Outbrain Inc

1. Organization, Description of Business and Summary of Significant Accounting Policies

Organization and Description of Business

Outbrain Inc. (together with its subsidiaries, “Outbrain,” the “Company,” “we,” “our” or “us”) was incorporated in August 2006 in Delaware. The Company is headquartered in New York, New York and has wholly owned subsidiaries in Israel, Europe, Asia, Brazil and Australia. In connection with the Company’s initial public offering (“IPO”), its common stock began trading on The Nasdaq Stock Market LLC (“Nasdaq”) on July 23, 2021 under the “OB” ticker symbol.

Outbrain is a leading technology platform that drives business results by connecting media owners and advertisers with engaged audiences to drive business outcomes across the Open Internet. The Company’s platform provides advertisements on media owners’ online properties. The Company generates revenue from advertisers through consumer engagements with advertisements that it delivers across a variety of third-party media owners’ online properties. The Company pays traffic acquisition costs to its media owner partners on whose digital properties the advertisements are shown. The Company’s advertiser solutions are mainly priced using a performance-based model based on the actual number of engagements generated by consumers, which is highly dependent on its ability to generate trustworthy and interesting advertisements to individual consumers based on its proprietary algorithms. A portion of the Company’s revenue is generated through advertisers participating in programmatic auctions wherein the pricing is determined by the auction results and not dependent on consumer engagement.

Basis of Presentation

The accompanying condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 8, 2024 (“2023 Form 10-K”).

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and judgments are based on historical information and on various other assumptions that the Company believes are reasonable under the circumstances. Estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, the allowance for credit losses, sales allowance, software development costs eligible for capitalization, valuation of deferred tax assets, the useful lives of property and equipment, the useful lives and fair value of intangible assets, valuation of goodwill, the fair value of stock-based awards, and the recognition and measurement of income tax uncertainties and other contingencies. Actual results could differ materially from these estimates.

Reclassifications

Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s presentation.

Certain Risks and Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, restricted cash, and accounts receivable. The Company’s cash and cash equivalents and restricted cash are generally invested in high-credit quality financial instruments with both banks and financial institutions to reduce the amount of exposure to any single financial institution.

The Company generally does not require collateral to secure accounts receivable, with the exception of certain customers with higher potential credit risk who are required to prepay for their campaigns. No single advertiser accounted for 10% or more of the Company’s total revenue for the three and nine months ended September 30, 2024 or 2023, or 10% or more of its gross accounts receivable balance as of September 30, 2024 and December 31, 2023.

During the three and nine months ended September 30, 2024 and 2023, none of the Company’s media owners accounted for 10% of its total traffic acquisition costs.

Segment Information

The Company hasone operating and reporting segment. The Company’s chief operating decision maker is its Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis.

New Accounting Pronouncements

Under the JOBS Act, the Company meets the definition of an emerging growth company (“EGC”) and can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards would otherwise apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the Company is no longer an EGC or until the Company affirmatively and irrevocably opts out of the extended transition period.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 requires enhanced disclosures about significant segment expenses and profitability measures for all public entities, including those that have one reportable segment. The ASU is required to be applied retrospectively and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is in the process of evaluating the impact of ASU 2023-07 on its segment disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 is focused on increased visibility into specific income tax components, requiring disclosures of specific categories and a greater disaggregation of information by jurisdiction within the effective tax rate reconciliation and income taxes paid disclosures. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. The Company is in the process of evaluating the impact of ASU 2023-09 on its tax-related disclosures.

See Note 1 to the Company’s audited consolidated financial statements for the year ended December 31, 2023 in the Company’s 2023 Form 10-K for a complete disclosure of the Company’s significant accounting policies.

2. Revenue Recognition

The following table presents total revenue based on where the Company’s advertisers are physically located:

Contract Balances. There wereno contract assets as of September 30, 2024 or December 31, 2023. Contract liabilities primarily relate to advance payments and consideration received from customers. As of September 30, 2024 and December 31, 2023, the Company’s contract liabilities were recorded as deferred revenue in its condensed consolidated balance sheets.

3. Acquisition

On August 1, 2024, the Company entered into a definitive share purchase agreement (the “Agreement”) with Altice Teads S.A. (the “Seller” or “Altice”), a public limited liability company (société anonyme) incorporated and existing under the laws of the Grand Duchy of Luxembourg and the sole shareholder of Teads S.A., a public limited liability company (société anonyme) incorporated and existing under the laws of the Grand Duchy of Luxembourg (“Teads”), and Teads. Pursuant to the Agreement, Outbrain agreed to acquire all of the issued and outstanding share capital of Teads upon the terms and subject to the conditions set forth in the Agreement (the “Transaction”).

The Agreement provides for the following consideration to be paid to the Seller at closing of the Transaction (the “Closing”): (1) a cash payment of $725.0 million, subject to certain customary adjustments as set forth in the Agreement (the “Cash Consideration”), (2)35.0 million newly issued shares of the Company’s common stock, par value $0.001 (the “Common Stock”; such newly issued shares of Common Stock, the “Consideration Common Stock”), and (3)10.5 million newly issued shares of the Company’s Series A Convertible Preferred Stock, par value $0.001 (the “Series A Preferred Stock” and, together with the Consideration Common Stock, the “Consideration Stock”). Additionally, the Seller will be entitled to a deferred cash payment in an amount equal to $25.0 million payable in one or more installments subject to compliance with the covenants of any of the debt financing(s) described below. Following the Closing, the Seller will own approximately 41% of the Company’s issued and outstanding shares of Common Stock, or 48% assuming conversion of the Series A Preferred Stock (based on the amount of issued and outstanding shares of Common Stock as of September 30, 2024).

Subject to certain conditions, either the Company or the Seller may terminate the Agreement if the Closing has not occurred by the date which is nine months after the date of the Agreement, which date may be extended for three additional periods of three months each if the reason for not closing is that the regulatory conditions have not been satisfied.

The Agreement contains customary representations, warranties and covenants for a transaction of this type. Closing under the Agreement is subject to customary conditions, including (1) approval of the Company’s stockholders of the issuance of the Consideration Stock in accordance with the rules and regulations of the Nasdaq Stock Market and the Company’s organizational documents (the “Stockholder Approval”), (2) the absence of any law or order issued by any governmental authority prohibiting or preventing the consummation of the Transaction, (3) obtaining certain regulatory approvals, including the expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (4) subject to certain exceptions, the accuracy of the representations and warranties of, and compliance with covenants by, each of the parties to the Agreement, and (5) the absence of a Material Adverse Event (as defined in the Agreement).

Pursuant to the Agreement, the Company will file a certificate of designation (the “Certificate of Designation”) with the Delaware Secretary of the State at Closing designating the rights, preferences and limitations of the shares of the Series A Preferred Stock. The Series A Preferred Stock will have a liquidation preference (the “Liquidation Preference”) of $10.00 per share (adjusted in the event of a stock dividend, stock split, stock distribution, recapitalization or combination with respect to the Series A Preferred Stock). Upon the occurrence of a Liquidation Event (as defined in the Certificate of Designation), the holders of the Series A Preferred Stock shall be entitled to the greater of (i) the Liquidation Preference plus the aggregate amount of all accrued and accumulated dividends on the Series A Preferred Stock and (ii) the consideration that a holder of Series A Preferred Stock would have received if it had converted its stock into Common Stock immediately prior to the Liquidation Event.

Dividends on the Series A Preferred Stock will accrue on a quarterly basis at a rate of 10% per annum, payable in cash or payment-in-kind at Outbrain’s option. The holders of the Series A Preferred Stock shall have the right to convert all or a portion of the holder’s Series A Preferred Stock to a number of shares of Common Stock determined as the current Liquidation Preference of such Series A Preferred Stock to be converted plus an amount equal to the sum of all accrued and unpaid dividends for the then-current dividend period, divided by the conversion price of $10.00 per share, as may be subject to customary adjustments in accordance with the Certificate of Designation. The Company may elect to convert all or a portion of the Series A Preferred Stock that is at least 10% of the then outstanding Series A Preferred Stock to Common Stock after two years subject to the Common Stock achieving a certain price threshold. The Series A Preferred Stock may be redeemed by the Company in whole or part in cash prior to the five-year anniversary of its issuance, subject to payment of certain premiums, and after the fifth anniversary of issuance without premium. The Series A Preferred Stock will vote together with the Common Stock on an as-converted basis on all matters, and not as a separate class.

The Agreement provides that the Company and Seller will enter into a stockholders agreement (the “Stockholders Agreement”) at Closing. Pursuant to the Stockholders Agreement, the number of directors on the Board of Directors of the Company (the “Company Board”) shall be increased by two, and the Seller shall have the right to nominate for election to the Company Board two persons, one of whom shall be non-affiliated with the Seller and must qualify as an independent director pursuant to the requirements of the Nasdaq Stock Market. The Seller shall have the right to nominate (1) two directors until the Seller and its affiliated stockholders cease to hold in the aggregate at least 25% of the total voting power of the outstanding capital stock of the Company and (2) one director until the Seller and its affiliated stockholders cease to hold in the aggregate at least 10% of the total voting power of the outstanding capital stock of the Company, in each case on an as-converted basis. Additionally, commencing on the third anniversary of the Closing, Seller shall have the right to nominate three directors until such time as the Seller and its affiliated stockholders cease to own at least 30% of the total voting power of the outstanding capital stock of the Company, on an as-converted basis.

The Stockholders Agreement also requires that until such time that the Seller and its affiliated stockholders hold in the aggregate less than 15% of the total voting power of the outstanding capital stock of the Company (the “15% Threshold”), on an as-converted basis, the Seller will take such action necessary to cause its affiliate stockholders to vote their shares at each meeting of the Company’s stockholders in the same manner as recommended by the Company Board. The Stockholders Agreement further provides that until such time that Seller and its affiliated stockholders hold less than the 15% Threshold in the aggregate, they will comply with customary standstill restrictions with respect to the Company. The Stockholders Agreement will include restrictions on the transferability of the Consideration Stock.

Under the Agreement, the Company and Seller will also enter into a registration rights agreement (the “Registration Rights Agreement”) at Closing, pursuant to which the Company will provide customary demand and piggyback registration rights to the holders of the Registrable Shares (as defined in the Registration Rights Agreement), which includes the Consideration Common Stock.

In connection with the execution of the Agreement, each of Viola Ventures III, L.P. and Yaron Galai (together, the “Company Stockholders”) in their respective capacities as stockholders of the Company, entered into a customary Stockholder Support Agreement (the “Support Agreement”) with the Company and Seller, pursuant to which the Company Stockholders agreed, among other things, to vote their respective shares of Common Stock in favor of the Stockholder Approval and any other proposals brought to a vote of stockholders of the Company in furtherance of the Transaction. Notwithstanding the foregoing, the Company Stockholders are permitted to take any action and participate in any discussions or negotiations regarding a Qualifying Purchaser Acquisition Proposal (as defined in the Agreement) to the same extent that the Company is permitted to pursuant to the Agreement. As of September 30, 2024, the Company Stockholders beneficially own an aggregate of approximately 20% of the Company’s issued and outstanding shares of Common Stock.

During the three and nine months ended September 30, 2024, the Company recorded acquisition-related costs of $5.6 million and $8.8 million, respectively. See Note 10 for financing arrangements associated with the Agreement.

4. Restructuring

On May 31, 2023, the Company announced a reduction in its global workforce of approximately 10%, to adjust to the continued macroeconomic uncertainty, create additional operating efficiencies, and support the Company’s strategic growth and profitability objectives. As a result, the Company recorded pre-tax charges of approximately $2.3 million for employee severance and related benefit costs in its condensed consolidated statement of operations for the second quarter of 2023, $1.5 million of which was recorded within sales and marketing expenses, $0.4 million within research and development expenses, and $0.4 million within general and administrative expenses. All of the associated costs were fully paid during the year ended December 31, 2023.

In addition, during the nine months ended September 30, 2024 and 2023, the Company recorded other severance and related benefit costs of $0.7 million and $0.8 million, respectively, in connection with restructuring activities taken during the respective periods.

5. Investments in Marketable Securities

All of the Company’s debt securities are classified as available-for-sale. The Company’s cash equivalents and investments as of September 30, 2024 and December 31, 2023 consisted of the following:

(1) The amortized cost of debt securities excludes accrued interest of $0.8 million and $1.4 million, respectively, recorded within prepaid expenses and other current assets in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023.

In connection with the Company’s repurchases of 2.95% Convertible Senior Notes due 2026 (“Convertible Notes”) in September 2024 and April 2023 (see Note 10), the Company redeemed some of its available-for-sale marketable securities prior to their maturities to finance these debt repurchases. During the nine months ended September 30, 2024 and 2023, proceeds from the sales of securities were $53.0 million and $78.9 million, respectively, which included gross realized gains of $0.4 million and gross realized losses of $0.6 million, respectively, which were released from other comprehensive loss and recorded within interest income and other income, net in the Company’s condensed consolidated statement of operations for these periods. The gross realized gains and losses were determined using the specific identification method.

As of September 30, 2024, all of the Company’s available-for-sale securities with a fair value of $95.1 million mature within one year.

The following tables present the fair value of investments and gross unrealized losses recorded in other comprehensive loss, by investment category, all of which have been in an unrealized loss position for 12 months or more as of September 30, 2024:

For marketable securities in unrealized loss positions, the Company does not intend to sell these securities and it is more likely than not that the Company will hold these securities until maturity or a recovery of the cost basis. No allowance for credit losses was recorded for these securities as of September 30, 2024 and December 31, 2023.

6. Goodwill and Intangible Assets

The Company’s goodwill balance as of September 30, 2024 and December 31, 2023 was $63.1 million. The Company hasnot recorded any accumulated impairments of goodwill.

The gross carrying amount and accumulated amortization of the Company’s intangible assets are as follows:

No impairment charges were recorded for the Company’s intangible assets subject to amortization during the three and nine months ended September 30, 2024 and 2023.

As of September 30, 2024, estimated amortization related to the Company’s identifiable acquisition-related intangible assets in future periods was as follows:

7. Balance Sheet Components

Accounts Receivable and Allowance for Credit Losses

Accounts receivable, net of allowance for credit losses consists of the following:

The allowance for credit losses consists of the following activity:

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consists of the following:

Property, Equipment and Capitalized Software, Net

Property, equipment and capitalized software, net consists of the following:

Accrued and Other Current Liabilities

Accrued and other current liabilities consists of the following:

In addition to accrued traffic acquisition costs, accounts payable includes $108.1 million and $137.6 million of traffic acquisition costs as of September 30, 2024 and December 31, 2023, respectively.

8. Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company’s financial instruments include restricted time deposits, severance pay fund deposits and foreign currency forward contracts. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the Company uses the fair value hierarchy described below to distinguish between observable and unobservable inputs:

Level I— Valuations based on quoted prices in active markets for identical assets and liabilities at the measurement date;

Level II— Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be principally corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level III— Valuations based on unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The following tables set forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy:

(1)Money market securities are valued using Level I of the fair value hierarchy, while the fair values of U.S. Treasuries, government bonds, commercial paper, and corporate bonds are considered Level II and are obtained from independent pricing services, which may use various methods, including quoted prices for identical or similar securities in active and inactive markets. See Note 5 for additional detail of the Company’s fixed income securities by balance sheet location.

(2)Recorded within other assets.

(3)Recorded within prepaid expenses and other current assets.

(4)Recorded within accrued and other current liabilities.

The Company records the fair values of the assets and liabilities relating to its undesignated foreign currency forward contracts on a gross basis in its condensed consolidated balance sheets, as they are not subject to master netting arrangements. There is no cash collateral required to be pledged by the Company or its counterparties. The Company enters into foreign currency forward exchange contracts to manage the effects of fluctuations in foreign currency exchange rates on its net cash flows from non-U.S. dollar denominated operations.

By entering into foreign currency forward contracts, the Company is exposed to a potential credit risk that the counterparty to its contracts will fail to meet its contractual obligations. If a counterparty fails to perform, the Company’s maximum credit risk exposure would be the positive fair value of the foreign currency forward contracts, or any asset balance, which represents the amount the counterparty owes to the Company. In order to mitigate the counterparty risk, the Company performs an evaluation of its counterparty credit worthiness, and its forward contracts have a term of no more than 18 months. During the three and nine months ended September 30, 2024, the Company recognized net gains of $0.4 million and net losses of $1.1 million, respectively, within interest income and other income, net in its condensed consolidated statements of operations, related to mark-to-market adjustments on its undesignated foreign currency forward contacts. The Company recorded corresponding net losses of $1.0 million and $1.2 million, respectively, for the three and nine months ended September 30, 2023.

There were no Convertible Notes outstanding as of September 30, 2024. Previously, Convertible Notes were recorded within long-term debt on the Company’s condensed consolidated balance sheets at their carrying value, which may differ from their fair value. The fair value of Convertible Notes was estimated using external pricing data, including any available market data for other debt instruments with similar characteristics. The following table summarizes the carrying value and the estimated fair value of the Convertible Notes as of December 31, 2023, based on Level II measurements of the fair value hierarchy.

9. Leases

The Company leases certain office facilities, managed data center facilities and vehicles under non-cancelable operating lease arrangements for its U.S. and international locations that expire on various dates through 2032.

The following table summarizes assets and liabilities related to the Company’s operating leases and it’s prior finance leases:

The following table presents the components of the Company’s total lease expense:

(1)Recorded within cost of revenue and operating expenses.

(2)Recorded within operating expenses.

(3)Recorded within cost of revenue.

(4)Recorded within interest expense.

As of September 30, 2024, the maturities of the Company’s lease liabilities under operating leases were as follows:

10. Long-Term Debt

Commitment Letter

In connection with the entry into the Agreement with Altice, pursuant to which the Company agreed to acquire all of the issued and outstanding share capital of Teads (see Note 3), the Company entered into a debt commitment letter, dated August 1, 2024 (the “Commitment Letter”), with Goldman Sachs Bank USA, Jefferies Finance LLC and Mizuho Bank, LTD (collectively, the “Commitment Parties”), pursuant to which the Commitment Parties have committed to provide (i) a $100 million senior secured revolving credit facility (the “New Revolving Credit Facility”) and (ii) a senior secured bridge facility in an aggregate principal amount of up to $750 million (the “Bridge Facility”). The Bridge Facility may be used to fund the cash consideration for the Transaction and to pay related fees and expenses. Additionally, up to $20 million of the New Revolving Credit Facility may be used to fund a portion of the cash consideration for the Transaction and to pay fees and expenses related thereto, and will otherwise be available, for working capital and general corporate purposes. The obligation of the Commitment Parties to provide the contemplated financings is subject to a number of customary conditions contained in the Commitment Letter, including the execution of definitive debt financing documentation contemplated by the Commitment Letter and the Transaction being consummated substantially contemporaneously with the initial funding of the Bridge Facility. As of September 30, 2024, there were no outstanding borrowings under the Bridge Facility. As of September 30, 2024, the Company recorded $1.8 million of deferred financing costs associated with the Bridge Facility, which are being amortized over the expected period until permanent financing is in place.

The Company expects to replace the Bridge Facility with permanent financing, which the Company currently expects to include the issuance of debt securities or term loans.

Convertible Notes

As of December 31, 2023, the Company had $118.0 million principal amount of Convertible Notes outstanding, pursuant to an indenture, dated as of July 27, 2021 (the “Indenture”), between the Company and The Bank of New York Mellon, as trustee. The Convertible Notes were scheduled to mature on July 27, 2026, unless earlier converted, redeemed, or repurchased. During the three months ended September 30, 2024, all of the outstanding Convertible notes were repurchased, as further described below.

On April 14, 2023, the Company repurchased$118.0 million aggregate principal amount of the Convertible Notes out of the initially issued principal balance of$236.0 million via a privately negotiated repurchase agreement with Baupost Group Securities, L.L.C. (“Baupost”), the sole holder of the Convertible Notes, for approximately $96.2 million in cash, including accrued interest, representing a discount of approximately 19% to the principal amount of the repurchased notes. As a result, the Company recorded a pre-tax gain of approximately $22.6 million within gain on convertible debt in the Company’s consolidated statement of operations for the nine months ended September 30, 2023.

On September 19, 2024, the Company repurchased the remaining $118.0 million aggregate principal amount of the Convertible Notes via a privately negotiated repurchase agreement with Baupost, for approximately $109.7 million in cash, including accrued interest, representing a discount of approximately 7.5% to the principal amount of the repurchased notes. As a result, the Company recorded a pre-tax gain of approximately $8.8 million within gain on convertible debt in the Company’s consolidated statement of operations for the nine months ended September 30, 2024.

Following the closing of the repurchases, the repurchased notes were cancelled by the Trustee, and there wereno Convertible Notes outstanding as of September 30, 2024.

Interest on the Convertible Notes was payable semi-annually in arrears on January 27 and July 27 of each year, beginning on January 27, 2022, at a rate of 2.95% per year. The initial conversion rate for the Convertible Notes was 40 shares of the Common Stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of $25 per share of the Company’s common stock), subject to adjustment.

See Note 9 to the Company’s 2023 Annual Report on Form 10-K for additional information relating to the Company’s Convertible Notes, including the redemption and conversion provisions.

Revolving Credit Facility

The Company’s First Amendment to the Second Amended and Restated Loan and Security Agreement with Silicon Valley Bank, a division of First Citizens Bank & Trust Company, provides, subject to borrowing availability and certain other conditions, for revolving loans in an aggregate principal amount of up to $75.0 million (the “Facility”), with a $15.0 million sub-facility for letters of credit. The Company’s borrowing availability under the Facility is calculated by reference to a borrowing base which is determined by specified percentages of eligible accounts receivable. The Facility will terminate on November 2, 2026.

Outstanding loans under the Facility, as recently amended, accrue interest, at the Company’s option based upon borrowing availability under the Facility, at a rate equal to either (a) a base rate minus an applicable margin ranging from 1.5% to 1.0% per annum or (b) SOFR plus an applicable margin of 1.5% to 2.0% per annum, subject to a SOFR adjustment ranging from 0.10% to 0.15%, depending on the length of the borrowing. The undrawn portions of the commitments under the Facility are subject to a commitment fee at a rate ranging from 0.20% per annum to 0.30% per annum, based upon borrowing availability under the Facility.

The Facility contains representations and warranties, including, without limitation, with respect to collateral; accounts receivable; financials; litigation, indictment and compliance with laws; disclosure and no material adverse effect, each of which is a condition to funding. Additionally, the Facility includes events of default and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, without limitation, restrictions on liens, indebtedness, investments, fundamental changes, dispositions, restricted payments and prepayment of junior indebtedness. The Facility contains a financial covenant that requires, in the event that credit extensions under the Facility equal or exceed 85% of the available commitments under the Facility or upon the occurrence of an event of default, the Company to maintain a minimum consolidated monthly fixed charge coverage ratio of 1.00. The obligations of the Company, and the other subsidiary co-borrowers under the 2021 Revolving Credit Facility are secured by a first-priority lien on substantially all the assets of the Company and such other subsidiary co-borrowers.

The Company was in compliance with all of the related financial covenants as of September 30, 2024 and December 31, 2023. As of September 30, 2024 and December 31, 2023, the Company hadno borrowings outstanding under the Facility and its available borrowing capacity was $73.9 million and $75.0 million, respectively, based on the defined borrowing formula. Other assets in the Company’s condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 included deferred financing costs of $0.2 million and $0.3 million, respectively, which are being amortized over the term of the Facility.

11. Income Taxes

The Company’s interim (benefit) provision for income taxes is determined based on its annual estimated effective tax rate, applied to the actual year-to-date income, and adjusted for the tax effects of any discrete items. The Company’s effective tax rates for the three and nine months ended September 30, 2024 were 15.5% and 67.1%, respectively. The Company’s effective tax rates for the three and nine months ended September 30, 2023 were 66.6% and 35.2%, respectively. The Company’s effective tax rate for the three months ended September 30, 2024 was lower than the U.S. federal statutory tax rate of 21%, primarily due to a deduction related to foreign-derived intangible income and the favorable impact of uncertain tax positions, partially offset by the tax impact related to the profitability of non-U.S. jurisdictions and certain non-deductible stock-based compensation and transaction costs. For the nine months ended September 30, 2024, the Company’s effective tax rate was higher than the U.S. federal statutory tax rate of 21%, primarily due to the unfavorable impact of uncertain tax positions (including resolution of a tax audit) and the change in the valuation allowance, partially offset by certain non-deductible stock-based compensation and transaction costs. The Company’s effective tax rates for the three and nine months ended September 30, 2023 were higher than the United States federal statutory tax rate of 21%, primarily due to the tax impact related to the profitability of non-U.S. jurisdictions and certain non-deductible stock-based compensation expenses, partially offset by a deduction related to foreign-derived intangible income.

12. Commitments and Contingencies

Share Purchase Agreement

On August 1, 2024, the Company entered into the Agreement with Altice to acquire all of the issued and outstanding share capital of Teads. The Company intends to fund the cash consideration for the Transaction, and pay related fees and expenses, with the net proceeds from permanent financing and cash on hand. See Notes 3 and 10 for additional information.

Legal Proceedings and Other Matters

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, nor is it aware of any pending or threatened litigation that, in its opinion, would have a material adverse effect on its business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

13. Stockholders’ Equity

Share Repurchases

On December 14, 2022, the Company’s Board of Directors (the “Board”) approved a new share repurchase program, authorizing the Company to repurchase up to $30 million of its common stock, par value $0.001 per share, with no requirement to purchase any minimum number of shares. The manner, timing, and actual number of shares repurchased under the program will depend on a variety of factors, including price, general business and market conditions, and other investment opportunities. Shares may be repurchased through privately negotiated transactions or open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The repurchase program may be commenced, suspended, or terminated at any time by the Company at its discretion without prior notice. There wereno share repurchases under the Company’s share repurchase program during the three months ended September 30, 2024. During the nine months ended September 30, 2024, the Company repurchased 1,410,001 shares with a fair value of$5.8 million. During the three and nine months ended September 30, 2023, the Company repurchased 1,031,100 and 2,544,173 shares, respectively, with a fair value of$5.5 million and$12.7 million, respectively.

As of September 30, 2024, the remaining availability under the Company’s $30 million share repurchase program was$6.6 million. Commission costs associated with share repurchases and excise taxes accrued as a result of the Inflation Reduction Act of 2022 do not reduce the remaining authorized amount under the repurchase programs.

In addition, the Company may periodically withhold shares to satisfy employee tax withholding obligations arising in connection with the vesting of restricted stock units and exercise of options and warrants in accordance with the terms of the Company’s equity incentive plans and the underlying award agreements.

During the three and nine months ended September 30, 2024, the Company withheld 39,323 and 123,903 shares, respectively, with a fair value of$0.2 million and$0.5 million, respectively, to satisfy the employee tax withholding obligations. For the three and nine months ended September 30, 2023, the Company withheld 37,776 shares and 128,043 shares, respectively, with a fair value of$0.2 million and$0.6 million, respectively.

The following table details the changes in accumulated other compressive loss, net of tax:

During the nine months ended September 30, 2023, $0.4 million of realized losses on investments in marketable securities, net of taxes, were released from accumulated other comprehensive loss to earnings, and recorded within interest income and other income, net in the Company’s condensed consolidated statements of operations for thenine months ended September 30, 2023. The tax effects associated with the realized and unrealized gains (losses) on investments in marketable securities were not material.

14. Stock-based Compensation

Equity Incentive Plans

In July 2021, the Board and the Company’s stockholders approved the 2021 Long-Term Incentive Plan (the “2021 Plan”), which may be used to grant, among other award types, stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”). The number of shares of common stock reserved for future issuance under the 2021 Plan will be increased pursuant to provisions for annual automatic evergreen increases. The Company’s previous awards issued under its 2007 Omnibus Securities and Incentive Plan, as amended and restated on January 21, 2009 (the “2007 Plan”), remain subject to the 2007 Plan. As of September 30, 2024, 5,241,254 and 1,413,765 shares were available for grant under the 2021 Plan and the 2007 Plan, respectively. The Company generally issues new shares for stock option exercises and vesting of RSUs.

The Company recognizes stock-based compensation expense for stock-based awards based on the estimated fair value of the awards, as further described below, and accounts for forfeitures as they occur. The following table summarizes stock-based compensation expense recognized in the Company’s condensed consolidated statements of operations for the periods presented:

As of September 30, 2024, the Company’s remaining unrecognized stock-based compensation expense was $0.2 million for unvested stock options, $22.7 million for unvested RSUs and $2.6 million for unvested PSUs.

The following table summarizes stock option, RSU and PSU activity for the nine months ended September 30, 2024:

(1) December 31, 2023 balance includes 2,861 stock appreciation rights (SARs), which expired in September 2024.

Stock Options

The Company estimates the fair value of its stock option awards on the grant date using the Black-Scholes option pricing model. There wereno stock options granted during the nine months ended September 30, 2024.

Service-based Restricted Stock Units

The Company grants service-based RSUs to its employees and non-employee directors, which generally vest over a period of three to four years. The fair values of service-based RSUs are based on the fair value of the Company's common stock on the date of grant. During the nine months ended September 30, 2024, the Company granted 2,710,487 service-based RSUs with a weighted average grant date fair value of $4.53 per share.

Performance Stock Units

The Company’s PSUs granted in 2023 vest over a period of three years, subject to the employee’s continued employment through the vesting date and satisfaction of certain pre-established performance targets based on Company financial metrics. Expense related to these PSUs is recognized ratably during the 3-year performance period, based on the probability of attaining the performance targets. The potential number of shares that may be earned is determined based on achievement of performance targets up to a maximum of 100% of the number of PSUs granted.

In June 2024, the Company granted market-based PSU awards to its senior executives, which are earned subject to achievement of specified stock price hurdles for 20 days out of a 30-trading day window during the 3-year performance period, as well as continued employment through the quarterly vesting dates over the 3-year period. The number of shares that are eligible to vest range from 0% to 100% of the number of PSUs granted based on achievement of the specified stock price hurdles, with half of our CEO’s PSU award subject to vesting based on two additional above-target stock price hurdles.

The Company uses a Monte Carlo simulation, which uses subjective assumptions and simulates multiple stock price paths of the Company's common stock to determine the fair value of market-based PSUs on the date of grant. Compensation expense is recognized using an accelerated attribution method over the greater of the derived service periods and explicit quarterly service periods. Compensation expense, net of forfeitures, is recorded regardless of whether the market condition will be ultimately satisfied.

The following assumptions are used to estimate the fair value of the Company’s market-based PSUs:

Stock-Based Awards Granted Outside of Equity Incentive Plans

Warrants

The Company issued equity-classified warrants to purchase shares of common stock to certain third-party advisors, consultants, and financial institutions, which expire between November 2024 and September 2026. As of September 30, 2024 and December 31, 2023,188,235 warrants were outstanding and exercisable with a weighted average exercise price of $7.57.

Employee Stock Purchase Plan

As of September 30, 2024, approximately 2,849,545 shares of Common Stock have been reserved for issuance under the Company’s 2021 Employee Stock Purchase Plan (the “ESPP”), which is subject to annual automatic evergreen increases. There have beenno shares purchased under the ESPP as it is not yet active.

See Note 13 to the Company’s 2023 Annual Report on Form 10-K for additional information relating to the Company’s share-based compensation awards.

15. Net Income (Loss) Per Common Share

The following table presents the computation of the Company’s basic and diluted loss per share:

(1) The Company used the if-converted method to calculate the dilutive impact of the Convertible Notes, which assumes share settlement as of the beginning of the period if the effect is more dilutive than cash settlement.

The following weighted-average shares have been excluded from the calculation of diluted net (loss) income per share for each period presented because they are anti-dilutive: