$6.8 million and$8.6 million related to investment banking advisory, legal, and other professional services fees, one-time cash-based employee termination benefit costs of$4.5 million and$4.6 million , and non-cash stock-based compensation expense associated with double-trigger accelerations and severance benefits of$1.2 million and$1.2 million during the three and six months endedJune 30, 2020 , respectively. There were no merger and restructuring costs incurred during the three and six months endedJune 30, 2019 . Other Income, Net Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 (in thousands) (in thousands) Interest (income) expense, net $ 2$ (214) $ (142) $ (407) Other income (1,284) (46) (1,293) (188) Foreign exchange (gain) loss, net (440) (143) (1,138) 158 Total other income, net$ (1,722) $ (403) $ (2,573) $ (437) Other income increased by$1.2 million and$1.1 million during the three and six months endedJune 30, 2020 , respectively, compared to the same periods in prior year, primarily due to rental income from commercial office space we hold under lease and have sublet to other tenants. Foreign exchange (gain) loss, net is impacted by movements in exchange rates and the amount of foreign currency-denominated receivables and payables, which are impacted by our billings to buyers and payments to sellers. During the three and six months endedJune 30, 2020 , the net foreign exchange gain was primarily attributable to the currency movements between the British Pound, Australian Dollar, and the Euro relative to theU.S. Dollar.
Provision (Benefit) for Income Taxes
We recorded an income tax expense of $0.3 million and $0.1 million for the
three and six months ended June 30, 2020 , respectively, and an income tax
expense of $0.1 million and benefit of $0.6 million for the three and six months
ended June 30, 2019 , respectively. The tax expense for the three and six months
ended June 30, 2020 is primarily the result of the domestic valuation allowance
and the tax liability associated with the foreign subsidiaries.
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Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents, marketable
securities, cash generated from operations, and our credit facility with Silicon
Valley Bank ("SVB"). As of June 30, 2020 , we had cash and cash equivalents of
$107.5 million , of which $17.7 million was held in foreign currency cash
accounts. Our cash and marketable securities balances are affected by our
results of operations, the timing of capital expenditures which are typically
greater in the second half of the year, and by changes in our working capital,
particularly changes in accounts receivable and accounts payable. The timing of
cash receipts from buyers and payments to sellers can significantly impact our
cash flows from operating activities and our liquidity for, and within, any
period presented. Our collection and payment cycle can vary from period to
period depending upon various circumstances, including seasonality, and may be
negatively impacted as a result of COVID-19.
In September 2018 , we amended and restated our loan and security agreement with
SVB (the "Loan Agreement"). The Loan Agreement provides a senior secured
revolving credit facility of up to $40.0 million with a maturity date of
September 26, 2020 . Pursuant to the Loan Agreement, we are required to comply
with financial covenants. While we are currently in compliance with these
covenants, this could change in the future depending on our operating results.
As of June 30, 2020 , we had no amounts outstanding under our Loan Agreement with
SVB. Future availability under the credit facility is dependent on several
factors including the available borrowing base and compliance with future
covenant requirements. See Note 13 of "Notes to Condensed Consolidated Financial
Statements" for additional information regarding the Loan Agreement.
Our ability to renew our existing credit facility, which matures in September
2020 , or to enter into a new credit facility to replace or supplement the
existing facility may be limited due to various factors, including the status of
our business, global credit market conditions, and perceptions of our business
or industry by sources of financing. In particular, it may be difficult to renew
or replace our existing credit facility if we are not able to demonstrate a path
to consistently produce positive cash flow. In addition, even if credit is
available, lenders may seek more restrictive covenants and higher interest rates
that may reduce our borrowing capacity, increase our costs, and reduce our
operating flexibility.
We believe our existing cash and cash equivalents and investment balances will
be sufficient to meet our working capital requirements for at least the next
twelve months from the issuance of our financial statements. However, there are
multiple factors that could impact our cash balances in the future. For example,
we typically collect from buyers in advance of payments to sellers, and our
collection and payment cycle can vary from period to period depending upon
various circumstances, including seasonality. Some buyers have been demanding
longer terms to pay us later, and some sellers have been demanding shorter terms
to collect from us earlier. If we accept these terms, more of our cash will be
required to fund our payment cycle and therefore not be available for other
uses. In addition, in the event a buyer defaults on payment, we may still be
required to pay sellers for the inventory purchased even if we are unable to
collect from buyers. These challenges have been exacerbated by the COVID-19
pandemic and resulting economic impact, as many of our buyers are experiencing
financial difficulties and liquidity constraints. In certain cases, buyers have
been unable to timely make payments and we have agreed to revised payment
schedules. To date, these actions have not had a material negative impact on our
cash flow or liquidity. At June 30, 2020 , two buyers accounted for 37% and 10%,
respectively, of consolidated accounts receivable. The future capital
requirements and the adequacy of available funds will depend on many factors,
including the duration and severity of the COVID-19 pandemic and its impact on
buyers and sellers and the factors and those set forth in Part II, Item 1A:
"Risk Factors" of our Annual Report on Form 10-K for the year ended December 31,
2019 , Part II, Item 1A: "Risk Factors" of our Quarterly Report on Form 10-Q for
the period ended March 31, 2020 , and in Part II, Item 1A of this Form 10-Q.
In the future, we may attempt to raise additional capital through the sale of
equity securities or through equity-linked or debt financing arrangements. If we
raise additional funds by issuing equity or equity-linked securities, the
ownership of our existing stockholders will be diluted. If we raise additional
financing by incurring indebtedness, we will be subject to increased fixed
payment obligations and could also be subject to restrictive covenants, such as
limitations on our ability to incur additional debt, and other operating
restrictions that could adversely impact our ability to conduct our business.
Any future indebtedness we incur may result in terms that could be unfavorable
to equity investors. Due to the economic uncertainty caused by the COVID-19
pandemic, the debt and equity markets have become less predictable and obtaining
financing on favorable terms and at favorable rates has become more difficult.
An inability to raise additional capital could adversely affect our ability to
achieve our business objectives. In addition, if our operating performance
during the next twelve months is below our expectations, our liquidity and
ability to operate our business could be adversely affected.
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