10-Q 1 mrin-10q_20200930.htm 10-Q mrin-10q_20200930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2020

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: 001-35838

 

Marin Software Incorporated

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

20-4647180

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

123 Mission Street, 27th Floor, San Francisco, CA

(Address of Principal Executive Offices)

 

94105

(Zip Code)

 

(415) 399-2580

(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

Common Stock, $0.001 Par Value Per Share

 

MRIN

 

The Nasdaq Global Market

 

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.    Yes      No 

 

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 during the preceding 12 months (or for such shorter time period that the registrant was required to submit such files).    Yes      No 

 

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

 

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 October 30, 2020, the registrant had 8,866,251 shares of common stock outstanding.

 

 

 


 

Table of Contents

 

PART I.

FINANCIAL INFORMATION

 

3

Item 1.

Financial Statements (unaudited)

 

3

 

CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

 

3

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

 

4

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

 

5

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

 

7

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

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

 

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4.

Controls and Procedures

 

31

PART II.

OTHER INFORMATION

 

32

Item 1.

Legal Proceedings

 

32

Item 1A.

Risk Factors

 

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

50

Item 3.

Defaults Upon Senior Securities

 

50

Item 4.

Mine Safety Disclosures

 

50

Item 5.

Other Information

 

50

Item 6.

Exhibits

 

51

SIGNATURES

 

52

 

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

MARIN SOFTWARE INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value)

 

 

 

At September 30,

 

 

At December 31,

 

 

 

2020

 

 

2019*

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,978

 

 

$

11,134

 

Restricted cash

 

 

972

 

 

 

971

 

Accounts receivable, net

 

 

5,432

 

 

 

8,939

 

Prepaid expenses and other current assets

 

 

3,029

 

 

 

3,522

 

Total current assets

 

 

17,411

 

 

 

24,566

 

Property and equipment, net

 

 

5,969

 

 

 

8,524

 

Right-of-use assets, operating leases

 

 

9,336

 

 

 

7,705

 

Intangible assets, net

 

 

-

 

 

 

95

 

Other non-current assets

 

 

913

 

 

 

1,403

 

Total assets

 

$

33,629

 

 

$

42,293

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,194

 

 

$

1,679

 

Accrued expenses and other current liabilities

 

 

7,118

 

 

 

9,010

 

Note payable, current

 

 

2,033

 

 

 

 

Operating lease liabilities

 

 

6,820

 

 

 

3,786

 

Total current liabilities

 

 

17,165

 

 

 

14,475

 

Note payable, net of current

 

 

1,287

 

 

 

 

Operating lease liabilities, non-current

 

 

3,483

 

 

 

5,181

 

Other long-term liabilities

 

 

884

 

 

 

1,577

 

Total liabilities

 

 

22,819

 

 

 

21,233

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value - 142,857 shares authorized, 7,115 and 6,810 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

7

 

 

 

7

 

Additional paid-in capital

 

 

300,490

 

 

 

299,263

 

Accumulated deficit

 

 

(288,636

)

 

 

(277,112

)

Accumulated other comprehensive loss

 

 

(1,051

)

 

 

(1,098

)

Total stockholders’ equity

 

 

10,810

 

 

 

21,060

 

Total liabilities and stockholders’ equity

 

$

33,629

 

 

$

42,293

 

 

*

Derived from the Company’s audited consolidated financial statements as of December 31, 2019.

See accompanying notes to the condensed consolidated financial statements.

3


 

MARIN SOFTWARE INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues, net

 

$

6,796

 

 

$

11,728

 

 

$

22,731

 

 

$

37,652

 

Cost of revenues

 

 

4,323

 

 

 

5,567

 

 

 

14,253

 

 

 

17,307

 

Gross profit

 

 

2,473

 

 

 

6,161

 

 

 

8,478

 

 

 

20,345

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

1,491

 

 

 

3,732

 

 

 

5,683

 

 

 

12,453

 

Research and development

 

 

3,106

 

 

 

3,872

 

 

 

9,881

 

 

 

13,427

 

General and administrative

 

 

2,131

 

 

 

2,631

 

 

 

6,123

 

 

 

8,129

 

Total operating expenses

 

 

6,728

 

 

 

10,235

 

 

 

21,687

 

 

 

34,009

 

Loss from operations

 

 

(4,255

)

 

 

(4,074

)

 

 

(13,209

)

 

 

(13,664

)

Other income, net

 

 

111

 

 

 

640

 

 

 

1,117

 

 

 

1,712

 

Loss before benefit from income taxes

 

 

(4,144

)

 

 

(3,434

)

 

 

(12,092

)

 

 

(11,952

)

Benefit from income taxes

 

 

(72

)

 

 

(161

)

 

 

(568

)

 

 

(70

)

Net loss

 

 

(4,072

)

 

 

(3,273

)

 

 

(11,524

)

 

 

(11,882

)

Foreign currency translation adjustments

 

 

(41

)

 

 

(54

)

 

 

47

 

 

 

(49

)

Comprehensive loss

 

$

(4,113

)

 

$

(3,327

)

 

$

(11,477

)

 

$

(11,931

)

Net loss per share available to common stockholders, basic and diluted (Note 11)

 

$

(0.58

)

 

$

(0.49

)

 

$

(1.67

)

 

$

(1.90

)

Weighted-average shares used to compute net loss per share available to common stockholders, basic and diluted

 

 

7,017

 

 

 

6,631

 

 

 

6,916

 

 

 

6,262

 

Stock-based compensation expense is allocated as follows (Note 8):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

$

(19

)

 

$

127

 

 

$

204

 

 

$

394

 

Sales and marketing

 

 

24

 

 

 

155

 

 

 

283

 

 

 

540

 

Research and development

 

 

123

 

 

 

266

 

 

 

507

 

 

 

816

 

General and administrative

 

 

67

 

 

 

105

 

 

 

214

 

 

 

350

 

Amortization of intangible assets is allocated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

$

 

 

$

234

 

 

$

47

 

 

$

702

 

Sales and marketing

 

 

 

 

 

 

 

 

 

 

 

64

 

Research and development

 

 

 

 

 

234

 

 

 

48

 

 

 

702

 

Restructuring related expenses are allocated as follows (Note 5):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

$

529

 

 

$

 

 

$

522

 

 

$

6

 

Sales and marketing

 

 

214

 

 

 

 

 

 

264

 

 

 

223

 

Research and development

 

 

185

 

 

 

 

 

 

185

 

 

 

 

General and administrative

 

 

123

 

 

 

 

 

 

123

 

 

 

 

 

See accompanying notes to the condensed consolidated financial statements.

4


 

MARIN SOFTWARE INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(in thousands)

 

 

 

Three Months Ended September 30, 2020

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Stockholders'

Equity

 

Balances at June 30, 2020

 

 

6,959

 

 

$

7

 

 

$

300,139

 

 

$

(284,564

)

 

$

(1,010

)

 

$

14,572

 

Issuance of common stock through equity distribution agreement, net of offering costs of $9

 

 

134

 

 

 

 

 

 

179

 

 

 

 

 

 

 

 

 

179

 

Issuance of common stock from vesting of restricted stock units (Note 7)

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to vesting of restricted stock units

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

 

 

 

 

(23

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

195

 

 

 

 

 

 

 

 

 

195

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,072

)

 

 

 

 

 

(4,072

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(41

)

 

 

(41

)

Balances at September 30, 2020

 

 

7,115

 

 

$

7

 

 

$

300,490

 

 

$

(288,636

)

 

$

(1,051

)

 

$

10,810

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Stockholders'

Equity

 

Balances at June 30, 2019

 

 

6,623

 

 

$

7

 

 

$

297,903

 

 

$

(273,322

)

 

$

(1,033

)

 

$

23,555

 

Issuance of common stock from vesting of restricted stock units (Note 7)

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to vesting of restricted stock units

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

(3

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

653

 

 

 

 

 

 

 

 

 

653

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,273

)

 

 

 

 

 

(3,273

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54

)

 

 

(54

)

Balances at September 30, 2019

 

 

6,642

 

 

$

7

 

 

$

298,553

 

 

$

(276,595

)

 

$

(1,087

)

 

$

20,878

 

 

 

 

Nine Months Ended September 30, 2020

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Stockholders'

Equity

 

Balances at December 31, 2019

 

 

6,810

 

 

$

7

 

 

$

299,263

 

 

$

(277,112

)

 

$

(1,098

)

 

$

21,060

 

Issuance of common stock through equity distribution agreement, net of offering costs of $9

 

 

134

 

 

 

 

 

 

179

 

 

 

 

 

 

 

 

 

179

 

Issuance of common stock from vesting of restricted stock units (Note 7)

 

 

160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to vesting of restricted stock units

 

 

 

 

 

 

 

 

(174

)

 

 

 

 

 

 

 

 

(174

)

Issuance of common stock under employee stock purchase plan

 

 

11

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

14

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,208

 

 

 

 

 

 

 

 

 

1,208

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,524

)

 

 

 

 

 

(11,524

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

47

 

 

 

47

 

Balances at September 30, 2020

 

 

7,115

 

 

$

7

 

 

$

300,490

 

 

$

(288,636

)

 

$

(1,051

)

 

$

10,810

 

 

See accompanying notes to the condensed consolidated financial statements.

 

5


 

 

 

Nine Months Ended September 30, 2019

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Stockholders'

Equity

 

Balances at December 31, 2018

 

 

5,938

 

 

$

6

 

 

$

295,116

 

 

$

(264,713

)

 

$

(1,038

)

 

$

29,371

 

Issuance of common stock through equity distribution agreement, net of offering costs of $203

 

 

570

 

 

 

1

 

 

 

1,503

 

 

 

 

 

 

 

 

 

1,504

 

Issuance of common stock from vesting of restricted stock units (Note 7)

 

 

92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to vesting of restricted stock units

 

 

 

 

 

 

 

 

(254

)

 

 

 

 

 

 

 

 

(254

)

Issuance of common stock under employee stock purchase plan

 

 

42

 

 

 

 

 

 

88

 

 

 

 

 

 

 

 

 

88

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,100

 

 

 

 

 

 

 

 

 

2,100

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,882

)

 

 

 

 

 

(11,882

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49

)

 

 

(49

)

Balances at September 30, 2019

 

 

6,642

 

 

$

7

 

 

$

298,553

 

 

$

(276,595

)

 

$

(1,087

)

 

$

20,878

 

 

See accompanying notes to the condensed consolidated financial statements.

6


 

MARIN SOFTWARE INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(11,524

)

 

$

(11,882

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

1,661

 

 

 

1,475

 

Amortization of internally developed software

 

 

2,330

 

 

 

2,762

 

Amortization of intangible assets

 

 

95

 

 

 

1,468

 

Loss on disposals of property and equipment and right-of-use assets

 

 

19

 

 

 

13

 

Amortization of deferred costs to obtain and fulfill contracts

 

 

700

 

 

 

1,240

 

Interest expense

 

 

14

 

 

 

 

Unrealized foreign currency losses (gains)

 

 

(29

)

 

 

(52

)

Stock-based compensation expense related to equity awards

 

 

1,208

 

 

 

2,100

 

Provision for bad debts

 

 

(204

)

 

 

(47

)

Net change in operating leases

 

 

(294

)

 

 

(421

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,723

 

 

 

3,728

 

Prepaid expenses and other assets

 

 

289

 

 

 

1

 

Accounts payable

 

 

(482

)

 

 

(774

)

Accrued expenses and other liabilities

 

 

(1,994

)

 

 

737

 

Net cash (used in) provided by operating activities

 

 

(4,488

)

 

 

348

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(14

)

 

 

(92

)

Capitalization of internally developed software

 

 

(1,442

)

 

 

(1,874

)

Net cash used in investing activities

 

 

(1,456

)

 

 

(1,966

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from note payable

 

 

3,320

 

 

 

 

Proceeds from issuance of common shares through equity distribution agreement, net of offering costs of $9 and $203 for 2020 and 2019, respectively

 

 

179

 

 

 

1,504

 

Payment of principal on finance lease liabilities

 

 

(545

)

 

 

(986

)

Employee taxes paid for withheld shares upon equity award settlement

 

 

(220

)

 

 

(295

)

Proceeds from employee stock purchase plan, net

 

 

19

 

 

 

123

 

Net cash provided by financing activities

 

 

2,753

 

 

 

346

 

Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash

 

 

36

 

 

 

(93

)

Net decrease in cash and cash equivalents and restricted cash

 

 

(3,155

)

 

 

(1,365

)

Cash and cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

12,105

 

 

 

11,503

 

End of period

 

$

8,950

 

 

$

10,138

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Issuance of common stock under employee stock purchase plan

 

$

14

 

 

$

88

 

Purchases of property and equipment recorded in accounts payable and accrued expenses

 

 

-

 

 

 

318

 

 

See accompanying notes to the condensed consolidated financial statements.

7


 

Marin Software Incorporated

Notes to Condensed Consolidated Financial Statements

(dollars and share numbers in thousands, except per share data)

1. Summary of Business and Significant Accounting Policies

Marin Software Incorporated (the “Company”) was incorporated in Delaware in March 2006. The Company provides enterprise marketing software for advertisers and agencies to integrate, align and amplify their digital advertising spend across the web and mobile devices. Offered as a unified software-as-a-service (“SaaS”) advertising management solution for search, social and eCommerce advertising, the Company’s platform helps digital marketers convert precise audiences, improve financial performance and make better decisions. The Company’s corporate headquarters are located in San Francisco, California, and the Company has additional offices in the following locations: Austin, Dublin, London, New York, Paris and Shanghai.

Liquidity

The Company has incurred significant losses in each fiscal year since its incorporation in 2006. The Company incurred a net loss of $11,524 for the nine months ended September 30, 2020 and a net loss of $12,408 for the year ended December 31, 2019. As of September 30, 2020, the Company had an accumulated deficit of $288,636. The Company had cash, cash equivalents and restricted cash of $8,950 as of September 30, 2020. Management expects to incur additional losses and experience negative operating cash flows in the future. The Company’s ability to achieve its business objectives and to continue to meet its obligations is dependent upon maintaining a certain level of liquidity, which could be impacted by several factors, including market conditions and the ongoing effects of the novel coronavirus (COVID-19) pandemic. The recent global outbreak of COVID-19 has disrupted economic markets and the full economic impact, duration and spread of the COVID-19 is uncertain at this time and difficult to predict considering the rapidly evolving landscape. Since mid-March 2020, some of the Company’s customers have reduced the amount of digital advertising spend that they manage using the Company’s products, which has had an adverse effect on the Company’s results of operations, and some of the Company’s customers have requested extended payment terms, reduced fees or fee waivers, early contract terminations and other forms of contract relief. Although the Company has pursued, and expects to continue to pursue, additional sources of liquidity, including additional equity and debt financing, there is no assurance that any additional financing will be available on acceptable terms, or at all. During the three months ended September 30, 2020, the Company commenced a restructuring plan that included a global reduction-in-force and other cost saving actions to reduce its operating expenses and address the impact of the COVID-19 pandemic on its business (the “2020 Restructuring Plan”). The 2020 Restructuring Plan is expected to result in the reduction of the Company’s global workforce by approximately 60 employees, approximately half of which are located outside of the United States. The majority of planned workforce reductions were completed by September 30, 2020 with the remainder expected to be completed over the next few quarters. The Company’s ability to continue as a going concern depends upon its ability to improve customer retention rates, increase new bookings, manage its cash flows, raise additional financing, and reduce its expenses.

In May 2020, the Company entered into a loan agreement with Harvest Small Business Finance, LLC as the lender (“Lender”) for a loan in an aggregate principal amount of $3,320 (the “Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and implemented by the U.S. Small Business Administration (the “SBA”). The Company expects to apply to the Lender for forgiveness of approximately $2,800 due under the Loan, but no assurances can be provided as to the amount or timing of any potential Loan forgiveness.

In March 2019, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”), which was declared effective by the SEC on May 10, 2019, under which it may offer a variety of equity and debt securities, with an aggregate offering price of up to $50,000. As part of that shelf registration, the Company entered into an equity distribution agreement with JMP Securities LLC, or JMP Securities under which it may sell shares of its common stock up to a gross aggregate offering price of $13,000 (Note 6). For the three and nine months ended September 30, 2020, the Company sold 134 shares under this agreement for net proceeds of $179 . For the nine months ended September 30, 2019, the Company sold 570 shares of its common stock under this agreement for net proceeds of $1,504. Since September 30, 2020 through October 29, 2020, the Company sold 1,900 shares of its common stock under its equity distribution agreement and received net proceeds of $5,994. The total amount of cash that may be generated under this equity distribution agreement is uncertain and depends on a variety of factors, including market conditions and the trading price and trading volume of the Company’s common stock.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements and condensed footnotes have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring items, considered necessary for fair statement have been included. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or for other interim periods or future years.

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The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of December 31, 2019 is derived from audited financial statements as of that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 23, 2020.

The World Health Organization declared in March 2020 that the recent outbreak of the coronavirus disease named COVID-19 constitutes a pandemic. The Company has undertaken measures to protect its employees and customers. There can be no assurance that these measures will be effective, however, or that the Company can adopt them without adversely affecting its business operations. In addition, the COVID-19 pandemic has created and continues to create significant uncertainty in global financial markets, which may decrease technology spending, has depressed and may continue to depress demand for the Company’s platform and has harmed and may continue to harm the Company’s business and results of operations. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may impact the Company’s financial condition, liquidity, or results of operations is uncertain. The Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.

Fair Value of Financial Instruments

The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at amounts that approximate fair value due to the short-term nature of those instruments. Based on borrowing rates available to the Company for loans with similar terms and maturities and in consideration of the Company’s credit risk profile, the carrying value of outstanding lease liabilities approximates fair value as well.

Allowances for Doubtful Accounts and Revenue Credits

The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the Company’s receivables portfolio based on historical experience, specific allowances for known troubled accounts and other available information. The Company does not require collateral from its customers, and it performs a regular review of its customers’ payment histories and associated credit risks. Certain contracts with advertising agencies contain sequential liability provisions, whereby the agency does not have an obligation to pay the Company until payment is received from the agency’s customers. In these circumstances, the Company evaluates the credit worthiness of the agency’s customers in addition to the agency itself. As of September 30, 2020 and December 31, 2019, the Company recorded an allowance for doubtful accounts of $1,176 and $1,559, respectively.

From time to time, the Company provides credits to customers that typically relate to customer disputes or billing adjustments and are recorded as a reduction of revenue. Reserves for these revenue credits are accounted for as variable consideration under authoritative revenue recognition guidance (see Note 2) and are estimated based on historical credit activity. As of September 30, 2020, and December 31, 2019, the Company recorded an allowance for potential customer credits in the amount of $436 and $319, respectively.

Goodwill Impairment Assessment

The Company evaluates goodwill for impairment annually in the fourth quarter of its fiscal year, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. For the purposes of impairment testing, the Company has determined that it has one reporting unit. The Company performs its goodwill impairment test using the simplified method, whereby the fair value of the reporting unit is compared to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not considered impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the goodwill is considered impaired by an amount equal to that difference. In November 2019, the Company performed a goodwill impairment assessment and recorded an impairment of goodwill of $1,910, reducing the goodwill balance to zero.

Long-Lived Assets Impairment Assessment

The Company evaluates long-lived assets, excluding goodwill, for potential impairment whenever adverse events or changes in circumstances or business climate indicate that the expected undiscounted future cash flows related to such long-lived assets may not be sufficient to support the net book value of such assets. An impairment loss is recognized only if the carrying value of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying value of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. There were no such impairment losses recorded in any of the periods presented.

Revenue Recognition

The Company generates revenues principally from subscriptions either directly with advertisers or with advertising agencies to its platform for the management of search, social and eCommerce. The Company also generates revenues from strategic agreements with certain leading publishers. Under the subscription agreements, the Company receives consideration based on the advertising spend that customers

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manage on its platform. Revenues are recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

See Note 2 for further discussion on the Company’s revenues.

Recent Accounting Pronouncements Adopted in 2020

In August 2018, the Financial Accounting Standards Board, (“FASB”), issued Accounting Standards Update, (“ASU”) 2018-13, Fair Value Measurement (Topic 820), which is designed to improve the effectiveness of disclosures related to fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020, which did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 35-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted ASU 2018-15 on January 1, 2020, which did not have a material impact on its consolidated financial statements.

Recent Accounting Pronouncements Not Yet Effective

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326), which changes the impairment model for most financial assets and certain other financial instruments to require the use of a new forward-looking “expected loss” model that will generally result in earlier recognition of allowances for losses. This ASU will also require disclosure of more information related to these items. As the Company meets the SEC’s definition of a “smaller reporting company”, ASU 2016-13 is effective for annual periods beginning after December 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact this ASU will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step-up in the tax basis of goodwill and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. ASU 2019-12 is effective for annual periods beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently assessing the impact this ASU will have on its consolidated financial statements.

2. Revenues

Revenue Recognition

The Company generates its revenues principally from subscriptions, either directly with advertisers or with advertising agencies, to its platform for the management of search, social, eCommerce and display advertising. It also generates a portion of its revenues from long-term strategic agreements with certain leading publishers. Revenues are recognized when control of these services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company determines revenue recognition through the following steps:

 

Identification of the contract, or contracts, with a customer;

 

Identification of the performance obligations in the contract;

 

Determination of the transaction price;

 

Allocation of the transaction price to the performance obligations in the contract; and

 

Recognition of revenue when, or as, the Company satisfies its performance obligations.

Subscription

The Company’s subscription contracts provide advertisers with access to the Company’s advertising management platform. Advertisers do not have the right to take possession of the software supporting the services at any time. These contracts are generally one year or less in length. The subscription fee under most contracts consists of the greater of a minimum monthly platform fee or variable consideration based on the volume of advertising spend managed through the Company’s platform at the contractual percentage of spend. The variable portion generally includes tiered pricing, whereby the percentage of spend charged decreases as the value of advertising spend increases. The tiered pricing resets monthly and is consistent throughout the contract term. The Company has concluded that this volume-based pricing approach does not constitute a future material right as the pricing tiers are consistent throughout the term of the contract and similar pricing is typically offered to similar classes of customers within the same geographical areas and markets. Certain subscription contracts consist of only a flat monthly platform fee. Subscription fees are generally invoiced on a monthly basis in arrears based on the actual amount of advertising spend managed on the platform. In certain limited circumstances, the Company will invoice an advertiser in advance for the contractual minimum monthly platform fee for a defined future period, which is typically three to 12 months.

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The Company’s subscription services comprise a single stand-ready performance obligation satisfied over time as the advertiser simultaneously receives and consumes the benefit from the Company’s performance. This performance obligation constitutes a series of services that are substantially the same in nature and are provided over time using the same measure of progress. Revenues derived from these arrangements are recognized over time using an output method based upon the passage of time as this provides a faithful depiction of the pattern of transfer of control. Fixed minimum monthly platform fees are recognized ratably over the contract term as the single performance obligation is satisfied. Variable fees are allocated to the distinct month of the series in which they are earned because the terms of the variable payments relate specifically to the outcome from transferring the distinct time increment (month) of service and because such amounts reflect the fees to which the Company expects to be entitled for providing access to the advertising management platform for that period, consistent with the allocation objective of authoritative revenue guidance under Accounting Standards Codification 606 (“ASC 606”).

Expected future revenues for subscription services related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2020 were as follows:

 

 

 

Subscription Services

Revenues

 

2020 (remaining three months)

 

$

900

 

2021

 

 

1,372

 

2022

 

 

116

 

Total

 

$

2,388

 

 

The Company applies the optional exemption under ASC 606 and does not disclose the value of unsatisfied performance obligations on subscription contracts with an original term of one year or less. The amounts disclosed above as remaining performance obligations consist primarily of fixed or monthly minimum fees under contracts with an original expected duration of greater than one year. The amounts exclude estimates of variable consideration such as volume-based contracts, as well as anticipated renewals of contracts.

Strategic Agreements

The Company has entered into long-term strategic agreements with certain leading search publishers. Under these strategic agreements, the Company receives consideration based on a percentage of the search advertising spend that its customers manage on its platform. These strategic agreements are generally billed on a quarterly basis.

The majority of the Company’s strategic agreement revenue is concentrated in one revenue share agreement, executed with Google in December 2018, with an effective date of October 1, 2018 (the “Google Revenue Share Agreement”). Under the Google Revenue Share Agreement, which constitutes a single performance obligation, the Company receives both fixed and variable revenue share payments based on a percentage of the search advertising spend that is managed through the Company’s platform. The Google Revenue Share Agreement requires the Company to reinvest a specified percentage of these revenue share payments in its search technology platform to drive innovation. The performance obligation is expected to be satisfied ratably over the two-year contractual term using the output method based upon the passage of time, as Google simultaneously receives and consumes the benefit from the Company’s performance, which provides a faithful depiction of the pattern of transfer of control. The Google Revenue Share Agreement has a three-year term; however, until March 2020, when the Company and Google executed the first amendment to the original agreement (the “First Amendment”), Google could terminate the Google Revenue Share Agreement after two years, with no penalty if the Company did not meet certain financial metrics. Accordingly, the Company accounted for the Google Revenue Share Agreement as a two-year agreement with one optional renewal year. The revenue impact of the third year has been accounted for prospectively beginning in March 2020.

The Company evaluates the total amount of variable revenue share payments expected to be earned from the Google Revenue Share Agreement using the expected value method, as it believes this method represents the most appropriate estimate for this consideration, based on historical service trends, the individual contract considerations and the Company’s best judgment. The Company includes estimates of variable consideration in revenues only to the extent that it believes it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company recognized revenues from the Google Revenue Share Agreement of $2,283 and $3,026, respectively, for the three months ended September 30, 2020 and 2019 and $6,849 and $8,988, respectively, for the nine months ended September 30, 2020 and 2019. As of September 30, 2020, the Company expects to recognize revenues totaling approximately $2,283 for the remaining three months of 2020, and $9,132 for the year ending December 31, 2020, related to remaining performance obligations under the Google Revenue Share Agreement.

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Disaggregation of Revenues

Revenues by geographic area, based on the billing location of the customer, were as follows for the periods presented:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

United States of America

 

$

5,051

 

 

$

8,802

 

 

$

17,133

 

 

$

28,135

 

United Kingdom

 

 

898

 

 

 

1,312

 

 

 

2,802

 

 

 

4,340

 

Other (1)

 

 

847

 

 

 

1,614

 

 

 

2,796

 

 

 

5,177

 

Total revenues, net

 

$

6,796

 

 

$

11,728

 

 

$

22,731

 

 

$

37,652

 

 

(1)

No individual country within the “Other” category accounted for 10% or more of revenues, net for any period presented.

Revenues by nature of services performed were as follows for the periods presented:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Subscriptions

 

$

4,383

 

 

$

8,696

 

 

$

15,654

 

 

$

28,548

 

Strategic agreements

 

 

2,413

 

 

 

3,032

 

 

 

7,077

 

 

 

9,104

 

Total revenues, net

 

$

6,796

 

 

$

11,728

 

 

$

22,731

 

 

$

37,652

 

 

Contract Balances