Quotient Technology Inc. - Quarter Report: 2020 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 June 30, 2020

☐	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: 001-36331

Quotient Technology Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		77-0485123
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

400 Logue Avenue, Mountain View, California		94043
(Address of Principal Executive Offices)		(Zip Code)

(650) 605-4600

(Registrant’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

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, $0.00001 par value

QUOT

New York Stock Exchange

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 checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 July 30, 2020, the registrant had 90,449,766 shares of common stock outstanding.

QUOTIENT TECHNOLOGY INC.

INDEX

REPORT ON

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2020

PART I FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited):		3
Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019		3
Condensed Consolidated Statements of Operations for the Three and Six months ended June 30, 2020 and 2019		4
Condensed Consolidated Statements of Comprehensive Loss for the Three and Six months ended June 30, 2020 and 2019		5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six months ended June 30, 2020 and 2019		6
Condensed Consolidated Statements of Cash Flows for the Six months ended June 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		25
Item 3 Quantitative and Qualitative Disclosures About Market Risk		35
Item 4 Controls and Procedures		36
PART II OTHER INFORMATION
Item 1—Legal Proceedings		37
Item 1A—Risk Factors		37
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds		70
Item 3—Defaults Upon Senior Securities		70
Item 4—Mine Safety Disclosures		70
Item 5—Other Information		70
Item 6—Exhibits		71
SIGNATURES		72

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	June 30, 2020			December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	211,872		$	224,764
Accounts receivable, net of allowance for credit losses of $2,079 and $2,021 at June 30, 2020 and December 31, 2019, respectively		94,311			125,304
Prepaid expenses and other current assets		23,991			22,026
Total current assets		330,174			372,094
Property and equipment, net		15,340			13,704
Operating lease right-of-use assets		16,851			7,211
Intangible assets, net		55,319			69,752
Goodwill		128,427			128,427
Other assets		1,098			750
Total assets	$	547,209		$	591,938
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	12,308		$	19,116
Accrued compensation and benefits		7,801			15,232
Other current liabilities		47,200			50,032
Deferred revenues		13,011			10,903
Contingent consideration related to acquisitions		3,207			27,000
Total current liabilities		83,527			122,283
Other non-current liabilities		17,572			7,119
Contingent consideration related to acquisitions		10,239			9,220
Convertible senior notes, net		171,589			166,157
Deferred tax liabilities		1,937			1,937
Total liabilities		284,864			306,716
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.00001 par value—10,000,000 shares authorized and no shares issued or outstanding at June 30, 2020 and December 31, 2019		—			—
Common stock, $0.00001 par value—250,000,000 shares authorized; 90,414,440 and 89,371,199 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		1			1
Additional paid-in capital		684,285			671,060
Accumulated other comprehensive loss		(1,160	)		(916	)
Accumulated deficit		(420,781	)		(384,923	)
Total stockholders’ equity		262,345			285,222
Total liabilities and stockholders’ equity	$	547,209		$	591,938

See Accompanying Notes to Condensed Consolidated Financial Statements

QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues	$	83,455		$	104,691		$	182,242		$	202,798
Costs and expenses:
Cost of revenues		50,731			64,106			111,842			120,929
Sales and marketing		23,814			23,870			48,848			49,393
Research and development		8,621			8,699			19,214			19,069
General and administrative		12,268			12,835			27,358			26,458
Change in fair value of contingent consideration		3,766			(3,009	)		4,226			53
Total costs and expenses		99,200			106,501			211,488			215,902
Loss from operations		(15,745	)		(1,810	)		(29,246	)		(13,104	)
Interest expense		(3,610	)		(3,470	)		(7,184	)		(6,909	)
Other income, net		187			1,508			767			3,039
Loss before income taxes		(19,168	)		(3,772	)		(35,663	)		(16,974	)
Provision for (benefit from) income taxes		(35	)		134			195			160
Net loss	$	(19,133	)	$	(3,906	)	$	(35,858	)	$	(17,134	)
Net loss per share, basic and diluted	$	(0.21	)	$	(0.04	)	$	(0.40	)	$	(0.18	)
Weighted-average number of common shares used in computing net loss per share, basic and diluted		90,112			92,558			89,875			93,406

See Accompanying Notes to Condensed Consolidated Financial Statements

QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net loss	$	(19,133	)	$	(3,906	)	$	(35,858	)	$	(17,134	)
Other comprehensive income (loss):
Foreign currency translation adjustments		(11	)		15			(244	)		45
Comprehensive loss	$	(19,144	)	$	(3,891	)	$	(36,102	)	$	(17,089	)

See Accompanying Notes to Condensed Consolidated Financial Statements

QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Total stockholders' equity, beginning balances	$	274,081		$	346,620		$	285,222		$	380,087

Common stock and additional paid-in capital:
Beginning balances	$	676,878		$	689,810		$	671,061		$	703,023
Stock-based compensation		7,129			8,227			14,790			16,329
Exercise of employee stock options		16			193			484			1,636
Issuance of common stock for services provided		228			—			228			—
Issuance of common stock, purchase plan		1,050			1,427			1,050			1,427
Payments for taxes related to net share settlement of equity awards		(1,015	)		(1,810	)		(3,327	)		(6,461	)
Retirement of treasury stock		—			(32,181	)		—			(50,288	)
Ending balance	$	684,286		$	665,666		$	684,286		$	665,666

Treasury stock:
Beginning balances	$	—		$	—		$	—		$	—
Repurchase of common stock		—			(45,784	)		—			(70,946	)
Retirement of treasury stock		—			45,784			—			70,946
Ending balance	$	—		$	—		$	—		$	—

Accumulated other comprehensive loss:
Beginning balances	$	(1,149	)	$	(814	)	$	(916	)	$	(844	)
Other comprehensive income (loss)		(11	)		15			(244	)		45
Ending balance	$	(1,160	)	$	(799	)	$	(1,160	)	$	(799	)

Accumulated deficit:
Beginning balances	$	(401,648	)	$	(342,376	)	$	(384,923	)	$	(322,093	)
Retirement of treasury stock		—			(13,603	)		—			(20,658	)
Net loss		(19,133	)		(3,906	)		(35,858	)		(17,134	)
Ending balance	$	(420,781	)	$	(359,885	)	$	(420,781	)	$	(359,885	)

Total stockholders' equity, ending balances	$	262,345		$	304,982		$	262,345		$	304,982

See Accompanying Notes to Condensed Consolidated Financial Statements

QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(35,858	)	$	(17,134	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		17,843			15,632
Stock-based compensation		14,532			16,084
Amortization of debt discount and issuance cost		5,432			5,150
Allowance for credit losses		263			366
Deferred income taxes		195			160
Change in fair value of contingent consideration		4,226			53
Other non-cash expenses		1,442			1,219
Changes in operating assets and liabilities:
Accounts receivable		30,730			3,368
Prepaid expenses and other current assets		(2,470	)		(2,779	)
Accounts payable and other current liabilities		(7,551	)		3,349
Payments for contingent consideration and bonuses		(15,418	)		—
Accrued compensation and benefits		(7,478	)		(3,249	)
Deferred revenues		2,108			1,616
Net cash provided by operating activities		7,996			23,835

Cash flows from investing activities:
Purchases of property and equipment		(4,689	)		(4,729	)
Purchase of intangible assets		—			(14,811	)
Proceeds from maturities of short-term investment		—			20,738
Net cash (used in) provided by investing activities		(4,689	)		1,198

Cash flows from financing activities:
Proceeds from issuances of common stock under stock plans		1,762			3,063
Payments for taxes related to net share settlement of equity awards		(3,327	)		(6,461	)
Repurchases and retirement of common stock under share repurchase program		—			(69,879	)
Principal payments on promissory note and capital lease obligations		(91	)		(229	)
Payments for contingent consideration		(14,582	)		—
Net cash used in financing activities		(16,238	)		(73,506	)
Effect of exchange rates on cash and cash equivalents		39			23
Net decrease in cash and cash equivalents		(12,892	)		(48,450	)
Cash and cash equivalents at beginning of period		224,764			302,028
Cash and cash equivalents at end of period	$	211,872		$	253,578

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	67		$	119
Cash paid for interest	$	1,752		$	1,760

Supplemental disclosures of noncash investing and financing activities:
Fixed asset purchases not yet paid	$	908		$	355
Intangible asset acquisitions not yet paid	$	1,000		$	—
Repurchase of common stock not settled	$	—		$	2,623

See Accompanying Notes to Condensed Consolidated Financial Statements

QUOTIENT TECHNOLOGY INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business

Quotient Technology Inc. (together with its subsidiaries, the “Company”), is an industry leading digital marketing platform, providing technology and services that power integrated digital promotions and media programs for consumer packaged goods (“CPG”s) brands and retailers. These programs are delivered across the Company’s network, including its flagship consumer brand Coupons.com and retail partners. This network provides the Company with proprietary and licensed data, including online behaviors, purchase intent, and retailers’ in-store point-of-sale (“POS”) shopper data, to target shoppers with the most relevant digital coupons and ads. The Company also delivers digital promotions and media programs to third party publishing properties outside of its network. Customers and partners use the Company to influence shoppers via digital channels, integrate marketing and merchandising programs, and leverage shopper data and insights to drive measurable sales results.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2020 or for any other period. Certain prior period amounts on the condensed consolidated balance sheets have been reclassified to conform to the current period’s presentation.

There have been no significant changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on its condensed consolidated financial statements and related notes.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. Such management estimates include, but are not limited to, revenue recognition, collectability of accounts receivable, coupon code sales return reserve, valuation of assets acquired and liabilities assumed in a business combination, useful lives of intangible assets, estimates related to recovery of long-lived assets and goodwill, measurement of contingent consideration, restructuring accruals, debt discounts, stock-based compensation, deferred income tax assets and associated valuation allowances and distribution fee commitments. These estimates generally require judgments, may involve the analysis of historical and prediction of future trends, and are subject to change from period to period. Actual results may differ from the Company’s estimates, and such differences may be material to the accompanying condensed consolidated financial statements.

The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for the Company’s advertising business, and adversely impact the Company’s results of operations. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. The Company’s estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

Accounting Pronouncements Adopted

Credit Losses

Topic 326: In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of a broader range of information to estimate credit losses.

The Company adopted ASU 2016-13 on January 1, 2020 and the impact of the adoption was not material to the Company’s condensed consolidated financial statements and related disclosures.

Revenue Recognition

The Company primarily generates revenue by providing digital promotions and media solutions to its customers and partners. Revenues are recognized when control of the promised goods or 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 goods or services.

We determine 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

•

Recognition of revenue when, or as, we satisfy a performance obligation

The Company provides digital promotions, including digital coupons, and/or media programs to its customers which consists of CPG customers, retail partners and advertising agencies whereby it uses its proprietary technology platforms to create, target, and deliver these programs. The Company typically generates revenue from its customers through the use of these programs on a cost-per-click, cost-per-impression, or cost-per-acquisition basis. Programs usually include a limit on the number of clicks and/or impressions and are billed monthly.

The pricing of digital promotions programs typically includes both promotion setup fees and promotion campaign fees. Promotion setup fees are related to the creation of digital promotions and set up of the underlying campaign on Quotient’s proprietary platform for tracking of the related clicks. The Company recognizes revenues related to promotion setup fees over time, proportionally, on a per click basis, using the number of authorized clicks, per insertion order, commencing on the date of the first click. A click refers to the consumers action of activating a digital promotion through the Company’s proprietary technology platform by either saving it to a retailer’s loyalty account for automatic digital redemption, or printing it for physical redemption at a retailer. Promotion campaign fees are usually determined on a per click basis. The Company typically recognizes revenues for digital promotion campaign fees as clicks occur.

The Company’s media programs enable CPGs and retailers to distribute digital media to promote their brands and products on its retailers’ websites, and mobile apps, and through a network of affiliate publishers and non-publisher third parties that display its media offerings on their websites or mobile apps. Pricing for media campaigns is usually determined on a cost-per-impression, cost-per-click or cost-per-acquisition basis. The Company recognizes revenue each time a digital media ad is displayed or each time a user clicks on the media ad displayed on the Company’s websites, mobile apps or on third-party websites.

Digital promotion programs also include the Company’s Specialty Retail business, in which specialty stores including clothing, electronics, home improvement and others, and coupon code offers. Each time a consumer makes a purchase using a coupon code, a fee is typically paid to the Company. The Company usually generates revenues when a consumer makes a purchase using a coupon code from its platform and completion of the order is reported to the Company. In the same period that the Company recognizes revenues for the delivery of coupon codes, it also estimates and records a reserve, based upon historical experience, to provide for end-user cancelations or product returns which may not be reported until a subsequent date.

Gross Versus Net Revenue Reporting

In the normal course of business and through its distribution network, the Company delivers digital promotions and media on retailers’ websites through retailers’ loyalty programs, and on the websites of digital publishers. In these situations, the Company evaluates whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). The Company reports certain digital promotion and media advertising revenues for campaigns placed on third-party owned properties on a gross basis, that is, the amounts billed to its customers are recorded as revenues, and distribution fees paid to retailers or digital publishers are recorded as cost of revenues. The Company is the principal because it controls the digital promotion and media advertising inventory before it is transferred to its customers. The Company’s control is evidenced by its sole ability to monetize the digital coupon and media advertising inventory, being primarily responsible to its customers, having discretion in establishing pricing for the delivery of the digital promotions and media, or a combination of these.

In other cases, the Company reports certain digital media advertising revenues on a net basis, that is, the costs for digital advertising inventory and third-party data paid to suppliers are deducted from gross revenues to arrive at net revenues. The Company’s performance obligation in these arrangements is to provide the use of its platforms that enables customers to bid on digital advertising inventory, which is determined based on real-time bidding, use of data and other add-on features in designing and executing their campaigns. The Company charges its customers a platform fee based on a percentage of the digital advertising inventory and data costs purchased through the use of its platforms and the platform fee is not contingent on the results of a digital media advertising campaign. The Company has determined that it’s an agent in these arrangements because it does not have control of the digital advertising inventory before it is transferred to the customer and does not set prices agreed upon within the auction marketplace.

Arrangements with Multiple Performance Obligations

The Company’s contracts with customers may include multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines its best estimate of its standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts and characteristics of targeted customers.

Accounts Receivables, Net of Allowance for Credit Losses

Trade and other receivables are included in accounts receivables and primarily comprised of trade receivables that are recorded at invoiced amounts, net of an allowance for credit losses and do not bear interest. Other receivables included unbilled receivables related to digital promotions and media advertising contracts with customers. The Company generally does not require collateral and performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. The Company maintains an allowance for credit losses based upon the expected collectability of its accounts receivable. The Company assesses collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Company reviewed credit profiles of its customers, contractual terms and conditions, current economic trends, reasonable and supportable forecasts of future economic conditions, and historical payment experience.

For the three and six months ended June 30, 2020, the Company’s assessment considered business and market disruptions caused by COVID-19 and estimates of expected emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for credit losses in future periods.

Deferred Revenues

Deferred revenues consist of promotion setup fees, promotion campaign fees and digital media fees that are expected to be recognized upon click, or delivery of media impressions, which generally occur within the next twelve months. The Company records deferred revenues, including amounts which are refundable, when cash payments are received or become due in advance of the Company satisfying its performance obligations. The increase in the deferred revenue balance for the six months ended June 30, 2020 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations of $13.9 million, partially offset by $11.8 million of recognized revenue.

The Company’s payment terms vary by the type and size of its customers. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

Disaggregated Revenue

The following table presents the Company’s revenues disaggregated by type of services (in thousands, unaudited). The majority of the Company’s revenue is generated from sales in the United States.

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Promotion	$	46,627	$	57,551	$	106,338	$	121,118
Media		36,828		47,140		75,904		81,680
Total Revenue	$	83,455	$	104,691	$	182,242	$	202,798

Practical Expedients and Exemptions

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue for an amount where it has the right to invoice for services performed.

Sales Commissions

The Company generally incurs and expenses sales commissions upon recognition of revenue for related goods and services, which typically occurs within one year or less. Sales commissions earned related to revenues for initial contracts are commensurate with sales commissions related to renewal contracts. These costs are recorded within sales and marketing expenses on the condensed consolidated statements of operations.

3. Fair Value Measurements

The fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis are as follows (in thousands):

	June 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	104,907		—		—	$	104,907
U.S. Treasury Bills		—		—		—		—
Total	$	104,907	$	—	$	—	$	104,907
Liabilities:
Contingent consideration related to acquisitions		—		—		13,446		13,446
Total	$	—	$	—	$	13,446	$	13,446

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	124,303		—		—	$	124,303
U.S. Treasury Bills		15,120		—		—		15,120
Total	$	139,423	$	—	$	—	$	139,423
Liabilities:
Contingent consideration related to acquisitions		—		—		36,220		36,220
Total	$	—	$	—	$	36,220	$	36,220

The valuation technique used to measure the fair value of money market funds and U.S. Treasury Bills includes using quoted prices in active markets. The money market funds have a fixed net asset value (NAV) of $1.0.

The contingent consideration relates to the acquisitions of MLW Squared Inc. (“Ahalogy”), Elevaate Ltd. (“Elevaate”) and Ubimo Ltd. (“Ubimo”). The fair values of contingent consideration are based on the expected achievement of certain revenue targets as defined under the acquisition agreements and were estimated using an option pricing method with significant inputs that are not observable in the market, thus classified as a Level 3 instrument. The inputs included the expected achievement of certain financial metrics over the contingent consideration period, volatility and discount rate. The fair-value of the contingent consideration is classified as a liability and is re-measured each reporting period. Refer to Note 6 for further details related to the acquisitions.

The following table represents the change in the contingent consideration (in thousands):

	Three Months Ended June 30, 2020							Six Months Ended June 30, 2020
	Ubimo		Elevaate			Ahalogy		Ubimo		Elevaate			Ahalogy
	Level 3		Level 3			Level 3		Level 3		Level 3			Level 3
Balance at the beginning of period	$	5,979	$	3,701		$	—	$	5,686	$	3,534		$	27,000
Change in fair value during the period		4,260		(494	)		—		4,553		(327	)		—
Payments made during the period		—		—			—		—		—			(27,000	)
Total	$	10,239	$	3,207		$	—	$	10,239	$	3,207		$	—

	Three Months Ended June 30, 2019					Six Months Ended June 30, 2019
	Elevaate			Ahalogy		Elevaate			Ahalogy
	Level 3			Level 3		Level 3			Level 3
Balance at the beginning of period	$	7,133		$	24,893	$	6,121		$	22,842
Change in fair value during the period		(4,118	)		1,108		(3,106	)		3,159
Total	$	3,015		$	26,001	$	3,015		$	26,001

The Company recorded a charge of $3.7 million and $4.2 million during the three and six months ended June 30, 2020, respectively, for the re-measurement of the fair values of contingent consideration related to acquisitions, as a component of operating expenses in the accompanying condensed consolidated statements of operations. The Company recorded a benefit of $3.0 million and a charge of $0.1 million during the three and six months ended June 30, 2019, respectively, for the re-measurement of the fair values of contingent consideration related to acquisitions, as a component of operating expenses in the accompanying condensed consolidated statements of operations.

During the six months ended June 30, 2020, the Company paid $27.0 million related to Ahalogy’s achievement of financial metrics subject to contingent consideration during the measurement period ending December 31, 2019, and as a result, no liability exists as of June 30, 2020. Out of the total consideration paid, $14.6 million was originally measured and recorded on the acquisition date and $12.4 million was recorded subsequent to the acquisition date through changes in fair value of contingent consideration within the condensed consolidated statements of operations.

Fair Value Measurements of Other Financial Instruments

As of June 30, 2020 and December 31, 2019, the fair value of the Company’s 1.75% convertible senior notes due 2022 was $190.0 million and $195.4 million, respectively. The fair value was determined based on a quoted price of the convertible senior notes in an over-the-counter market on the last trading day of the reporting period. Accordingly, these convertible senior notes are classified within Level 2 in the fair value hierarchy. Refer to Note 8 for additional information related to the Company’s convertible debt.

4. Allowance for Credit Losses

The summary of activity in the allowance for credit losses is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Balance at the beginning of period	$	2,043		$	1,331		$	2,021		$	1,200
Provision for expected credit losses		46			234			263			366
Write-offs charged against the allowance		(10	)		(184	)		(205	)		(185	)
Balance at the end of period	$	2,079		$	1,381		$	2,079		$	1,381

5. Balance Sheet Components

Property and Equipment, Net

Property and equipment consist of the following (in thousands):

	June 30, 2020			December 31, 2019
Software	$	42,784		$	41,876
Computer equipment		23,658			25,773
Leasehold improvements		5,855			5,883
Furniture and fixtures		2,473			2,449
Total		74,770			75,981
Accumulated depreciation and amortization		(63,678	)		(63,543	)
Projects in process		4,248			1,266
Total property and equipment, net	$	15,340		$	13,704

Depreciation and amortization expense related to property and equipment was $1.8 million and $3.4 million for the three and six months ended June 30, 2020, respectively, and $1.9 million and $3.7 million for the three and six months ended June 30, 2019, respectively.

The Company capitalized internal use software development and enhancement costs of $1.9 million and $3.6 million during the three and six months ended June 30, 2020, respectively, and $2.0 million and $3.0 million during the three and six months ended June 30, 2019, respectively. During the three and six months ended June 30, 2020, the Company had $0.8 million and $1.5 million, respectively, in amortization expense related to internal use software, which is included in property and equipment depreciation and amortization expense and recorded as cost of revenues, as compared to $0.6 million and $1.2 million during the three and six months ended June 30, 2019, respectively. The unamortized capitalized development costs were $7.9 million and $5.8 million as of June 30, 2020 and December 31, 2019, respectively.

Accrued Compensation and Benefits

Accrued compensation and benefits consist of the following (in thousands):

	June 30, 2020		December 31, 2019
Commissions	$	2,784	$	5,996
Payroll and related expenses		2,692		2,533
Bonus		1,405		5,997
Vacation		920		706
Total accrued compensation and benefits	$	7,801	$	15,232

Other Current Liabilities

Other current liabilities consist of the following (in thousands):

	June 30, 2020		December 31, 2019
Distribution fees	$	17,925	$	20,360
Traffic acquisition cost		8,303		5,278
Prefunded liability		5,042		5,429
Marketing expenses		3,624		2,164
Operating lease liabilities		3,039		3,168
Liability related to purchased intangible asset		1,000		1,000
Interest payable		282		282
Other		7,985		12,351
Total other current liabilities	$	47,200	$	50,032

6. Acquisitions

Acquisition of Ubimo

On November 19, 2019, the Company acquired all outstanding shares of Ubimo, a leading data and media activation company.

The total preliminary acquisition consideration of $20.7 million consisted of $15.0 million in cash and contingent consideration of up to $24.8 million payable in cash with an estimated fair value of $5.7 million as of the acquisition date. The contingent consideration payout is based on Ubimo achieving certain financial metrics between the date of the acquisition through December 31, 2021. The acquisition date fair value was determined using an option pricing model. The fair value of the contingent consideration will be re-measured through earnings every reporting period. Refer to Note 3 for the fair value of contingent consideration at June 30, 2020.

Acquisition of Elevaate

On October 26, 2018, the Company acquired all the outstanding shares of Elevaate, a sponsored search company for retail partners and CPG brands.

The total preliminary acquisition consideration of $13.3 million consisted of $7.2 million in cash and contingent consideration of up to $18.5 million payable in cash with an estimated fair value of $6.1 million as of the acquisition date. The contingent consideration payout is based on Elevaate achieving certain financial metrics between February 1, 2019 through January 31, 2021. The acquisition date fair value of the contingent consideration was determined by using an option pricing model. The fair value of the contingent consideration will be re-measured every reporting period. Refer to Note 3 for the fair value of contingent consideration at June 30, 2020.

Acquisition of SavingStar, Inc.

On August 27, 2018, the Company acquired all the outstanding shares of SavingStar, Inc. (“SavingStar”), a digital promotions company with a CRM platform designed to help brands build and track loyalty programs with their consumers.

The total preliminary acquisition consideration at closing consisted of $7.5 million in cash. In addition, SavingStar may receive potential contingent consideration of up to $10.6 million payable in all cash, subject to achieving certain financial metrics between closing through February 29, 2020. At the date of acquisition, the contingent consideration’s fair value was determined to be zero using an option pricing model. As of February 29, 2020, the date that the contingent consideration period ended, SavingStar did not achieve certain financial metrics for payout and the fair value was concluded to be zero. Accordingly, the Company determined that no payout was required when the contingent consideration period ended.

Acquisition of Ahalogy

On June 1, 2018, the Company acquired all the outstanding shares of Ahalogy, an influencer marketing firm that delivers premium content across social media channels for CPG brands. The acquisition enhances the Company’s performance media solutions for CPGs and retailers, adding social media expertise and a roster of influencers.

The total preliminary acquisition consideration of $36.4 million consisted of $21.8 million in cash and contingent consideration of up to $30.0 million payable in all cash with an estimated fair value of $14.6 million as of the acquisition date. The contingent consideration payout is based on Ahalogy achieving certain financial metrics between closing through December 31, 2019. The acquisition date fair value of the contingent consideration was determined by using an option pricing model. The fair value of the contingent consideration is re-measured every reporting period. As of December 31, 2019, the date that the contingent consideration period ended, Ahalogy earned the full payout of the contingent consideration by achieving certain financial metrics. The Company paid out $30.0 million during the three and six months ended June 30, 2020, of which $27.0 million related to contingent consideration and $3.0 million related to certain bonuses; and as a result, no liability exists as of June 30, 2020. Of the total $30.0 million that was paid, $14.6 million is classified within financing activity and the remaining $15.4 million is classified within operating activity on the Company’s condensed consolidated statements of cash flows. Refer to Note 3 for the fair value of contingent consideration at June 30, 2020.

Each of these acquisitions were accounted for as a business combination. Accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date when control was obtained. The Company expensed all transaction costs in the period in which they were incurred. The Company acquired various intangible assets resulting from these acquisitions, such as, customer relationships, vendor relationships, developed technologies and trade names. The fair value of the customer relationships was determined by using a discounted cash flow model. The fair value of the vendor relationships was determined by using a cost approach. The fair value of developed technologies was determined by using the relief from royalty method or the with-and-without method. The fair value of trade names was determined by using the relief from royalty method. The excess of the consideration paid over the fair value of the net tangible assets and liabilities and identifiable intangible assets acquired is recorded as goodwill. The goodwill arising from the acquisitions are largely attributable to the synergies expected to be realized. None of the goodwill recorded from the acquisitions will be deductible for income tax purposes.

For each of these transactions, the fair value of the consideration transferred and the assets acquired and liabilities assumed was determined by the Company and in doing so management engaged a third-party valuation specialist to measure the fair value of identifiable intangible assets and obligations related to deferred revenue and contingent consideration. The estimated fair value of the identifiable assets acquired and liabilities assumed in the relevant acquisition is based on management’s best estimates. As the Company finalizes certain valuation assumptions, the provisional measurements of identifiable assets and liabilities, and the resulting goodwill related to the acquisition of Ubimo are subject to change and the final purchase price accounting could be different from the amounts presented herein.

The following table summarizes the preliminary acquisition consideration and the related fair values of the assets acquired and liabilities assumed (in thousands):

	Purchase Consideration		Net Tangible Assets Acquired/ (Liabilities Assumed)			Identifiable Intangible Assets		Goodwill		Goodwill Deductible for Taxes	(1) Acquisition Related Expenses
Ubimo	$	20,740	$	384		$	10,750	$	9,606	Not Deductible	$	579
Elevaate		13,346		(60	)		3,781		9,625	Not Deductible		549
SavingStar		7,485		(1,126	)		2,577		6,034	Not Deductible		556
Ahalogy		36,432		2,196			11,580		22,656	Not Deductible		684
	$	78,003	$	1,394		$	28,688	$	47,921		$	2,368

(1)	Expensed as general and administrative

The following sets forth each component of identifiable intangible assets acquired in connection with the acquisitions (in thousands):

	Ubimo		Estimated Useful Life (in Years)		Elevaate		Estimated Useful Life (in Years)		SavingStar		Estimated Useful Life (in Years)		Ahalogy		Estimated Useful Life (in Years)
Developed technologies	$	7,100		4.0	$	3,307		5.0	$	1,476		3.0	$	3,100		4.0
Customer relationships		3,400		2.0		379		5.0		1,040		3.0		6,210		6.0
Trade names		250		4.0		95		3.0		61		1.5		650		4.0
Vendor relationships		—		—		—		—		—		—		1,620		2.0
Total identifiable intangible assets	$	10,750			$	3,781			$	2,577			$	11,580

7. Intangible Assets

The following table summarizes the gross carrying amount and accumulated amortization for the intangible assets (in thousands):

	June 30, 2020
	Gross		Accumulated Amortization			Net		Weighted Average Amortization Period (Years)
Media service rights	$	34,684	$	(20,756	)	$	13,928		1.8
Promotion service rights		30,548		(13,525	)		17,023		3.1
Developed technologies		27,170		(16,069	)		11,101		2.8
Customer relationships		22,690		(14,263	)		8,427		3.0
Data access rights		10,801		(7,355	)		3,446		1.8
Domain names		5,948		(5,573	)		375		0.3
Trade names		2,823		(1,888	)		935		1.8
Vendor relationships		2,510		(2,510	)		—		0.0
Patents		975		(891	)		84		2.3
Registered users		420		(420	)		—		0.0
	$	138,569	$	(83,250	)	$	55,319		2.6

	December 31, 2019
	Gross		Accumulated Amortization			Net		Weighted Average Amortization Period (Years)
Media service rights	$	34,684	$	(16,098	)	$	18,586		2.2
Promotion service rights		30,548		(10,682	)		19,866		3.6
Developed technologies		27,170		(12,790	)		14,380		3.2
Customer relationships		22,690		(12,267	)		10,423		3.3
Data access rights		10,801		(6,415	)		4,386		2.3
Domain names		5,948		(5,540	)		408		0.8
Trade names		2,823		(1,560	)		1,263		2.2
Vendor relationships		2,510		(2,172	)		338		0.4
Patents		975		(873	)		102		2.8
Registered users		420		(420	)		—		0.0
	$	138,569	$	(68,817	)	$	69,752		3.0

As of June 30, 2020 and December 31, 2019, the Company has a domain name with a gross value of $0.4 million with an indefinite useful life that is not subject to amortization.

Intangible assets subject to amortization are amortized over their useful lives as shown in the table above. Amortization expense related to intangible assets subject to amortization was $7.1 million and $14.4 million during the three and six months ended June 30, 2020, respectively, and $6.0 million and $11.9 million during the three and six months ended June 30, 2019, respectively. Estimated future amortization expense related to intangible assets as of June 30, 2020 is as follows (in thousands):

	Total
2020, remaining six months	$	13,096
2021		21,001
2022		13,419
2023		6,642
2024		809
2025 and beyond		—
Total estimated amortization expense	$	54,967

As of June 30, 2020, the Company performed an analysis of the impact of recent events, including business and market disruption caused by COVID-19, on the fair values of its intangible assets, and determined that an impairment does not exist. However, there can be no assurances that intangible assets will not be impaired in future periods and the Company will continue to monitor the operating results, cash flow forecasts and challenges from declines in current market conditions, as well as impacts of COVID-19 for these intangible assets.

8. Debt Obligations

2017 Convertible Senior Notes

In November 2017, the Company issued and sold $200.0 million aggregate principal amount of 1.75% convertible senior notes due 2022 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, (the “notes”). The notes are unsecured obligations of the Company and bear interest at a fixed rate of 1.75% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2018. The total net proceeds from the debt offering, after deducting transaction costs, were approximately $193.8 million.

The conversion rate for the notes is initially 57.6037 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $17.36 per share of common stock, subject to adjustment upon the occurrence of specified events.

Holders of the notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding September 1, 2022, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2018 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five-business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the notes on each such trading day; (3) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after September 1, 2022, holders may convert all or any portion of their notes at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. The Company intends to settle the principal amount of the notes with cash.

The Company may not redeem the notes prior to December 5, 2020. It may redeem for cash all or any portion of the notes, at its option, on or after December 5, 2020 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending not more than three trading days preceding the date on which it provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the notes.

If the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In accounting for the issuance of the notes, the Company separated the notes into liability and equity components. The carrying amount of the liability component of $149.3 million was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component of $50.7 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the notes at an effective interest rate of 5.8%.

The Company allocated the total debt issuance costs incurred of $6.2 million to the liability and equity components of the notes in proportion to the respective values. Issuance costs attributable to the liability component of $4.6 million are being amortized to interest expense using the effective interest method over the contractual terms of the notes. Issuance costs attributable to the equity component of $1.6 million were netted with the equity component in additional paid-in capital.

The net carrying amount of the liability component of the notes recorded in convertible senior notes, net on the condensed consolidated balance sheets was as follows (in thousands):

	June 30,			December 31,
	2020			2019
Principal	$	200,000		$	200,000
Unamortized debt discount		(26,162	)		(31,132	)
Unamortized debt issuance costs		(2,249	)		(2,711	)
Net carrying amount of the liability component	$	171,589		$	166,157

The net carrying amount of the equity component of the notes recorded in additional paid-in capital on the condensed consolidated balance sheets was $49.1 million, net of debt issuance costs of $1.6 million as of June 30, 2020 and December 31, 2019.

The following table sets forth the interest expense related to the notes recognized in interest expense on the condensed consolidated statements of operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Contractual interest expense	$	875	$	875	$	1,750	$	1,750
Amortization of debt discount		2,503		2,362		4,970		4,690
Amortization of debt issuance costs		231		230		462		460
Total interest expense related to the Notes	$	3,609	$	3,467	$	7,182	$	6,900

9. Stock-based Compensation

2013 Equity Incentive Plan

In October 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Plan”), which became effective in March 2014 and serves as the successor to the Company’s 2006 Stock Plan (the “2006 Plan”). Pursuant to the 2013 Plan, 4,000,000 shares of common stock were initially reserved for grant, plus (1) any shares that were reserved and available for issuance under the 2006 Plan at the time the 2013 Plan became effective, (2) any shares that become available upon forfeiture or repurchase by the Company under the 2006 Plan and (3) any shares added to the 2013 Plan pursuant to the next paragraph.

Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock and restricted stock units (“RSUs”), performance-based stock and units to employees, directors and consultants. The shares available will be increased at the beginning of each year by the lesser of (i) 4% of outstanding common stock on the last day of the immediately preceding year, or (ii) such number determined by the Board of Directors and subject to additional restrictions relating to the maximum number of shares issuable pursuant to incentive stock options. Under the 2013 Plan, both the ISOs and NSOs are granted at a price per share not less than 100% of the fair market value on the effective date of the grant. The Board of Directors determines the vesting period for each option award on the grant date, and the options generally expire 10 years from the grant date or such shorter term as may be determined by the Board of Directors.

Stock Options

The fair value of each option was estimated using the Black-Scholes model on the date of grant for the periods presented using the following assumptions:

	Six Months Ended June 30,
	2020	2019
Expected life (in years)	6.02		6.02
Risk-free interest rate	0.96%	2.66%
Volatility	50%	50%
Dividend yield	—	—

There were no option grants during the three months ended June 30, 2020 and 2019. The weighted-average grant date fair value of options was $4.26 and $5.01 per share during the six months ended June 30, 2020 and 2019, respectively.

Restricted Stock Units and Performance-Based Restricted Stock Units

The fair value of RSUs equals the market value of the Company’s common stock on the date of the grant. The RSUs are excluded from issued and outstanding shares until they are vested.

A summary of the Company’s stock option and RSU award activity under the 2013 Plan is as follows:

				RSUs Outstanding					Options Outstanding
	Shares Available for Grant			Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Balance as of December 31, 2019		6,036,180			5,022,675		$	10.66		8,600,441		$	11.40		5.16	$	8,811
Increase in shares authorized		3,574,847		—			—		—			—		—		—
Options granted		(1,150,178	)	—			—			1,150,178		$	8.95	—		—
Options exercised	—			—			—			(62,157	)	$	7.78	—		$	151
Options canceled or expired		673,266		—			—			(673,266	)	$	11.91	—		—
RSUs granted		(1,771,870	)		1,771,870		$	8.03	—			—		—		—
RSUs vested	—				(1,150,579	)	$	11.04	—			—		—		—
RSUs canceled or expired		600,420			(600,420	)	$	11.11	—			—		—		—
RSUs vested and withheld for taxes		387,069		—			—		—			—		—		—
Balance as of June 30, 2020		8,349,734			5,043,546		$	9.60		9,015,196		$	11.07		5.37	$	1,526
Vested and exercisable as of June 30, 2020										5,436,103		$	12.39		3.59	$	1,526

The aggregate intrinsic value disclosed in the table above is based on the difference between the exercise price of the options and the fair value of the Company’s common stock.

The aggregate total fair value of options vested was $1.5 million and $2.9 million during the three and six months ended June 30, 2020, respectively and $1.7 million and $3.0 million during the three and six months ended June 30, 2019, respectively.

Employee Stock Purchase Plan

The Company’s Board of Directors adopted the 2013 Employee Stock Purchase Plan (“ESPP”), which became effective in March 2014. Eligible employees can enroll and elect to contribute up to 15% of their base compensation through payroll withholdings in each offering period which is six months in duration, subject to certain limitations. The purchase price of the stock is the lower of 85% of the fair market value on (a) the first day of the offering period or (b) the purchase date.

The fair value of the option feature is estimated using the Black-Scholes model for the period presented based on the following assumptions:

	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
Expected life (in years)	0.50	0.50	0.50	0.50
Risk-free interest rate	0.15%	2.43%	0.15% - 1.59%	2.43% - 2.50%
Volatility	60%	35%	55% - 60%	35%
Dividend yield	—	—	—	—

As of June 30, 2020, a total of 1,667,810 shares of common stock were issued under the ESPP since inception of the plan. As of June 30, 2020, a total of 1,932,190 shares are available for issuance under the ESPP.

Stock-based Compensation Expense

The following table sets forth the total stock-based compensation expense resulting from stock options, RSUs and ESPP included in the Company’s condensed consolidated statements of operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Cost of revenues	$	387	$	562	$	822	$	1,164
Sales and marketing		1,323		1,825		2,725		3,563
Research and development		839		1,073		1,720		2,439
General and administrative		4,457		4,576		9,265		8,918
Total stock-based compensation expense	$	7,006	$	8,036	$	14,532	$	16,084

As of June 30, 2020, there was $57.5 million of unrecognized stock-based compensation expense, of which $14.8 million is related to stock options and ESPP shares and $42.7 million is related to RSUs. The total unrecognized stock-based compensation expense related to stock options and ESPP as of June 30, 2020 will be amortized over a weighted-average period of 2.85 years. The total unrecognized stock-based compensation expense related to RSUs as of June 30, 2020 will be amortized over a weighted-average period of 2.62 years.

During the three and six months ended June 30, 2020, the Company capitalized $0.1 million and $0.2 million, respectively, and $0.1 million and $0.2 million during the three and six months ended June 30, 2019, respectively, of stock-based compensation expense in projects in process as part of property and equipment, net on the accompanying condensed consolidated balance sheets.

10. Common Stock Repurchase Programs

The Board of Directors previously approved programs for the Company to repurchase shares of its common stock. In August 2019, the Company’s Board of Directors authorized a one-year share repurchase program (the “August 2019 Program”) for the Company to repurchase up to $50.0 million of its common stock from August 2019 through August 2020. During the three and six months ended June 30, 2020, the Company did not repurchase any shares of its common stock. As of June 30, 2020, $50.0 million remained available for repurchases under the August 2019 Program. In March 2020, the Company suspended the August 2019 Program, as a precautionary measure to maximize liquidity and increase available cash on hand during this time of uncertainty.

11. Income Taxes

The Company recorded a benefit from income taxes of $35 thousand and a provision for income taxes of $0.2 million during the three and six months ended June 30, 2020, respectively, and a provision for income taxes of $0.1 million and $0.2 million during the three and six months ended June 30, 2019, respectively. The benefit from and provision for income taxes for the three and six months ended June 30, 2020, respectively, was primarily attributable to the Company’s foreign operations, federal and state taxes, and amortization of tax deductible goodwill from prior year acquisitions. The provision for income taxes for the three and six months ended June 30, 2019 was primarily attributable to the Company’s foreign operations and amortization of tax deductible goodwill from prior year acquisitions.

12. Net Loss Per Share

The computation of the Company’s basic and diluted net loss per share is as follows (in thousands, except per share data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net loss	$	(19,133	)	$	(3,906	)	$	(35,858	)	$	(17,134	)

Weighted-average number of common shares used in computing net loss per share, basic and diluted		90,112			92,558			89,875			93,406

Net loss per share, basic and diluted	$	(0.21	)	$	(0.04	)	$	(0.40	)	$	(0.18	)

The outstanding common equivalent shares excluded from the computation of the diluted net loss per share for the periods presented because including them would have been antidilutive are as follows (in thousands):

	Three and Six Months Ended June 30,
	2020		2019
Stock options and ESPP		9,082		7,581
Restricted stock units		5,044		5,415
Shares related to convertible senior notes		11,521		11,521
		25,647		24,517

13. Leases

The Company has entered into operating leases primarily for office facilities. These leases have terms which typically range from 1 year to 10 years, and often include options to renew. These renewal terms can extend the lease term up to 6 years, and are included in the lease term when it is reasonably certain that the Company will exercise the option. These operating leases are included as operating lease right-of-use assets on the condensed consolidated balance sheets, and represent the Company’s right to use the underlying asset for the lease term. The present value of the Company’s obligation to make lease payments are included in other current liabilities and other non-current liabilities on the condensed consolidated balance sheets.

The Company has entered into short-term leases primarily for office facilities with an initial term of twelve months or less, and a professional sports team suite with a 20-year term, which it uses for sales and marketing purposes. The effective lease term for the professional sports team suite is based on the cumulative days available for use throughout the 20-year contractual term, which is less than twelve months and therefore is classified as a short-term lease. As of June 30, 2020, the Company’s lease commitment of $5.4 million, relating to the professional sports team suite, expires in 2034, and does not reflect short-term lease costs. These leases are not recorded on the Company's condensed consolidated balance sheet due to the accounting policy election as discussed under Note 2 to the condensed consolidated financial statements.

All operating lease expense is recognized on a straight-line basis over the lease term. During the three and six months ended June 30, 2020, the Company recognized $1.2 million and $2.3 million, respectively, in total lease costs, which is comprised of $1.0 million and $1.7 million, respectively, in operating lease costs for right-of-use assets and $0.2 million and $0.5 million, respectively, in short-term lease costs related to short-term operating leases. During the three and six months ended June 30, 2019, the Company recognized $0.9 million and $1.8 million, respectively, in total lease costs, which is comprised of $0.8 million and $1.6 million, respectively in operating lease costs for right-of-use assets and $0.1 million and $0.2 million, respectively, in short-term lease costs related to short-term operating leases.

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company has certain contracts for office facilities which may contain lease and non-lease components which it has elected to be treated as a single lease component due to the accounting policy election as discussed under Note 2 to the condensed consolidated financial statements.

Supplemental cash flow information related to operating leases was as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Cash paid for operating lease liabilities	$	936	$	1,469	$	1,910	$	2,817
Right-of-use assets obtained in exchange for lease obligations		11,084		—		11,084		12,955

Supplemental balance sheet information related to operating leases was as follows (in thousands, except lease term and discount rate):

	June 30, 2020			December 31, 2019
Operating right-of-use assets reported as:
Operating lease right-of-use assets	$	16,851		$	7,211

Operating lease liabilities reported as:
Other current liabilities	$	3,039		$	3,168
Other non-current liabilities		16,642			6,692
Total operating lease liabilities	$	19,681		$	9,860

Weighted average remaining lease term (in years)		7.6			3.9
Weighted average discount rate		6.0	%		7.9	%

Maturities of operating lease liabilities were as follows (in thousands):

	Operating Leases
2020, remaining six months	$	2,178
2021		3,699
2022		3,440
2023		3,484
2024		2,874
2025 and thereafter		9,279
Total lease payments	$	24,954

Less: Imputed Interest		(5,273	)
Total	$	19,681

14. Commitments and Contingencies

Purchase Obligations

The Company has unconditional purchase commitments, primarily related to distribution fees, software license fees and marketing services, of $33.6 million as of June 30, 2020.

Some of the Company’s agreements with retailers include certain prepaid or guaranteed distribution fees. If the Company does not meet contractual minimums, these prepaid or guaranteed distribution fees may not be recoverable, and any shortfall may be payable by us at the end of the applicable period. Implementation of one of the Company’s solutions with a retailer experienced slower than expected adoption due to a variety of factors, including impacts related to the spread of COVID-19 and their failure to perform certain obligations under the agreement. If the contractual minimum remains enforceable in light of these factors, and the Company is unable to meet the minimum under such arrangement at the end of the applicable period, which is scheduled to occur in the fourth quarter of 2020, the Company may recognize a loss that, depending on a variety of factors, could be as high as the high single digit millions.

Indemnification

In the normal course of business, to facilitate transactions related to the Company’s operations, the Company indemnifies certain parties, including CPGs, advertising agencies, retailers and other third parties. The Company has agreed to hold certain parties harmless against losses arising from claims of intellectual property infringement or other liabilities relating to or arising from our products or services or other contractual infringement. The term of these indemnity provisions generally survive termination or expiration of the applicable agreement. To date, the Company has not recorded any liabilities related to these agreements.

Litigation

In the ordinary course of business, the Company may be involved in lawsuits, claims, investigations, and proceedings consisting of intellectual property, commercial, employment, and other matters. The Company records a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a judgment or settlement, may cause a material adverse effect on the Company’s future business, operating results, or financial condition.

The Company believes that liabilities associated with existing claims are remote, therefore the Company has not recorded any accrual for existing claims as of June 30, 2020 and December 31, 2019. The Company expenses legal fees in the period in which they are incurred.

15. Employee Benefit Plan

The Company maintains a defined-contribution plan under Section 401(k) of the Internal Revenue Code. The 401(k) plan provides retirement benefits for eligible employees. Eligible employees may elect to contribute to the 401(k) plan. The Company provides a match of up to the lesser of 3% of each employee’s annual salary or $6,000, which vests immediately for employees with tenure of over a year. Previously, the Company’s 401(k) plan contributions vest over four years after continuous employment. The Company’s matching contribution expense was $0.5 million and $1.2 million during the three and six months ended June 30, 2020, respectively and $0.1 million and $0.8 million during the three and six months ended June 30, 2019, respectively.

16. Information About Geographic Areas

Revenues generated outside of the United States were insignificant for all periods presented. Additionally, as the Company’s assets are primarily located in the United States, information regarding geographical location is not presented, as such amounts are immaterial to these condensed consolidated financial statements taken as a whole.

17. Subsequent Events

Lease Amendment

On August 3, 2020, the Company entered into the Third Amendment (“Lease Amendment”) to the Lease Agreement with MG 400 Logue LLC, a Delaware limited liability company, effective August 3, 2020, pursuant to which it extended the lease for its principal executive office through December 31, 2021. Under the Lease Amendment, the Company also agreed to pay a basic annual rent of $1.2 million for the period of January 1, 2021 to December 31, 2021. A complete copy of the Lease Amendment is filed herewith as part of this Quarterly Report on Form 10-Q.

Transition of Chief Operating Officer

On July 31, 2020, Chad Summe transitioned out of his role as Chief Operating Officer (“COO”) to become the Company’s Chief Strategy Officer.

Item 2.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K filed on March 2, 2020 with the SEC. In addition to historical financial information, the following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934. The forward looking statements reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties, including statements related to the potential impact of the COVID-19 pandemic on our business and operations. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences are described in “Risk Factors” set forth in our Annual Report on Form 10-K and elsewhere in this Quarterly Report on Form 10-Q.

Overview

Quotient Technology Inc. is an industry leading digital marketing company, providing technology and services that power integrated digital promotions and media programs for consumer packaged goods (“CPG”s) brands and our retail partners. These programs are delivered across our broad network of digital properties to drive measurable sales results and customer loyalty. Our network includes the digital properties of our retail partners and CPG customers, social media platforms, third-party properties, our flagship consumer brand Coupons.com properties, and digital out-of-home display screens. This network provides Quotient with proprietary and licensed data, including retailers’ in-store point-of-sale (“POS”) shopper data, purchase intent and online behavior data, to target shoppers with the most relevant digital coupons and ads. Customers and partners use Quotient to leverage shopper data and insights, integrate marketing and merchandising programs and deliver marketing campaign programs across properties in our network.

For our retail partners, we provide a digital platform, Retailer iQ, which is generally co-branded or white-labeled through retailers’ savings or loyalty programs. Retailer iQ provides shopper data to deliver personalized and targeted digital marketing programs from brand marketers and retailers directly to shoppers via websites, mobile, social and e-commerce channels.

We provide value to three constituencies: over 2,000 brands from approximately 700 CPGs; retail partners across multiple classes of trade such as grocery retailers, drug, dollar, club, and mass merchandise channels; and consumers visiting the digital properties and platforms within our network.

Through these three groups, we have created a network effect, which we believe gives us a competitive advantage over both offline and online competitors. As our shopper audience increases, our platforms become more valuable to CPGs and retailers, which, in turn, rely more heavily on our platforms for their digital promotions and media. In addition, the breadth of coupon and advertising content offered from leading brands enables us to attract and retain more retailers and shoppers. As our network expands, we generate more shopper data and insights, which improve our ability to deliver more relevant and personalized promotions and media, and strengthens our measurement and data insights solutions.

We primarily generate revenue by providing digital promotions and/or media programs to our CPG customers, retail partners and advertising agencies whereby we use our technology platforms to create, target, deliver and measure these programs. Using shopper data from our retail partners and our proprietary data and audience segments, we deliver targeted and/or personalized digital promotions and media to shoppers through our network, including our websites and mobile apps, as well as those of our publishers, retail partners and other third-party properties. Our solutions help serve our customers and partners’ needs as they shift more of their marketing dollars to digital channels to be optimized for performance. Performance is measured by attributing digital ad campaigns to retail purchases in near real time, demonstrating return on spend for our customers and partners.

Promotions products include digital paperless coupons, digital print coupons, targeted in-lane coupons at checkout at retail partners’ stores, digital rebates and loyalty offers. Media solutions we offer include display, targeted media, social influencer, sponsored product search, and audiences. A growing portion of campaigns are purchased as an integrated campaign which combines a mix of media advertising and/or promotions solutions in a single campaign. In the fourth quarter of 2019 we purchased Ubimo, a data and media activation platform to strengthen our media solution and accelerate the development of a self-service media platform. Through Ubimo, we also offer digital out of home media solutions. CPGs and partners pay us for media and promotion programs. The revenue we earn from these programs is generally based on cost-per-click, cost-per-impression, or cost-per-acquisition. Customers and partners may also pay us a fee for technology or services.

We also generate revenues from our Specialty Retail business, in which specialty stores including clothing, electronics, home improvement and many others offer coupon codes that we distribute. Each time a consumer makes a purchase using a coupon code, a fee is generally paid to us.

We generally pay a distribution fee to retailers and publishers for clicks of a digital promotion, for media campaigns, and for use of data for targeting or measurement. We also pay a fee to third-party publishers for traffic acquisition, which consists of delivering campaigns on certain networks or sites. These distribution and third-party service fees are included in our cost of revenues. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Non-GAAP Financial Measure and Key Operating Metrics” for more information.

Seasonality

Some of the Company’s products experience seasonal sales and buying patterns mirroring those in the CPG, retail, advertising, media and e-commerce markets, including back-to-school and holiday campaigns, where demand increases during the second half of the Company’s fiscal year. Seasonality may also be affected by CPG annual budget cycles, as some large CPGs have fiscal years ending in June. We believe that this seasonality pattern has affected, and will continue to affect, our business and the associated revenues during the first half and second half of our fiscal year. We recognized 54% of our annual revenue during the second half of 2019, 2018 and 2017, for each respective period.

Impact of COVID-19

We are cognizant of the rapid expansion of the COVID-19 pandemic and the resulting global implications. In an effort to protect the health and safety of our employees, our workforce has had, and continues in most instances, to spend a significant amount of time working remotely and travel has been severely curtailed. In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, some of which have been subsequently rescinded or modified, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will continue to negatively impact business activity across the globe. While we have observed decreased revenue growth for the past two fiscal quarters, we cannot estimate the impact COVID-19 will have in the future as government entities and businesses make decisions about whether and when to open businesses and what impact that will have on and consumer activity across the globe.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. During the last few weeks of the first quarter and during the second quarter, CPGs, retailers and brands mostly paused or delayed and in some cases cancelled campaigns due to the uncertainty, supply-chain or out-of-stock issues, and consumer purchasing behavior changes caused by COVID-19, which had an adverse impact on our promotion and media revenues and associated growth. The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Part II, Item 1A, Risk Factors, for an additional discussion of risks related to COVID-19.

Second Quarter 2020 Overview

Quarterly revenues of $83.5 million in the second quarter of 2020 decreased by $21.2 million, or 20%, as compared to the same period in 2019. The year over year decrease in our quarterly revenues was primarily due a decrease in revenues from digital promotion and media campaigns due to COVID-19, as well as a decrease in media revenues as a result of performing certain media services under the specific direction of our customers resulting in recognizing revenues net of certain costs. During the last few weeks of the first quarter of 2020 and throughout the second quarter of 2020, CPGs, retailers and brands mostly paused or delayed and in some cases cancelled campaigns due to COVID-19, primarily impacting promotion and media revenues.

For certain media arrangements, we perform media services under the specific direction of our customers and therefore we do not control the media inventory before it is transferred to the customer. Accordingly, we are not the principal in those arrangements and recognize revenue net of certain costs resulting in reduced revenue growth. In addition, we may continue to see decreased media revenues from promotions if CPGs, retailers and brands continue to delay, pause or cancel campaigns due to COVID-19.

Our net loss of $19.1 million in the second quarter of 2020 increased by $15.2 million, as compared to the net loss of $3.9 million in the same period in 2019. The year over year increase in our quarterly net loss was primarily due a decrease in revenues as discussed previously, an increase in fair value of contingent consideration related to certain acquisitions, and a decrease in interest income as a result of the decrease in interest rates and lower cash and cash equivalent balances. While we continue to make important investments in our technology and infrastructure, we remain focused on operational efficiencies and expense management.

We expect our operating expenses to increase in the future as we continue to (1) invest in (i) research and development to enhance our platform and investments in newer product offerings; (ii) sales and marketing to acquire new CPG and retailer customers and increase revenues from our existing customers; and; (iii) corporate infrastructure; (2) amortize expenses related to intangibles assets associated with acquisitions and other strategic acquisitions and partnerships; and (3) re-measure contingent consideration related to acquisitions.

Non-GAAP Financial Measure and Key Operating Metrics

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”), a non-GAAP financial measure, is a key metric used by our management and our Board of Directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, to develop short and long-term operational plans, and to determine bonus payouts. In particular, we believe that the exclusion of certain income and expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, Adjusted EBITDA is a key financial metric used by the compensation committee of our Board of Directors in connection with the determination of compensation for our executive officers. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.

Adjusted EBITDA excludes non-cash charges, such as depreciation, amortization and stock-based compensation, because such non-cash expenses in any specific period may not directly correlate to the underlying performance of our business operations and can vary significantly between periods. Additionally, it excludes the effects of interest expense, income taxes, other (income) expense net, change in fair value of contingent consideration, certain acquisition related costs and restructuring charges. We exclude certain items because we believe that these costs (benefits) do not reflect expected future operating expenses. Additionally, certain items are inconsistent in amounts and frequency, making it difficult to contribute to a meaningful evaluation of our current or past operating performance.

Net loss and Adjusted EBITDA for each of the periods presented were as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net loss	$	(19,133	)	$	(3,906	)	$	(35,858	)	$	(17,134	)
Adjusted EBITDA		4,372			11,726			9,451			20,086

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

•

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•

Adjusted EBITDA does not reflect interest and tax payments that may represent a reduction in cash available to us;

•

Adjusted EBITDA also does not include the effects of stock-based compensation, amortization of acquired intangible assets, change in fair value of contingent consideration, interest expense, other income, net, provision for (benefit from) income taxes, certain acquisition related costs and restructuring charges; and

•

other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure, for each of the periods presented is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net loss	$	(19,133	)	$	(3,906	)	$	(35,858	)	$	(17,134	)
Adjustments:
Stock-based compensation		7,006			8,036			14,532			16,084
Depreciation, amortization and other⁽¹⁾		9,345			8,509			19,939			17,053
Change in fair value of contingent consideration		3,766			(3,009	)		4,226			53
Interest expense		3,610			3,470			7,184			6,909
Other income, net		(187	)		(1,508	)		(767	)		(3,039	)
Provision (benefit from) for income taxes		(35	)		134			195			160
Total adjustments	$	23,505		$	15,632		$	45,309		$	37,220

Adjusted EBITDA	$	4,372		$	11,726		$	9,451		$	20,086

(1)

For the three and six months ended June 30, 2020, other includes: restructuring charges of zero and $1.5 million, respectively, and certain acquisition related costs of $0.4 million and $0.6 million, respectively. For the three and six months ended June 30, 2019, other includes: certain acquisition related costs of $0.6 million and $1.4 million, respectively. Restructuring charges relate to severance for certain executive management changes and impacted employees. Acquisition related costs primarily include certain bonuses contingent upon the acquired company meeting certain financial metrics over the contingent consideration period, diligence, accounting, and legal expenses incurred related to certain acquisitions.

This non-GAAP financial measure is not intended to be considered in isolation from, as substitute for, or as superior to, the corresponding financial measure prepared in accordance with GAAP. Because of these and other limitations, Adjusted EBITDA should be considered along with GAAP based financial performance measures, including various cash flow metrics, net loss, and our other GAAP financial results.

Factors Affecting Our Performance

Obtaining high quality coupons and increasing the number of CPG-authorized clicks. Our ability to grow revenue will depend upon our ability to shift more dollars to our platform from our CPG customers, continue to obtain high quality coupons and increase the number of CPG-authorized clicks available through our platform. If we are unable to do any of these, growth in our revenue will be adversely affected.

Increasing revenue from CPGs on our platform. Our ability to grow our revenue in the future depends upon our ability to continue to increase revenues from existing and new CPGs on our platform through national brand coupons, targeted media and measurement, trade promotions, and increasing the number of brands that are using our platform within each CPG.

Variability in promotional and media spend by CPGs. Our revenues may fluctuate due to changes in promotional and media spending budgets of CPGs and retailers and the timing of their spending. Decisions by major CPGs or retailers to delay or reduce their promotional and media spending, move campaigns, or divert spending away from digital promotions or media could slow our revenue growth or reduce our revenues. During the last few weeks of the first quarter of 2020 and throughout the second quarter of 2020, CPGs, retailers and brands mostly paused or delayed, and in some cases cancelled, campaigns due to COVID-19. It is unclear when CPGs retailers and brands may resume these campaigns.

Ability to scale Retail Performance Media and further integrate with Retailers. Our ability to grow our revenues will depend upon our ability to continue to successfully implement and scale Retailer iQ and Retail Performance Media among retailers. If we are unable to continue to successfully maintain our Retailer iQ and Retail Performance Media partners, or if our retail partners do not provide sufficient support to our platforms, the growth in our revenues will be adversely affected. Our ability to grow our revenue in the future is also dependent upon our ability to further integrate digital promotions and media into retailers’ loyalty or POS systems and other channels so that CPGs and retailers can more effectively engage consumers and drive their own sales.

Growth of our consumer selection and digital offerings. Our ability to grow our revenue in the future will depend on our ability to innovate and invest in promotion and media solutions, including Retailer iQ, Retailer Performance Media, sponsored product search, mobile solutions for consumers, including digital print, mobile solutions and digital promotion offerings for specialty/franchise retail together with cash-back offers, leverage our reach to consumers and the strength of our platform to broaden the selection and consumers use of digital coupons as well as in-lane targeted promotions, manage the transition from digital print coupons to digital paperless coupons as well as the transition from desktop to mobile platforms, and invest in solutions around our data and analytic capabilities, referred to as Quotient Analytics Cloud and Quotient Audience Cloud, for CPGs and retailers.

International Growth and Acquisitions. Our ability to grow our revenues will also depend on our ability to grow our operations and offerings in existing international markets and expand our business through selective acquisitions, similar to our acquisitions of Ubimo, Ahalogy, Crisp, Elevaate, SavingStar, and Shopmium and their integration with the core business of the Company.

Results of Operations

The following tables set forth our consolidated results of operations and our consolidated results of operations as a percentage of revenues for the periods presented:

	Three Months Ended June 30,										Six Months Ended June 30,
(in thousands, except percentages)	2020					2019					2020					2019
Revenues	$	83,455		100.0	%	$	104,691		100.0	%	$	182,242		100.0	%	$	202,798		100.0	%
Costs and expenses:
Cost of revenues		50,731		60.8	%		64,106		61.2	%		111,842		61.4	%		120,929		59.6	%
Sales and marketing		23,814		28.5	%		23,870		22.8	%		48,848		26.8	%		49,393		24.4	%
Research and development		8,621		10.3	%		8,699		8.3	%		19,214		10.5	%		19,069		9.4	%
General and administrative		12,268		14.7	%		12,835		12.3	%		27,358		15.0	%		26,458		13.0	%
Change in fair value of contingent consideration		3,766		4.5	%		(3,009	)	(2.9	)%		4,226		2.3	%		53		—	%
Total cost and expenses		99,200		118.9	%		106,501		101.7	%		211,488		116.0	%		215,902		106.5	%
Loss from operations		(15,745	)	(18.9	)%		(1,810	)	(1.7	)%		(29,246	)	(16.0	)%		(13,104	)	(6.5	)%
Interest expense		(3,610	)	(4.3	)%		(3,470	)	(3.3	)%		(7,184	)	(3.9	)%		(6,909	)	(3.4	)%
Other income, net		187		0.2	%		1,508		1.4	%		767		0.4	%		3,039		1.5	%
Loss before income taxes		(19,168	)	(23.0	)%		(3,772	)	(3.6	)%		(35,663	)	(19.5	)%		(16,974	)	(8.4	)%
Provision for (benefit from) income taxes		(35	)	—	%		134		0.1	%		195		0.1	%		160		0.1	%
Net loss	$	(19,133	)	(23.0	)%	$	(3,906	)	(3.7	)%	$	(35,858	)	(19.6	)%	$	(17,134	)	(8.5	)%

Disaggregated Revenue

The following table presents our revenues disaggregated by type of services. The majority of our revenue is generated from sales in the United States.

	Three Months Ended June 30,										Six Months Ended June 30,
(in thousands, except percentages)	2020		2019		$ Change			% Change			2020		2019		$ Change			% Change
Promotion	$	46,627	$	57,551	$	(10,924	)		-19	%	$	106,338	$	121,118	$	(14,780	)		-12	%
Media		36,828		47,140		(10,312	)		-22	%		75,904		81,680		(5,776	)		-7	%
Total Revenue	$	83,455	$	104,691	$	(21,236	)		-20	%	$	182,242	$	202,798	$	(20,556	)		-10	%

Comparison of the Three and Six months ended June 30, 2020 and 2019

Revenues

	Three Months Ended June 30,										Six Months Ended June 30,
(in thousands, except percentages)	2020		2019		$ Change			% Change			2020		2019		$ Change			% Change
Revenues	$	83,455	$	104,691	$	(21,236	)		(20	)%	$	182,242	$	202,798	$	(20,556	)		(10	)%

Revenues for the three months ended June 30, 2020 decreased by $21.2 million, or 20%, as compared to the same period in 2019. The decrease was primarily due a decrease in revenues from digital promotion and media campaigns due to COVID-19, as well as a decrease in media revenues as a result of performing certain media services under the specific direction of our customers resulting in recognizing revenues net of certain costs. During the last few weeks of the first quarter and during the second quarter, CPGs, retailers and brands mostly paused or delayed and in some cases cancelled campaigns due to the uncertainty, supply-chain or out-of-stock issues and consumer purchasing behavior changes caused by COVID-19, which had an adverse impact on our promotion and media revenues and associated growth. Revenues from digital promotion and media campaigns were 56% and 44%, respectively, of total revenues for the three months ended June 30, 2020, as compared to 55% and 45%, respectively, of total revenues during the same period in 2019.

Revenues for the six months ended June 30, 2020 decreased by $20.6 million, or 10%, as compared to the same period in 2019. The decrease was primarily due a decrease in revenues from digital promotion and media campaigns due to COVID-19, as well as a decrease in media revenues as a result of performing certain media services under the specific direction of our customers resulting in recognizing revenues net of certain costs. During the last few weeks of the first quarter and during the second quarter , CPGs, retailers and brands mostly paused or delayed and in some cases cancelled campaigns due to the uncertainty, supply-chain or out-of-stock issues and consumer purchasing behavior changes caused by COVID-19, which had an adverse impact on our promotion and media revenues and associated. Revenues from digital promotion and media campaigns were 58% and 42%, respectively, of total revenues for the six months ended June 30, 2020, as compared to 60% and 40%, respectively, of total revenues during the same period in 2019.

Cost of Revenues and Gross Profit

	Three Months Ended June 30,												Six Months Ended June 30,
(in thousands, except percentages)	2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Cost of revenues	$	50,731		$	64,106		$	(13,375	)		(21	)%	$	111,842		$	120,929		$	(9,087	)		(8	)%
Gross profit	$	32,724		$	40,585		$	(7,861	)		(19	)%	$	70,400		$	81,869		$	(11,469	)		(14	)%
Gross margin		39	%		39	%								39	%		40	%

Cost of revenues for the three months ended June 30, 2020 decreased by $13.4 million, or 21%, as compared to the same period in 2019. This was primarily due to a decrease in revenues, resulting in a decrease of $15.0 million in data and traffic acquisition costs for offsite media on non-owned-and-operated properties as well as a decrease in distribution fees paid to our partners for promotions and media revenues delivered through their platforms. This was partially offset by an increase in amortization expense of $0.9 million related to acquired intangible assets as well as certain exclusivity rights acquired under strategic partnerships, an increase in data center expenses of $0.3 million, an increase in compensation costs, including stock-based compensation of $0.3 million and an increase in overhead expenses of $0.1 million related to facilities and infrastructure support.

Cost of revenues for the six months ended June 30, 2020 decreased by $9.1 million, or 8%, as compared to the same period in 2019. This was primarily due to a decrease in revenues, resulting in a decrease of $13.1 million in data and traffic acquisition costs for offsite media on non-owned-and-operated properties as well as a decrease in distribution fees paid to our partners for promotions and media revenues delivered through their platforms. This was partially offset by an increase in amortization expense of $2.0 million related to acquired intangible assets as well as certain exclusivity rights acquired under strategic partnerships, an increase in data center expenses of $0.8 million, an increase in overhead expenses of $0.6 million related to facilities and infrastructure support, an increase in compensation costs, including stock-based compensation of $0.5 million, and an increase in restructuring charges of $0.1 million related to severance for impacted employees.

Gross margin for the three and six months ended June 30, 2020 remained flat at 39% during both respective periods, as compared to 39% and 40%, respectively, during the same period in 2019. Gross margin increased as a result of performing certain media services under the specific direction of our customers resulting in recognizing revenues net of certain costs, partially offset by an increase in amortization expense related to acquired intangible assets.

We expect the costs associated with distribution and third-party service fees to continue to increase in absolute dollars in the future as we continue to expand and scale our distribution network and reach.

Sales and Marketing

	Three Months Ended June 30,												Six Months Ended June 30,
(in thousands, except percentages)	2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Sales and marketing	$	23,814		$	23,870		$	(56	)		(0	)%	$	48,848		$	49,393		$	(545	)		(1	)%
Percent of revenues		29	%		23	%								27	%		24	%

Sales and marketing expenses consist primarily of compensation, including salaries and benefits, sales commissions and stock-based compensation provided to our sales and marketing personnel, as well as facility costs and other related overhead costs; marketing programs, amortization of acquired intangibles, and travel costs.

Sales and marketing expenses for the three months ended June 30, 2020 decreased by $0.1 million, as compared to the same period in 2019. The decrease was primarily the result of a decrease in compensation costs of $0.5 million, partially offset by an increase in intangible asset amortization expense of $0.4 million related to our acquisitions.

Sales and marketing expenses for the six months ended June 30, 2020 decreased by $0.6 million, or 1%, as compared to the same period in 2019. The decrease was primarily the result of a decrease in compensation costs of $1.5 million and a decrease in promotional and advertising costs of $0.8 million resulting from our expense management efforts, partially offset by an increase in intangible asset amortization expense of $1.2 million related to our acquisitions and an increase in restructuring charges of $0.5 million related to severance for impacted employees.

We expect to invest in sales and marketing in order to support our growth and business objectives.

Research and Development

	Three Months Ended June 30,												Six Months Ended June 30,
(in thousands, except percentages)	2020			2019			$ Change			% Change			2020			2019			$ Change		% Change
Research and development	$	8,621		$	8,699		$	(78	)		(1	)%	$	19,214		$	19,069		$	145		1	%
Percent of revenues		10	%		8	%								11	%		9	%

Research and development expenses consist primarily of compensation, including salaries, bonuses, and benefits, and stock-based compensation provided to our engineering personnel, as well as facility costs and other related overhead costs; costs related to development of new products and the enhancement of existing products; and fees for design, testing, consulting, and other related services.

Research and development expenses for the three months ended June 30, 2020 decreased by $0.1 million, or 1%, as compared to the same period in 2019. The decrease was primarily due to increased capitalization of internal use software development costs of $0.3 million and a decrease in overhead expenses related to facilities and infrastructure support of $0.2 million, partially offset by an increase in compensation of $0.4 million related to acquisitions and hiring additional employees to support our growth and business objectives.

Research and development expenses for the six months ended June 30, 2020 increased by $0.1 million, or 1%, as compared to the same period in 2019. The increase was primarily due to an increase in compensation of $1.2 million related to acquisitions and hiring additional employees to support our growth and business objectives, and an increase in restructuring charges of $0.3 million related to severance for impacted employees, offset by an increase in capitalization of internal use software development costs of $1.5 million.

We believe that continued investment in technology is critical to attaining our strategic objectives and we intend to balance our investment in research and development with our continued operational and cost optimization efforts. We expect to incur additional research and development expenses in future periods to expand our tools and products that will enable our business to scale and provide more offerings to our customers.

General and Administrative

	Three Months Ended June 30,												Six Months Ended June 30,
(in thousands, except percentages)	2020			2019			$ Change			% Change			2020			2019			$ Change		% Change
General and administrative	$	12,268		$	12,835		$	(567	)		(4	)%	$	27,358		$	26,458		$	900		3	%
Percent of revenues		15	%		12	%								15	%		13	%

General and administrative expenses consist primarily of compensation, including salaries, bonuses, and benefits, and stock-based compensation provided to our executives, finance, legal, human resource and administrative personnel, as well as facility costs and other related overhead costs; fees paid for professional services, including legal, tax, accounting services, and other related services.

General and administrative expenses for the three months ended June 30, 2020 decreased by $0.6 million, or 4%, as compared to the same period in 2019. The decrease was primarily due to a decrease in compensation costs of $0.3 million, a decrease in acquisition related charges of $0.2 million, and a decrease in other administrative expenses of $0.1 million.

General and administrative expenses for the six months ended June 30, 2020 increased by $0.9 million, or 3%, as compared to the same period in 2019. The increase was primarily due to an increase in restructuring charges of $0.6 million related to severance for certain executive management changes, an increase in professional service fees of $0.6 million, an increase in compensation costs of $0.2 million from acquisitions and hiring additional employees to support our growth and business objectives, and an increase in other administrative expenses of $0.3 million, partially offset by a decrease in acquisition related charges of $0.8 million.

We expect to continue to incur additional general and administrative expenses in future periods as we continue to invest in corporate infrastructure and we intend to balance our investment in corporate infrastructure with our continued operational and cost optimization efforts.

Change in Fair Value of Contingent Consideration

	Three Months Ended June 30,											Six Months Ended June 30,
(in thousands, except percentages)	2020			2019			$ Change		% Change			2020			2019			$ Change		% Change
Change in fair value of contingent consideration	$	3,766		$	(3,009	)	$	6,775		(225	)%	$	4,226		$	53		$	4,173		7,874	%
Percent of revenues		5	%		(3	)%							2	%		0	%

During the three and six months ended June 30, 2020, we recorded a net charge of $3.8 million and $4.2 million, respectively. During the three and six months ended June 30, 2020, we recorded a benefit of $0.5 million and $0.3 million, respectively, for the re-measurement of Elevaate contingent consideration due to a decrease in expected achievement of certain financial metrics over the contingent consideration period, and a charge of $4.3 million and $4.5 million, respectively for the re-measurement of Ubimo contingent consideration due to the increase in expected achievement of certain financial metrics over the contingent consideration period.

During the three and six months ended June 30, 2019, we recorded a net benefit of $3.0 million and a net charge of $0.1 million, respectively. During the three and six months ended June 30, 2019, we recorded a benefit of $4.1 million and $3.1 million, respectively, for the remeasurement of Elevaate contingent consideration due to the decrease in expected achievement of certain financial metrics over the contingent consideration period, and a charge of $1.1 million and $3.2 million, respectively for the remeasurement of Ahalogy contingent consideration due to the increase in expected achievement of certain financial metrics over the contingent consideration period.

Interest Expense and Other Income, Net

	Three Months Ended June 30,												Six Months Ended June 30,
(in thousands, except percentages)	2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Interest expense	$	(3,610	)	$	(3,470	)		(140	)		4	%	$	(7,184	)	$	(6,909	)	$	(275	)		4	%
Other income, net		187			1,508			(1,321	)		(88	)%		767			3,039			(2,272	)		(75	)%
	$	(3,423	)	$	(1,962	)	$	(1,461	)		74	%	$	(6,417	)	$	(3,870	)	$	(2,547	)		66	%

Interest expense is primarily related to the convertible senior notes, promissory note and finance lease obligations.

Other income, net consists primarily of interest income on U.S. Treasury Bills held as cash equivalents. The decrease in other income, net during the three and six months ended June 30, 2020, as compared to the same period in 2019, was due to lower interest income earned on U.S. Treasury Bills held as cash equivalents, net of the effect of re-measuring balances in foreign currency due to exchange rate fluctuations.

Provision for (benefit from) Income Taxes

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except percentages)

2020

2019

$ Change

% Change

2020

2019

$ Change

% Change

Provision for (benefit from)

income taxes

(35

)

134

(169

)

(126

195

160

The benefit from income taxes of $35 thousand and the provision for income taxes of $0.2 million for the three and six months ended June 30, 2020, respectively, was primarily attributable to our foreign operations, federal and state taxes, and amortization of tax deductible goodwill from prior year acquisitions. The provision for income taxes of $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively was primarily attributable to our foreign operations and amortization of tax deductible goodwill from prior year acquisitions.

Liquidity and Capital Resources

We have financed our operations and capital expenditures through the issuance of convertible senior notes and cash flows from operations. As of June 30, 2020, we had $211.9 million in cash and cash equivalents which were held for working capital purposes. Our cash equivalents are comprised primarily of money market funds.

We have incurred and expect to continue to incur legal, accounting, regulatory compliance and other costs in future periods as we continue to invest in corporate infrastructure. In addition, we may use cash to fund acquisitions or invest in other businesses, or incur capital expenditures including leasehold improvements or technologies. We intend to continue to manage our operating expenses in line with our existing cash and available financial resources, and we anticipate we will incur increased spending in future periods in order to execute our long-term business plan and to support our growth to fund our operating expenses.

Our Board of Directors previously approved programs for us to repurchase shares of our common stock. In August 2019, our Board of Directors authorized a one-year share repurchase program (the “August 2019 Program”) for us to repurchase up to $50.0 million of our common stock from August 2019 through August 2020. During the three and six months ended June 30, 2020, we did not repurchase any shares of our common stock. As of June 30, 2020, $50.0 million remained available for repurchase under the August 2019 Program. In March 2020, we suspended the August 2019 Program, as a precautionary measure to maximize liquidity and increase available cash on hand during this time of uncertainty.

Some of our agreements with retailers include certain prepaid or guaranteed distribution fees. If we do not meet contractual minimums, these prepaid or guaranteed distribution fees may not be recoverable, and any shortfall may be payable by us at the end of the applicable period. Implementation of one of our solutions with a retailer experienced slower than expected adoption due to a variety of factors, including impacts related to the spread of COVID-19 and their failure to perform certain obligations under the agreement. If the contractual minimum remains enforceable in light of these factors, and we are unable to meet the minimum under such arrangement at the end of the applicable period, which is scheduled to occur in the fourth quarter of 2020, we may recognize a loss that, depending on a variety of factors, could be as high as the high single digit millions.

We believe our existing cash, cash equivalents and cash flow from operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. In the event additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. During the period of uncertainty of volatility related to the COVID-19 pandemic, we will continue to monitor our liquidity. See Part II, Item 1A, Risk Factors, for an additional discussion of risks related to COVID-19.

Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):

	Six Months Ended June 30,
	2020			2019
Net cash provided by operating activities	$	7,996		$	23,835
Net cash (used in) provided by investing activities		(4,689	)		1,198
Net cash used in financing activities		(16,238	)		(73,506	)
Effects of exchange rates on cash		39			23
Net decrease in cash and cash equivalents	$	(12,892	)	$	(48,450	)

Operating Activities

Cash from operating activities have been due to our net income or loss for the period adjusted for net non-cash income or expenses and changes in our operating assets and liabilities.

During the six months ended June 30, 2020, net cash provided by operating activities of $8.0 million reflects our net loss of $35.9 million, adjusted for net non-cash expenses of $44.0 million, and cash used as a result of changes in working capital of $0.1 million. Non-cash expenses included depreciation and amortization, stock-based compensation, amortization of debt discount and issuance costs, allowance for credit losses, deferred income taxes, change in fair value of contingent consideration, and other non-cash expenses, including amortization of right-of-use asset and loss on disposal of property and equipment. The primary uses of cash from working capital items included payment for Ahalogy contingent consideration of $15.4 million, related to the changes in fair value over the contingent consideration period and bonuses, a decrease in accounts payable and other current liabilities of $7.5 million due to timing of services and payments, a decrease in accrued compensation and benefits of $7.5 million related to the payout of the annual bonuses and an increase in prepaid expenses and other current assets of $2.5 million related to prepaid subscription and support fees, partially offset by a decrease in accounts receivable of $30.7 million and an increase in deferred revenues of $2.1 million.

Investing Activities

Purchases of property and equipment may vary from period-to-period due to the timing of the expansion of our operations, the addition of headcount and the development activities related to our future offerings. We expect to continue to invest in property and equipment and in the further development and enhancement of our software platform for the foreseeable future. In addition, from time to time, we may consider potential acquisitions that would complement our existing service offerings, enhance our technical capabilities or expand our marketing and sales presence. Any future transaction of this nature could require potentially significant amounts of capital or could require us to issue our stock and dilute existing stockholders.

During the six months ended June 30, 2020, net cash used in investing activities of $4.7 million reflects purchase of property and equipment, which includes capitalized software development costs, and technology hardware and software to support our growth.

Financing Activities

Our financing activities consisted primarily of repurchases of common stock, payments made for shares withheld to cover payroll withholding taxes and the issuance of shares of common stock upon the exercise of stock options.

During the six months ended June 30, 2020, net cash used in financing activities of $16.2 million reflects payments for Ahalogy contingent consideration of $14.6 million (initially measured and included as part of purchase consideration on the date of acquisition), payments made for shares withheld to cover the required payroll withholding taxes of $3.3 million, and payments on promissory note and finance lease obligations of $0.1 million, partially offset by proceeds received from exercises of stock options under equity incentive plans, ESPP, and other, net of $1.8 million.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2020.

Contractual Obligations and Commitments

Refer to Note 14 of our notes to condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q for further information. There have been no significant changes outside the ordinary course of business during the three and six months ended June 30, 2020 to our commitments and contingencies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 2, 2020 with the SEC.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

There were no significant changes in our critical accounting policies and estimates during the three and six months ended June 30, 2020, as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 2, 2020 with the SEC.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in our condensed consolidated financial statements and accompanying notes. Such management estimates include, but are not limited to, revenue recognition, collectability of accounts receivable, coupon code sales return reserve, valuation of assets acquired and liabilities assumed in a business combination, useful lives of intangible assets, estimates related to recovery of long-lived assets and goodwill, measurement of contingent consideration, restructuring accruals, debt discounts, stock-based compensation, deferred income taxes and associated valuation allowances and distribution fee commitments. These estimates generally require judgments, may involve the analysis of historical and prediction of future trends, and are subject to change from period to period. Actual results may differ from the Company’s estimates, and such differences may be material to the accompanying condensed consolidated financial statements.

The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for our advertising business, and adversely impact our results of operations. We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements.

Recently Issued and Adopted Accounting Pronouncements

Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements contained in this Form 10-Q for further information.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

During the three and six months ended June 30, 2020, there were no significant changes to our quantitative and qualitative disclosures about market risk. Please refer to Quantitative and Qualitative Disclosures About Market Risk included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 2, 2020 with the SEC for a more complete discussion on the market risks we encounter.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our chief executive officer (“CEO”) and our chief financial officer (“CFO”), after evaluating the effectiveness of our “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2020, have concluded that our disclosure controls and procedures were effective at the reasonable assurance level and are effective to provide reasonable assurances that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, during the second quarter of 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures or our internal controls are not designed to prevent all errors and all frauds. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

For a discussion of legal proceedings, see Note 14, “Commitments and Contingencies,” of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

Item 1A. Risk Factors.

Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect our business, results of operations, cash flows, financial conditions, and the trading price of our common stock. The risks described below are not the only risk facing us. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition, results of operations and prospects.

Risks Related to Our Business

We have incurred net losses since inception and we may not be able to generate sufficient revenues to achieve or subsequently maintain profitability.

We have incurred net losses of $37.1 million and $28.3 million in 2019 and 2018, respectively, and incurred net losses of $19.1 million and $35.9 million for the three and six months ended June 30, 2020, respectively. We have an accumulated deficit of $420.8 million as of June 30, 2020. We anticipate that our costs and expenses will increase in the foreseeable future as we continue to invest in:

•

sales and marketing;

•

research and development, including new product development;

•

our technology infrastructure, business processes, and automation;

•

general administration, including legal and accounting expenses related to our growth and continued expenses;

•

expanding into new markets; and

•

strategic opportunities, including acquisitions, commercial relationships and retail partnerships.

For example, we have incurred and expect to continue to incur expenses developing, improving, integrating, investing, marketing and maintaining our Promotions, Media, Audience and Analytics Cloud platforms and solutions, which include Retailer iQ, Retail Performance Media, and Quotient Analytics, and we may not succeed in increasing our revenues sufficiently to offset these expenses.

If we are unable to execute our growth strategy and gain efficiencies in our operating costs, our business could be adversely impacted. We cannot be certain that we will be able to attain or maintain profitability on a quarterly or annual basis. If we are unable to effectively manage these risks and difficulties as we encounter them, our business, financial condition and results of operations may suffer.

We may not achieve revenue growth.

We may not be able to achieve revenue growth, and we may not be able to generate sufficient revenues to achieve profitability. In addition, historically the growth rate of our business, and as a result, our revenue growth, has varied from quarter-to-quarter and year-to-year, and we expect that variability to continue. For example, some of our products and services experience seasonal sales and buying patterns mirroring those in the CPG, retail, and e-commerce markets, including back-to-school and holiday campaigns, where demand increases during the second half of our fiscal year. Our revenues may fluctuate due to changes in marketing budgets of CPGs and retailers and the timing of their marketing spend. Marketing spend by CPGs is considered the most flexible and easiest to cut, for instance, at the end of a quarter or fiscal year if a CPG is facing budget pressures and CPGs can change their spend without notice. As a result we are not always able to anticipate such fluctuations. Decisions by CPGs or retailers to delay or reduce their digital promotion and media spending, or divert spending away from digital promotions, digital media campaigns, or other digital marketing from our platforms, or changes in our fee arrangements with CPGs, retailers and other commercial partners, could also slow our revenue growth or reduce our revenues. For instance, beginning in mid-March of 2020, decisions by CPGs and retailers to mostly pause or delay and in some cases cancel marketing campaigns due to the uncertainty, supply-chain or out-of-stock issues, and consumer purchasing behavior changes caused by the COVID-19 pandemic had an adverse impact on our revenues and revenue growth. CPGs and retailers have generally resumed or rescheduled paused and delayed campaigns for the third and fourth quarter of 2020. While we have seen signs that CPGs and retailers will resume digital marketing in the second half of 2020 there is no guarantee that they will do so at the levels we expect. We may continue to see campaigns postponed or cancelled as circumstances change, particularly if COVID-19 outbreaks continue or if there is a resurgence of the virus in the fall and winter.

Our business is complex and evolving. We may offer new solutions, pricing, service models, process and delivery methods to CPGs and retailers. These new solutions may change the way we generate and/or recognize revenue, which could impact our operating results. If we shift a greater number of our arrangements with CPGs to new models and we are not able to deliver on the results, our revenue growth and revenues could be harmed. In addition, we announced in the first quarter of 2020 that effective second quarter of 2020, we plan to modify the way we process and deliver certain media products to enhance customer experience. As a result of these changes, we will recognize certain revenue on a net basis as compared to the prior recognition on a gross basis and expect that this will cause a decrease in our revenue growth and impact our revenues.

We believe that our continued revenue growth will depend on our ability to:

•

increase our share of CPG marketing spend on promotions and media through our platforms and increase the number of brands that are using our platforms within each CPG;

•

adapt to changes in marketing goals, strategies and budgets of CPGs and retailers and the timing of their marketing spend;

•

maintain and grow our retailer network through direct and indirect commercial partnerships;

•

maintain and expand our data rights with our retailer network;

•

successfully expand our media solutions into areas such as Retail Performance Media, social influencer marketing, sponsored product search, and programmatic media;

•

demonstrate the value of our digital promotions and media solutions through trusted measurement metrics;

•

respond to changes in the legislative or regulatory environment, including with respect to privacy and data protection, or enforcement by government regulators, including fines, orders, or consent decrees;

•

successfully execute and grow Retail Performance Media programs;

•

successfully expand our promotions solutions into new areas such as in-lane targeted promotions and loyalty rewards programs;

•

successfully execute our digital promotions and digital media solutions into retailers’ in-store and point of sale systems and consumer channels;

•

deploy, execute, and continue to develop Quotient Analytics and our data, measurement, and analytics solutions in support of our digital promotions and media solutions;

•

launch new products or retail partnerships as planned;

•

expand the use by consumers of our digital promotions and media offerings and broaden the selection and use of digital promotions, coupon codes and cash-back offers;

•

successfully enter into new markets;

•

successfully integrate our newly acquired companies into our business;

•

manage the shift from desktop to mobile devices;

•

manage the transition from digital print coupons to digital paperless coupons;

•

innovate our product offerings to retain and grow our consumer base;

•

expand the number, variety, quality, and relevance of digital promotions available on our web, mobile and social channels, as well as those of our CPGs, retailers and network of publishers;

•

increase the awareness of our brands, and earn and build our reputation;

•

hire, integrate, train and retain talented personnel;

•

effectively manage scaling and international expansion of our operations; and

•

successfully compete with existing and new competitors.

However, we cannot assure you that we will successfully accomplish any of these actions. Failure to do so could harm our business and cause our operating results to suffer.

If we fail to attract and retain CPGs, retailers and publishers and expand our relationships with them, our revenues and business will be harmed.

The success of our business depends in part on our ability to increase our share of CPG marketing spend on our promotions and media solutions and on our platforms; increase the number of brands that use our solutions and platforms within each CPG; increase adoption and scale of Retailer iQ; and demonstrate the value of our solutions through measurement and data analytics. It also depends on (i) our ability to obtain, maintain, and expand our agreements with our retail partners, (ii) our ability to integrate our platforms and promotions and media solutions into retailers’ in-store and point of sale systems and consumer channels, which depends in part on retailers’ commitment in modifying point of sale systems and other solutions to integrate with our platforms, (iii) our ability to obtain the right to distribute Retailer iQ digital promotions more broadly through our websites and mobile apps and those of our publishers, and (iv) our retail partners’ commitment in promoting our digital marketing solutions to their customers. If we do not create more value than available alternatives, or if CPGs and retailers do not find that offering digital promotions and media on our platforms enables them to reach consumers and sufficiently increase sales with the scale and effectiveness that is compelling to them, CPGs and retailers may not increase their distribution of digital promotions and media on our platforms, or they may decrease them or stop offering them altogether, and new CPGs and retailers may decide not to use our platforms.

For example, if CPGs decide that our platforms do not provide the right solutions for them to connect with consumers, we may not be able to obtain the desired prices for our products and services Likewise, if retailers decide that our Promotions, Media, Audience and Analytics Cloud platforms and solutions are less effective at increasing sales to existing and new consumers, retailers may demand a higher percentage of the total proceeds from each digital campaign or demand minimum guaranteed payments or decline to use our solutions. Furthermore, if retailers do not find that our platforms increase consumer engagement and loyalty, our overall success may be harmed. In addition, we expect to face increased competition, and competitors may accept lower payments from CPGs to attract and acquire new CPGs, or provide retailers and publishers a higher distribution fee than we currently offer to attract and acquire new retailers and publishers. We may also experience attrition in our CPGs, retailers and publishers in the ordinary course of business resulting from several factors, including losses to competitors, changes in CPG budgets, and decisions by CPGs, retailers and publishers to offer digital coupons, loyalty programs and media through their own platforms, apps, websites or other channels without using a third-party platform such as ours or through a competitive third-party network or platform, and failure to maintain distribution agreements with third-party digital promotions networks and platforms. If we are unable to retain and expand our relationships with existing CPGs, retailers and publishers or if we fail to attract new CPGs, retailers and publishers to the extent sufficient to grow our business, or if too many CPGs, retailers and publishers are unwilling to offer digital coupons and media with compelling terms through our platforms, we may not increase the number of high quality coupons and marketing campaigns on our platforms and our revenues, gross margin and operating results will be adversely affected.

Historically, a significant portion of sales and client support services were conducted in person. Currently, as a result of the work and travel restrictions related to the ongoing COVID-19 pandemic, substantially all of our sales and client support services activities are being conducted remotely. As of the date of this report, we do not yet know if remote working will have a negative impact or the extent of any negative impact on our ability to attract, serve, retain or upsell CPGs and retailers our services.

The loss or decrease in spending of any significant customer could materially and adversely affect our results of operations and financial condition.

Our business is exposed to risks related to customer concentration, particularly among CPGs and retailers. The loss or decrease in spending of any of our significant customers or deterioration in our relations with any of them could materially and adversely affect our results of operations and financial condition.

If we are unable to grow or successfully respond to changes in the digital promotions market, our business could be harmed.

As consumer demand for digital promotions has increased, promotion spending has shifted from traditional promotions through traditional offline or analog channels, such as newspapers and direct mail, to digital coupons. However, it is difficult to predict whether the pace of transition from traditional to digital promotions will continue at the same rate and whether the growth of the digital promotions market will continue. Some large retailers do not yet use digital paperless promotions. If a retailer decides not to accept digital paperless promotions or a CPG reduces its spend in digital promotions, our business could be harmed. For example, we saw a decrease in promotion spending with us by three of our top CPG customers in much of 2019. In order to expand our business, we must appeal to and attract consumers who historically have used traditional promotions to purchase goods or may prefer alternatives to our offerings,

such as those of our competitors. If the demand for digital promotions does not continue to grow as we expect, or if we fail to successfully address this demand, our business will be harmed. For example, the growth of our revenues will require increasing the number of brands that are using our digital promotions solutions within each CPG. If our projections regarding the adoption and usage of Quotient Promotions and Retailer iQ by retailers, CPGs and consumers, do not occur or are slower than expected, our business, financial condition, results of operations and prospects will be harmed. A variety of factors could slow the success of Quotient Promotions and Retailer iQ generally, including insufficient time, resources or funds committed by retailers to the promotion of our platforms and solutions, a retailer’s decision to forego marketing our platforms, our inability to obtain sufficient data rights to maximize the functionality of our platforms and our inability to monetize enhanced platform functionality, and our inability to efficiently integrate our platforms and Retailer iQ with a retailer’s system. Even if we are successful in driving the adoption and usage of our platforms and Retailer iQ by retailers, CPGs and consumers, if Retailer iQ fee arrangements or transaction volumes, or the mix of offers, change or do not meet our projections, our revenues may be harmed. We expect that the market will evolve in ways which may be difficult to predict. For instance, although we expect CPGs to stop spending on the offline free-standing insert (FSI), our expectations regarding the timing of such change or our expectations that CPGs will shift some of their FSI budgets to our solutions or about the timing of such shifts may not be accurate. It is also possible that digital promotion offerings generally could lose favor with CPGs, retailers or consumers. In the event of these or any other changes to the market, our continued success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. In addition, we will need to continue to grow demand for our digital promotions platform by CPGs, retailers and consumers, including through continued innovation and implementation of new initiatives associated with the digital promotions. For example, if consumer demand for our software-free print solution, cash-back receipt scanning solution, in-lane targeted promotions, or our mobile application does not grow as we expect or decreases, our business may be harmed. If we are unable to grow or successfully respond to changes in the digital promotions market, our business could be harmed and our results of operations could be negatively impacted. For example, some retailers have discontinued the acceptance of paper coupons for a variety of reasons, including to address the fear that COVID-19 may be transmitted through paper. If retailers and consumers refuse to use our solutions involving paper, such as digital print, in-lane targeted offers, and receipt-scanning offers and rebates, our business could be harmed. Our revenues may also be harmed if we are unable to manage the transition and the growth of digital paperless coupons is slower than the decline in digital print coupons. Conversely, acceleration of this shift (from, for example, acceptance of digital paperless coupons by new retailers) could lead to unanticipated increases in revenue.

The success and scale of our solutions and platforms depend, in part, on our strategic relationships with retail partners and the level of commitment and support by retailers.

Our Promotions, Media, Audience, and Analytics Cloud platforms and solutions, which include Retail Performance Media (RPM), Retailer iQ, and Quotient Analytics, depend in part to our strategic relationships with retail partners, which provide us with access to retailer data, consumer, web and mobile properties, and scale. If we do not maintain and expand these relationships or add new retailer partners, our business will be harmed.

For example, retailer support and commitment are central to the success and scale of RPM. In turn, RPM fuels the data and insights that drive our other solutions and platforms. Our revenues and growth may be adversely impacted if RPM retailers do not support RPM or if we are unable to add new RPM retail partners. For example, our revenues were harmed in the first quarter of 2020 when retailers mostly paused or delayed and in some cases cancelled RPM campaigns in response to supply-chain challenges and out-of-stock product at shelf, consumer purchasing behavior changes, and other issues resulting from the COVID-19 pandemic.

Similarly, if retailers do not commit sufficient time, resources and funds towards the marketing of digital promotions and media on our platforms, the growth and scale of Retailer iQ and its penetration into the consumer market will be adversely affected. The success of Retailer iQ requires integration with a retailer’s point of sales system, loyalty programs and consumer channels. This integration requires time and effort from both the retailer and ourselves; and may also require us to work with a retailer’s third-party service providers, some of whom may be our competitors. In addition, the success of Retailer iQ requires increased consumer adoption which requires significant support from retailers, this support includes marketing of Retailer iQ to consumers, providing technical support to consumers, and retailers satisfaction of increased and complex data privacy regulations to obtain consumer consent.

We may develop products that require integration with a retailer’s systems and the systems of their service providers. The success of these products and our ability to launch them on time as planned similarly depend, in part, on retailer support. Delays by the retailer or their service providers could adversely impact our business. For example, delays in the launch of in-lane targeted promotions and sponsored product search adversely impacted our revenue growth for the second half of 2019. Further delays or lack of support from retailers on these products may negatively impact our revenues, costs of revenues, and recoverability of certain assets.

As our retail partners focus on the unprecedented challenges that COVID-19 has posed, they may not provide the support necessary for our product launches, which could cause delays. For example, our targeted in-lane at checkout and our eCommerce sponsored search products require resources and support from our retail partners and the success of these products could be adversely impacted by delays in planned launches for this year or by other lack of support.

We depend in part on data-rights agreements with our retail partners to power a range of products and the termination of such agreements or the failure to obtain additional data rights can severely impact our revenue and growth.

Our Promotions, Media, Audience and Analytics Cloud platforms and solutions, which include Retailer iQ, our targeted promotions and media offerings, and Quotient Analytics, are powered in part by data we obtain from our retail partners. Our access to this data is governed by data-rights agreements with some of our retail partners. These data-rights agreements have complex rules and are required to be renewed periodically. If we fail to secure additional data rights or renew expiring data-rights agreements, if we are found to be in violation of any of our obligations under these agreements, or if retailers lose their data rights, we could lose access to retailer data. Without retailer data, our Promotions, Media, Audience and Analytics Cloud platforms and solutions would be less valuable to our CPG customers, publishers, ad tech and retail partners. In addition, changes to international, federal, state, local and municipal laws, regulations and industry standards that relate to privacy, electronic communications, data protection, intellectual property, e-commerce, competition, price discrimination, consumer protection, taxation, and the use of promotions may require us to amend, or alter our practices under, our data rights agreements. If we and our retail partners cannot respond timely to such legal and regulatory changes, or if retailers decide to limit or prohibit use of their data to comply with such changes our revenue and growth would be impaired. For instance, if the California Consumer Privacy Act, or CCPA, is amended to prohibit the “sale” (as defined in the CCPA) of loyalty program data, or if retailers materially restrict our use of purchase and loyalty card data in light of the CCPA or similar laws or regulations, our business will be harmed. See the risk factor below titled “Our business is subject to complex and evolving laws, regulations and industry standards, and unfavorable interpretations of, or changes in, or failure by us to comply with these laws, regulations and industry standards could substantially harm our business and results of operations” for additional information.

Our ability to generate revenue depends on our collection and use of significant amounts of data from various sources, which may be restricted by consumer choice, restrictions imposed by retailers, publishers and browsers or other software developers, changes in technology, and new developments in laws, regulations and industry standards.

Our ability to deliver our Promotions, Media, Audience and Analytics Cloud platforms and solutions depends on our ability to successfully leverage data, including data that we collect from consumers, data we receive from retail partners and third parties, and data from our own operating history. Using cookies, loyalty card numbers both on-line and in-store, device identifiers (including Google AdID and Apple IDFA), and other tracking technologies, we, our retail partners and other data providers collect information about the interactions of consumers with our retail partners’ digital properties and in-store, our own and operated properties, and certain other publisher sites and apps. Our ability to successfully leverage such data depends on our continued ability to access and use such data, which can be restricted by a number of factors, including consumer choice, success in obtaining consumer consent, restrictions imposed by our retail and other data partners or other third parties, publishers and web browser developers or other software developers, changes in technology, including changes in web browser technology, and new developments in, or new interpretations of laws, regulations and industry standards. For example, Apple has recently announced several changes to iOS that will require consumers to opt-in to sharing data with publisher sites and app, which may adversely impact our business. Consumer resistance to the collection and sharing of the data used to deliver targeted advertising, increased visibility of consent or “do not track” mechanism as a result of industry regulatory and/or legal developments, the adoption by consumers of browsers settings or “ad-blocking” software and the development and deployment of new technologies could materially impact our ability to collect data or reduce our ability to deliver relevant promotions or media, which could materially impair the results of our operations. See the risk factor below titled “Our business is subject to complex and evolving laws, regulations and industry standards, and unfavorable interpretations of, or changes in, or failure by us to comply with these laws, regulations and industry standards could substantially harm our business and results of operations” for additional information.

Unfavorable publicity and negative public perception about our industry or data collection and use could adversely affect our business and operating results.

With the growth of online advertising and e-commerce, there is increasing awareness and concern among the general public, privacy advocates, mainstream media, governmental bodies and others regarding marketing, advertising, and privacy matters, particularly as they relate to individual privacy interests. Any unfavorable publicity or negative public perception about our use of data or other data focused industries could affect our business and results of operations, and may lead digital publishers like Facebook to change their business practice, or trigger additional regulatory scrutiny or lawmaking that affects us. For example, in recent years, consumer advocates, mainstream media and elected officials have increasingly and publicly criticized data and marketing companies for their collection, storage and use of personal data. The negative public attention could cause CPGs or our retail partners to discontinue using our targeted advertising solutions. This public scrutiny may also lead to general distrust of data and marketing companies, consumer reluctance to share and permit use of personal data and increased consumer opt-out rates, any of which could negatively influence, change or reduce our current and prospective customers’ demand for our products and services and adversely affect our business and operating results.

We expect a number of factors to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Historically, our revenue growth has varied from quarter-to-quarter and year-to-year, and we expect that variability to continue. In addition, our operating costs and expenses have fluctuated in the past, and we anticipate that our costs and expenses will increase over time as we continue to invest in growing our business. Our operating results could vary significantly from quarter-to-quarter and year-to-year as a result of these and other factors, many of which are outside of our control, and as a result we have a limited ability to forecast the amount of future revenues and expenses, which may adversely affect our ability to predict financial results accurately. Our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. We have encountered in the past, and may encounter in the future, risks and uncertainties frequently experienced by growing companies in changing industries. Our results of operations may fall below our estimates or the expectations of public market analysts and investors. Fluctuations in our quarterly operating results may lead analysts to change their long-term models for valuing our common stock, cause us to face short-term liquidity issues, impact our ability to retain or attract key personnel or cause other unanticipated issues, all of which could cause our stock price and the trading price of the convertible senior notes to decline. As a result of the potential variations in our quarterly revenues and operating results, we believe that quarter-to-quarter comparisons of our revenues and operating results may not be meaningful and the results of any one quarter or historical patterns should not be considered indicative of our future sales activity, expenditure levels or performance.

In addition to other factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include:

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our ability to grow our revenues by increasing our share of CPG spending and the number of brands using our platforms, including Retailer iQ, increasing media spending on our platforms, the timing and extent of CPGs switching from free standing inserts to digital promotions, further integrating with our retailers, adding new CPGs and retailers to our network and growing our current consumer base and expanding into new industry segments such as convenience, specialty/franchise retail, restaurants and entertainment;

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our ability to leverage retailer demands to increase CPG spend on RPM;

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our ability to grow our revenues will depend on CPGs’ annual marketing budgets which are affected by economic headwinds facing the CPG industry;

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reduction in demand or volatility in demand for one or more of our products, which may be caused by, among other things: delay or cancellation of marketing campaigns by CPGs and retailers as they focus on manufacturing in-demand products, replenishing out-of-stock items, adjust to changes in consumer purchasing behavior, contend with supply-chain challenges, and other issues arising out of the COVID-19 pandemic;

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disruption of planned themed marketing campaigns by CPGs and retailers, including campaigns that were adversely impacted by shelter-in-place orders and social distancing due to the COVID-19 pandemic;

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reduction in overall media spend by CPGs in reaction to the COVID-19 pandemic, which primarily harmed our media business starting March of 2020 and into the second quarter of 2020 and may continue to have an adverse effect through the rest of 2020;

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our ability to successfully respond to changes in the digital promotions and media market and continue to grow the market and demand for our platforms;

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our ability to grow consumer selection and use of our digital promotion offerings and attract new consumers to our platforms;

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the amount and timing of digital promotions and marketing campaigns by CPGs, which are affected by budget cycles, economic conditions, seasonality and other factors;

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the impact of global business or macroeconomic conditions, including the resulting effects on the level of coupon and trade promotion spending by CPGs and spending by consumers;

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our ability to grow and maintain our relationships with retailers, including our ability to negotiate favorable data rights agreements with retailers;

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the impact of competitors or competitive products and services, and our ability to compete in digital marketing;

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our ability to obtain and increase the number of high quality promotions;

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changes in consumer behavior with respect to digital promotions and media and how consumers access digital promotions and media and our ability to develop applications that are widely accepted and generate revenues for CPGs, retailers and us;

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the costs of investing, maintaining and enhancing our technology infrastructure;

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increased legal and compliance costs associated with data protection laws and regulations in various jurisdictions, including the CCPA, which went into effect on January 1, 2020;

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the costs of developing new products, solutions and enhancements to our platform;

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whether new products successfully launch on time;

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our ability to manage our growth, including scaling Retailer iQ, developing and growing our Media, Audience and Analytics Cloud platforms;

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the success of our sales and marketing efforts;

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the costs of acquiring new companies;

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the costs of successfully integrating acquired companies and employees into our operations, including costs related to the integration of Elevaate, SavingStar and Ubimo;

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changes in the legislative or regulatory environment, including with respect to privacy and data protection, or enforcement by government regulators, including fines, orders, or consent decrees;

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our ability to deal effectively with fraudulent transactions or customer disputes;

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our ability to collect payment for services timely, as COVID-19 pandemic may cause liquidity issues for some of our customers;

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the attraction and retention of qualified employees and key personnel, which can be affected by changes in U.S. immigration policies;

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the effectiveness of our internal controls;

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increased legal, accounting and compliance costs associated with complying with Section 404 of the Sarbanes-Oxley Act (“SOX”);

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changes in accounting rules, tax laws or interpretations thereof; and

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changes in the way we process and deliver our services, which could affect whether revenue is recognized on a net or gross basis.

The effects of these factors individually or in combination, including the uncertainty created by the COVID-19 pandemic, could cause our quarterly and annual operating results to fluctuate, and affect our ability to forecast those results and our ability to achieve those forecasts. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet or exceeding the expectations of our investors or financial analysts for any period. In addition, we may release guidance in our quarterly earnings conference calls, quarterly earnings releases, or otherwise, based on predictions of our management, which are necessarily uncertain in nature. The guidance provided depends on our prediction of CPG marketing budgets which can fluctuate greatly and are beyond our

control. Our guidance may vary materially from actual results. If our revenue or operating results, or the rate of growth of our revenue or operating results, fall below or above the expectations of our investors or financial analysts, or below or above any forecasts or guidance we may provide to the market, or if the forecasts we provide to the market are below or above the expectations of analysts or investors, the price of our common stock could decline or increase substantially. Such a stock price decline or increase could occur even when we have met our own or other publicly stated revenue or earnings forecasts. Our failure to meet our own or other publicly stated revenue or earnings forecasts, or even when we meet our own forecasts but fall short of analyst or investor expectations, could cause our stock price to decline and expose us to costly lawsuits, including securities class action suits. Such litigation against us could impose substantial costs and divert our management’s attention and resources. If we exceed our own or other publicly stated revenue or earnings forecasts, or even when we meet our own forecasts but exceed analyst or investor expectations, our stock price could increase.

The effects of health epidemics, including the recent COVID-19 pandemic, have had, and may continue to have, an adverse impact on our business, operations and the markets and communities in which we and our partners operate.

Our business and operations have been and may continue to be adversely affected by health epidemics, including the recent COVID-19 pandemic, impacting the markets and communities in which we and our partners operate. In December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to many countries worldwide, including the United States.

The President of the United States has declared the COVID-19 pandemic a national emergency. In response to the COVID-19 pandemic, many state, local and foreign governments have put in place, and others in the future may put in place, quarantines, executive orders, shelter-in-place orders and similar government orders and restrictions in order to control the spread of the disease. Such orders or restrictions, or the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects that could negatively impact productivity and disrupt our operations and those of our partners. Certain jurisdictions have begun lifting such orders or restrictions only to return to these restrictions in the face of increases in new COVID-19 cases. The effects of these indefinite travel restrictions and alternative working arrangements are unknown, and may negatively impact the productivity of our employee base, and a disproportionately negative impact on our sales and operations functions, which could have an adverse effect on our business, operating results, and financial condition.

In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular is difficult to assess or predict, the pandemic has resulted in, and continues to result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. A recession or market correction resulting from the spread of COVID-19 and its impacts could decrease marketing spend, particularly in media, adversely affecting the demand for our products, our business, and the value of our common stock. While we have seen CPGs historically continue to spend on promotions during economic downturns, there is no guarantee they will continue to do so.

The global pandemic of COVID-19 continues to rapidly evolve, and we will continue to monitor the COVID-19 situation closely. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole. The COVID-19 pandemic, and the various responses to it, may also have the effect of heightening many of the other risks discussed in this “Risk Factors” section.

If the distribution or other fees that we pay as a percentage of our revenues increase, our gross profit and business will be harmed.

When we deliver promotions or media on a retailer’s receipt, website or mobile app or through its loyalty program, or the website or mobile app of a publisher, or through our Retailer iQ platform, and the consumer takes certain actions, we pay a distribution fee to the retailer or other publisher, which, in some cases may be prepaid or guaranteed prior to being incurred. We also pay fees to retailers for use of their data in our Promotions, Media, Analytics, and Audience platforms and solutions. Such fees have increased as a percentage of our revenues in recent periods. If such fees as a percentage of our revenues continue to increase, our cost of revenues as a percentage of revenues could increase and our operating results would be adversely affected. In addition, calculations of such fees are complex and if retailers disagree with our calculations in an audit, it could have an adverse impact on our business.

Some of our agreements with retailers include certain prepaid or guaranteed distribution fees. If the adoption and usage of Retailer iQ, targeted in-lane at checkout offers, and our other platforms and solutions do not meet projections or minimums, these prepaid or guaranteed distribution fees may not be recoverable and any shortfall may be payable by us at the end of the applicable period. For example, during the third quarter of 2016, we recorded a one-time charge associated with certain distribution fees under an arrangement with a retail partner that were deemed unrecoverable. We considered various factors in our assessment including our historical experience with the transaction volumes through the retailer and comparative retailers, ongoing communications with the retailer to increase its marketing efforts to promote the digital platform, as well as the projected revenues, and associated revenue share payments. Accordingly, during the third quarter of 2016, we recognized a loss of $7.4 million related to such distribution fee arrangement.

Our gross margins are dependent on many factors, some of which are not directly controlled by us.

The factors potentially affecting our gross margins include:

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our product mix since we have significant variations in our gross margin among products. Any substantial change in product mix could change our gross margin;

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growth and expansion of our lower-margin media products, including programmatic ads delivered through third-party ad-tech partners and publishers;

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increasing data and traffic acquisition costs for offsite media on non-owned-and-operated properties;

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evolving fee arrangements with CPGs, because as we continue to scale customers on our platforms we will continue to experiment with various fee arrangements which might have an impact on our gross margins;

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evolving fee arrangements with retailers, because as we expand our product offerings we have also expanded distribution fee arrangements with retailers which might have an impact on our gross margins;

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success of our pricing strategies, including strategies that guarantee certain outcomes;

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success of our investments in technology and automation or through acquisitions to gain cost efficiencies; and

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pricing and acceptance of higher-margin new products.

For instance, we have seen pressure on our gross margins, which we principally attribute to the factors described above and we expect this pressure to continue as our growth strategy evolves and our product mix continues to change. Although we expect to gain leverage as our business expands and through automation, there is no guarantee that we will succeed.

If we fail to maintain and expand the use by consumers of digital promotions on our platform, our revenues and business will be harmed.

We must continue to maintain and expand the use by consumers of digital promotions in order to increase the attractiveness of our platforms to CPGs and retailers and to increase revenues and achieve profitability. If consumers do not perceive that we offer a broad selection of relevant and high quality digital promotions, or that the usage of digital promotions is easy and convenient through our platforms, we may not be able to attract or retain consumers on our platforms. If we are unable to maintain and expand the use by consumers of digital promotions on our platforms, including through our software-free print solution, our retail partners properties, our white label customer relationship management solutions, and Coupons.com and Shopmium mobile applications, or if we do not do so to a greater extent than our competitors, CPGs may find that offering digital promotions on our platforms do not reach consumers with the scale and effectiveness that is compelling to them. Likewise, if retailers find that using our platforms, including Retailer iQ, does not increase sales of the promoted products and consumer loyalty to the retailer to the extent they expect, then the revenues we generate may not increase to the extent we expect or may decrease. Any of these could adversely affect our operating results.

If we are not successful in responding to changes in consumer behavior and do not develop products and solutions that are widely accepted and generate revenues, our results of operations and business could be adversely affected.

The methods by which consumers access digital promotions are varied and evolving. Our platform has been designed to engage consumers at the critical moments when they are choosing the products they will buy and where they will shop. Consumers can select our digital promotions both online through web and mobile and in-store. In order for us to maintain and increase our revenues, we must be a leading provider of digital promotions in each of the forms by which consumers access them. As consumer behavior in accessing digital promotions changes and new distribution channels emerge, if we do not successfully respond and do not develop products or solutions that are widely accepted and generate revenues we may be unable to retain consumers or attract new consumers and as a result, CPGs and retailers, and our business may suffer. As another example, we are seeing a transition from digital print coupons to digital paperless coupons. If we do not manage this transition and digital print transactions decline faster than digital paperless transactions increase, our revenues may be harmed.

Consumer shopping behavior has changed dramatically in response to the COVID-19 pandemic. For instance, shoppers began to minimize shopping trips, rely on online grocery shopping, change buying habits as their lifestyles were impacted by state and local orders and social distancing . If consumers decide not to use our products that involve paper as a result of COVID-19 and do not find our purely digital products compelling, our business could be harmed.

We depend in part on third-party advertising agencies as intermediaries, and if we fail to develop and maintain these relationships, our business may be harmed.

A growing portion of our business is conducted indirectly with third-party advertising agencies acting on behalf of CPGs and retailers. Third-party advertising agencies are instrumental in assisting CPGs and retailers to plan and purchase media and promotions, and each third-party advertising agency generally allocates media and promotion spend from CPGs and retailers across numerous channels. We are still developing relationships with, and do not have exclusive relationships with, third-party advertising agencies and we depend in part on third-party agencies to work with us as they embark on marketing campaigns for CPGs and retailers. While in most cases we have developed relationships directly with CPGs and retailers, we nevertheless depend in part on third-party advertising agencies to present to their CPG and retailer clients the merits of our platform. Inaccurate descriptions of our platform by third-party advertising agencies, over whom we have no control, negative recommendations regarding use of our service offerings or failure to mention our platform at all could hurt our business. In addition, if a third-party advertising agency is disappointed with our platform on a particular campaign or generally, we risk losing the business of the CPG or retailer for whom the campaign was run, and of other CPGs and retailers represented by that agency. Since many third-party advertising agencies are affiliated with other third-party agencies in a larger corporate structure, if we fail to develop and maintain good relations with one third-party advertising agency in such an organization, we may lose business from the affiliated third-party advertising agencies as well.

Our sales could be adversely impacted by industry changes relating to the use of third-party advertising agencies. For example, if CPGs or retailers seek to bring their campaigns in-house rather than using an agency, we would need to develop direct relationships with the CPGs or retailers, which we might not be able to do and which could increase our sales and marketing expenses. Moreover, to the extent that we do not have a direct relationship with CPGs or retailers, the value we provide to CPGs and retailers may be attributed to the third-party advertising agency rather than to us, further limiting our ability to develop long-term relationships directly with CPG and retailers. CPGs and retailers may move from one third-party advertising agency to another, and we may lose the underlying business. The presence of third-party advertising agencies as intermediaries between us and the CPGs and retailers thus creates a challenge to building our own brand awareness and affinity with the CPGs and retailers that are the ultimate source of our revenues. In addition, third-party advertising agencies conducting business with us may offer their own digital marketing solutions. As such, these third-party advertising agencies are, or may become, our competitors. If they further develop their own capabilities they may be more likely to offer their own solutions to advertisers, and our ability to compete effectively could be significantly compromised and our business, financial condition and operating results could be adversely affected.

Consumers are increasingly using mobile devices to access our content, and if we are unsuccessful in expanding the capabilities of our digital marketing solutions for our mobile platforms to allow us to generate revenues as effectively as our website platforms, our revenues could decline.

Web usage and the consumption of digital content are increasingly shifting from desktop to mobile platforms such as smartphones. The growth of our business depends in part on our ability to drive engagement, activation and shopping behavior for our retailers and CPGs through these mobile channels. Our success on mobile platforms will be dependent on our interoperability with popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade our functionality, ease of convenience or that give preferential treatment to competitive services could adversely affect usage of our services through mobile devices.

Further, to deliver high quality mobile offerings, it is important that our platform integrates with a range of other mobile technologies, systems, networks and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks or standards. If we fail to achieve success with our mobile applications and mobile website, or if we otherwise fail to deliver effective solutions to CPGs and retailers for mobile platforms and other emerging platforms, our ability to monetize these growth opportunities will be constrained, and our business, financial condition and operating results would be adversely affected.

Our success on mobile platforms will also be dependent on our ability to develop features or products that will make our mobile platform attractive to, and drive engagement by, consumers. If we fail to develop such features or products after investing in their development, our ability to monetize these growth opportunities will be constrained, and our business, financial condition and operating results may be adversely affected.

Competition presents an ongoing threat to the success of our business.

We expect competition in digital promotions and media and audiences to continue to increase. The market for digital promotions and media and audiences is competitive, fragmented and rapidly changing. We compete against a variety of companies with respect to different aspects of our business, including:

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offline coupon and discount services, as well as newspapers, magazines and other traditional media companies that provide coupon promotions and discounts on products and services in free standing inserts or other forms, including Valassis Communications, Inc., News America Marketing and Catalina Marketing Corporation;

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providers of digital promotions such as Valassis’ Redplum.com, Catalina Marketing Corporation’s Cellfire, Inmar/You Technology, News America Marketing’s SmartSource; companies that offer cash back solutions such as iBotta, Inc., News America Marketing’s Checkout 51; and companies providing other e-commerce based services that allow consumers to obtain direct or indirect discounts on purchases; and companies that offer coupon codes such as RetailMeNot, Inc., Groupon, Inc., Exponential Interactive, Inc.’s TechBargains.com, Savings.com, Inc., Honey Science Corporation, which was acquired by PayPal Holdings, Inc., and Rakuten, Inc.;

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Internet sites and blogs that are focused on specific communities or interests that offer promotions or discount arrangements related to such communities or interests;

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companies offering online and marketing services to retailers and CPGs, such as MyWebGrocer, Inc. and Flipp Corp.; and

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companies offering digital advertising technology, inventory, data, and services solutions for CPGs and Retailers including: Google, Facebook, Pinterest, Adobe, The Trade Desk, Oracle, Criteo, Microsoft, and others.

We believe the principal factors that generally determine a company’s competitive advantage in our market include the following:

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scale and effectiveness of reach in connecting CPGs and retailers to consumers in a digital manner, through web, mobile and other online properties;

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ability to attract consumers to use digital promotions and media delivered by it;

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platform security, scalability, reliability and availability;

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integration with retailer applications, point of sales systems, and consumer channels;

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access to retailer data;

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measurement that demonstrates the effectiveness of campaigns;

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quality of tools, reporting and analytics for planning, development and optimization of promotions;

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number of channels by which a company engages with consumers;

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integration of products and solutions;

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rapid deployment of products and services for customers;

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breadth, quality and relevance of the Company’s digital promotions and media and audiences;

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ability to deliver high quality and increasing number of digital promotions that are widely available and easy to use in consumers’ preferred form;

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brand recognition and reputation;

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breadth and expertise of the Company’s sales organization; and

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skill and expertise of the Company’s operations organization.

We are subject to competition from large, well-established companies which have significantly greater financial, marketing and other resources than we do and have offerings that compete with our platform or may choose to offer digital promotions and media and audiences as an add-on to their core business on their own or in partnership with one of our competitors that would directly compete with ours. Many of our larger actual and potential competitors have the resources to significantly change the nature of the digital promotions industry to their advantage, which could materially disadvantage us. For example, Google and Facebook and online retailers such as Amazon have highly trafficked industry platforms which they have leveraged, or could leverage, to distribute digital promotions and media that could negatively affect our business. In addition, these potential competitors may have greater access to first-party data, be able to respond more quickly than we can to new or emerging technologies and changes in consumer habits. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to attract more consumers and, as a result, more CPGs and retailers, or generate revenues more effectively than we do. Our competitors may offer digital promotions or targeted media campaigns that are similar to the digital promotions and targeted media campaigns we offer or that achieve greater market acceptance than those we offer. We are also subject to competition from smaller companies that launch similar or new products and services that we do not offer and that could gain market acceptance.

Our success depends on the effectiveness of our platform in connecting CPGs and retailers with consumers and with attracting consumer use of the digital promotions and media delivered through our platforms. To the extent we fail to provide digital promotions and media for high quality, relevant products, or otherwise fail to successfully reach consumers on their mobile device or elsewhere, consumers may become dissatisfied with our platform and decide not to use our digital promotions or interact with our digital media and elect to use or view the digital promotions and media distributed by one of our competitors. As a result of these factors, our CPGs and retailers may not receive the benefits they expect, and CPGs may use the offerings of one of our competitors, and retailers may elect to handle promotions and media themselves or exclude us from integrating with their in-store and point of sale systems or consumer channels, and our operating results would be adversely affected. Similarly, if retailers elect to use a competitive distribution network or platform, and we do not have, or fail to maintain, an agreement to distribute content through that network or platform, CPGs may elect to provide digital promotions and media directly to that network or platform, instead of through our platform. If retailers and CPGs require our platform to integrate with competitive offerings instead of using our products, we could lose some of our competitive advantage and our business could be harmed.

Our success may also depend on our ability to compete against incumbent competitors that our customers use and we may not be successful in persuading CPGs and their agencies to use our platforms and services.

We also face significant competition for trade promotion and marketing spending. We compete against online and mobile businesses, including those referenced above, and traditional advertising outlets, such as television, radio and print, for trade promotion and marketing spending. In order to grow our revenues and improve our operating results, we must increase our share of CPG spending on digital promotions and media relative to traditional sources and relative to our competitors, many of whom are larger companies that offer more traditional and widely accepted media products.

We also directly and indirectly compete with retailers for consumer traffic. Many retailers market and offer their own digital promotions and media directly to consumers using their own websites, email newsletters and alerts, mobile applications and social media channels. Additionally, some retailers also market and offer their own digital promotions and media directly to consumers using our platform for which we earn no revenue. Our retailers could be more successful than we are at marketing their own digital promotions and media and could decide to terminate their relationship with us.

We may face competition from companies we do not yet know about. If existing or new companies develop, market or offer competitive digital coupon solutions, acquire one of our existing competitors or form a strategic alliance with one of our competitors, our ability to compete effectively could be significantly compromised and our operating results could be harmed. For example, on March 13, 2019, Inmar announced that it completed the acquisition of Kroger’s subsidiary You Technology and entered into a long-term service agreement to provide digital coupon services to the Kroger family of stores. Following this acquisition, Inmar terminated our agreement with You Technology as of December 2019. This adversely affected our ability to distribute digital promotions through You Technology, which generated less than 5% of our revenue.

Acquisitions, joint ventures and strategic investments could result in operating difficulties, dilution and other harmful consequences.

We have acquired a number of businesses, and expect to continue to evaluate and consider a wide array of potential strategic transactions, including acquisitions and dispositions of businesses, joint ventures, technologies, services, products and other assets and strategic investments. At any given time, we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. Any of these transactions could be material to our financial condition and results of operations. The process of integrating any acquired business may create unforeseen operating difficulties and expenditures and is itself risky. The areas where we may face difficulties include:

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expected and unexpected costs incurred in identifying and pursuing strategic transactions and performing due diligence regarding potential strategic transactions that may or may not be successful;

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failure of an acquired company to achieve anticipated revenue, earnings, cash flows or other desired technological and business goals;

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effectiveness of our due diligence review and our ability to evaluate the results of such due diligence, which are dependent upon the accuracy and completeness of statements and disclosures made by the acquired company;

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diversion of management time, as well as a shift of focus from operating the businesses to issues related to integration and administration;

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disputes as a result of certain terms and conditions of our transactions, such as payment of contingent consideration, compliance with covenants, or closing adjustments;

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the need to integrate technical operations and security protocols, which may lead to significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our products and services;

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the need to integrate the acquired company’s accounting, management, information, human resource and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not implemented;

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retention of key employees from the acquired company and cultural challenges associated with integrating employees from the acquired company into our organization;

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the need to implement or improve controls, procedures and policies appropriate for a public company at companies that prior to acquisition had lacked such controls, procedures and policies;

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in some cases, the need to transition operations and customers onto our existing platforms;

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in certain instances, the ability to exert control of acquired businesses that include earnout provisions in the agreements relating to such acquisitions or the potential obligation to fund an earnout for, or other obligations related to, a product that has not met expectations;

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the need to integrate operations across different geographies, cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;

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liability for activities of the acquired company before the acquisition, including violations of laws, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities;

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difficulties valuing intangibles related to acquired businesses, which could lead to write-offs or charges related to acquired assets or goodwill; and

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litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties and intellectual property infringement claims.

For example, we have acquired businesses whose technologies are new to us and with which we did not have significant experience. We have made and are making investments of resources to support such acquisitions, which will result in ongoing operating expenses and may divert resources and management attention from other areas of our business. We cannot assure you that these investments and the integration of these acquisitions will be successful. If we fail to successfully integrate the companies we acquire, we may not realize the benefits expected from the transaction and our business may be harmed.

Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of any or all of our acquisitions or joint ventures, or we may not realize them in the time frame expected or cause us to incur unanticipated liabilities, and harm our business. Future acquisitions or joint ventures may require us to issue dilutive additional equity securities, spend a substantial portion of our available cash, incur debt or contingent liabilities, amortize expenses related to intangible assets or incur incremental operating expenses or write-offs of goodwill or impaired acquired intangible assets, which could adversely affect our results of operations and harm our business.

If we fail to effectively manage our growth, our business and financial performance may suffer.

We have significantly expanded our operations and anticipate expanding further to pursue our growth strategy. Through acquisitions we have added four additional offices within the last two years. Such expansion increases the complexity of our business and places significant demands on our management, operations, technical performance, financial resources and internal control over financial reporting functions. Continued growth could strain our ability to deliver digital promotions and media on our platforms, develop and improve our operational, financial, legal and management controls, and enhance our reporting systems and procedures. Failure to manage our expansion may limit our growth, damage our reputation and negatively affect our financial performance and harm our business.

To effectively manage this growth, we will need to continue to improve our operational, financial and management controls, and our reporting systems and procedures. If we do not effectively manage the growth of our business and operations the scalability of our business and our operating results could suffer.

Our current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage our future operations. We may not be able to hire, train, retain, motivate and manage required personnel. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees. We intend to continue to expand our research and development, sales and marketing, and general and administrative organizations, and over time, expand our international operations. To attract top talent, we have had to offer, and believe we will need to continue to offer, highly competitive compensation packages before we can validate the productivity of those employees. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, and our business and operating results could be adversely affected.

Providing our products and services to our CPGs, retailers and consumers is costly and we expect our expenses to continue to increase in the future as we grow our business with existing and new CPGs and retailers and develop new products and services that require enhancements to our technology infrastructure. In addition, our operating expenses, such as our sales, marketing and engineering expenses are expected to continue to grow to support our anticipated future growth. As a result of the requirements of being a public company we incur significant legal, accounting and other expenses. Our expenses may grow faster than our revenues, and our expenses may be greater than we anticipate. Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, operating results and financial condition would be harmed.

Our sales cycle with CPGs and retailers is long and unpredictable and may require us to incur expenses before executing or renewing a customer agreement, which makes it difficult to project when, if at all, we will obtain new CPGs and retailers, or renew customer agreements with existing CPG customers and retail partners, and when we will generate additional revenues.

We market our services and products directly to CPGs and retailers. New CPG and retailer relationships typically take time to obtain and finalize. Existing CPG and retailer relationships may change and take time to re-establish due to market consolidation and personnel changes. A significant time period may pass between selection of our services and products by key decision-makers and the signing of a contract. The length of time between the initial sales call and the realization of a final contract is difficult to predict. As a result, it is difficult to predict when we will obtain new CPGs and retailers and when performance and delivery of services will be initiated with these potential CPGs and retailers. In addition, our customers typically have no obligation to renew their agreements with us after their initial term, and in order for us to maintain or improve our results of operations, it is important that our customers renew their agreements with us when the initial term expires. As part of our sales and renewal cycle, we may incur significant expenses before executing or renewing a definitive agreement with a prospective or existing CPG or retailer and before we are able to generate any revenues from such agreement or renewal. If conditions in the marketplace generally or with a specific prospective CPG or retailer change negatively, it is possible that no definitive agreement will be executed or renewed, and we will be unable to recover any expenses incurred before a definitive agreement is executed or renewed, which would in turn have an adverse effect on our business, financial condition and results of operations.

We expect that our sales cycles with CPGs and retailers will be unpredictable as a result of the uncertainty caused by the COVID-19 pandemic; and as CPGs and retailers focus on COVID-19 issues and sales meetings are conducted remotely due to shelter-in-place orders and work and travel restrictions.

Our business depends on our ability to maintain and scale the network infrastructure necessary to operate our platforms, including our websites, mobile applications and Retailer iQ platform, and any significant disruption in service could result in a loss of CPGs, retailers and consumers.

We deliver digital promotions and media via our platforms, including over our websites and mobile applications, as well as through those of our CPGs and retailers and our publishers and other third parties. Our reputation and ability to acquire, retain and serve CPGs and retailers, as well as consumers who use digital promotions or view media on our platforms are dependent upon the reliable performance of our platforms. As the number of our CPG customers, retailers and consumers and the number of digital promotions, digital media and information shared through our platforms continue to grow, we will need an increasing amount of network capacity and computing power. Our technology infrastructure and Retailer iQ platform are hosted across two data centers in co-location facilities in California and Virginia. We have spent and expect to continue to spend substantial amounts in our data centers and equipment and related network infrastructure to handle the traffic on our platform. The operation of these systems is expensive and complex and could result in operational failures. In the event that the number of transactions or the amount of traffic on our platforms grows more quickly than anticipated, we may be required to incur significant additional costs. In addition, as we scale, we must continually invest in our information technology, and continue to invest in information security, infrastructure and automation. Deployment of new software or processes may adversely affect the performance of our services and harm the customer experience. If we fail to support our platforms or provide a strong customer experience, our ability to retain and attract customers may be harmed. Interruptions in these systems or service disruptions, whether due to system failures, computer viruses, malware, ransomware, denial of service attacks, attempts to degrade or disrupt services, or physical or electronic break-ins, could affect the security or availability of our websites and platform, and prevent CPGs, retailers or consumers from accessing our platform. A substantial portion of our network infrastructure is hosted by third-party providers. Any disruption in these services or any failure of these providers to handle existing or increased traffic could significantly harm our business. Any financial or other difficulties these providers face may adversely affect our business, and we exercise little control over these providers, which increases our vulnerability to problems with the services they provide. If we do not maintain or expand our network infrastructure successfully or if we experience operational failures, we could lose current and potential CPGs, retailers and consumers, which could harm our operating results and financial condition.

We currently have not experienced disruptions to our network or operations as a result of COVID-19 but there are no guarantees there will not be disruptions in the future.

If our websites or those of our publishers fail to rank prominently in unpaid search results from search engines, traffic to our websites could decline and our business would be adversely affected.

Our success depends in part on our ability to attract consumers through unpaid Internet search results on search engines, such as Google. The number of consumers we attract to our websites from search engines is due in large part to how and where our websites rank in unpaid search results. These rankings can be affected by a number of factors, many of which are not in our direct control, and they may change frequently. For example, major search engines frequently modify their ranking algorithms, methodologies or design layouts. As a result, links to our websites may not be prominent enough to drive traffic to our websites or we may receive less favorable placement which could reduce traffic to our website, and we may not know how or otherwise be in a position to influence the results. In some instances, search engine companies may change these rankings in order to promote their own competing products or services or the products or services of one or more of our competitors. Our websites have experienced fluctuations in search result rankings in the past, and we anticipate fluctuations in the future. For example, the search result rankings of our websites have fallen relative to the same time last year. In addition, websites must comply with search engine guidelines and policies. These guidelines and policies are complex and may change at any time. If we fail to follow such guidelines and policies properly, search engines may rank our content lower in search results or could remove our content altogether from their index. Moreover, the use of voice recognition technology, such as Alexa, Google Assistant or Siri, may drive traffic away from search engines, which could reduce traffic to our website. Any reduction in the number of consumers directed to our websites could reduce the effectiveness of our coupon codes for specialty retailers and digital promotions for CPGs and retailers and could adversely impact our business and results of operations. It could also reduce our ability to sell media advertising on our sites, which would negatively impact revenues and harm our business. For example, we have seen a decline in the revenues from specialty retail and expect this trend to continue.

If we fail to continue to obtain and increase the number of high quality promotions through our platform, our revenue growth or our revenues may be harmed.

We generally generate revenues as consumers select, or activate, a digital promotions through our platform. Our business model depends upon the availability of high quality and increasing number of digital promotions. CPGs and retailers have a variety of channels through which to promote their products and services. If CPGs and retailers elect to distribute their digital promotions through other channels or not to promote digital promotions at all, or if our competitors are willing to accept lower prices than we are, our ability to obtain high quality digital promotions available on our platform

may be impeded and our business, financial condition and operating results will be adversely affected. If we cannot maintain sufficient digital promotions inventory to offer through our platform, consumers may perceive our service as less relevant, consumer traffic to our websites and those of our publishers will decline and, as a result, CPGs and retailers may decrease their use of our platform to deliver digital coupons and our revenue growth or revenues may be harmed.

Our business relies in part on electronic messaging, including emails and SMS text messages, and any technical, legal or other restrictions on the sending of electronic messages or an inability to timely deliver such communications could harm our business.

Our business is in part dependent upon electronic messaging. We provide emails, mobile alerts and other messages to consumers informing them of the digital coupons on our websites, and we believe these communications help generate a significant portion of our revenues. We also use electronic messaging, in part, as part of the consumer sign-up and verification process. Because electronic messaging services are important to our business, if we are unable to successfully deliver electronic messages to consumers, if there are legal restrictions on delivering these messages to consumers, or if consumers do not or cannot open our messages, our revenues and profitability could be adversely affected. Changes in how webmail applications or other email management tools organize and prioritize email may result in our emails being delivered or routed to a less prominent location in a consumer’s inbox or viewed as “spam” by consumers and may reduce the likelihood of that consumer opening our emails. Actions taken by third parties that block, impose restrictions on or charge for the delivery of electronic messages could also harm our business. From time to time, Internet service providers or other third parties may block bulk email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails or other messages to consumers.

Changes in laws or regulations, or changes in interpretations of existing laws or regulations, including the Telephone Consumer Protection Act, or the TCPA in the United States and laws regarding commercial electronic messaging in other jurisdictions, that would limit our ability to send such communications or impose additional requirements upon us in connection with sending such communications could also adversely impact our business. For example, the Federal Communications Commission amended certain of its regulations under the TCPA in recent years in a manner that could increase our exposure to liability for certain types of telephonic communication with customers, including but not limited to text messages to mobile phones. Under the TCPA, plaintiffs may seek actual monetary loss or statutory damages of $500 per violation, whichever is greater, and courts may treble the damage award for willful or knowing violations. Given the enormous number of communications we send to consumers, a determination that there have been violations of the TCPA or other communications-based statutes could expose us to significant damage awards that could, individually or in the aggregate, materially harm our business. Moreover, even if we prevail, such litigation against us could impose substantial costs and divert our management’s attention and resources.

We also rely on social networking messaging services to send communications. Changes to these social networking services’ terms of use or terms of service that limit promotional communications, restrictions that would limit our ability or our customers’ ability to send communications through their services, disruptions or downtime experienced by these social networking services or reductions in the use of or engagement with social networking services by customers and potential customers could also harm our business.

We rely on a third-party service for the delivery of daily emails and other forms of electronic communication, and delay or errors in the delivery of such emails or other messaging we send may occur and be beyond our control, which could damage our reputation or harm our business, financial condition and operating results. If we were unable to use our current electronic messaging services, alternate services are available; however, we believe our sales could be impacted for some period as we transition to a new provider, and the new provider may be unable to provide equivalent or satisfactory electronic messaging service. Any disruption or restriction on the distribution of our electronic messages, termination or disruption of our relationship with our messaging service providers, including our third-party service that delivers our daily emails, or any increase in our costs associated with our email and other messaging activities could harm our business.

We are dependent on technology systems and electronic communications networks that are supplied and managed by third parties, which could result in our inability to prevent or respond to disruptions in our services.

Our ability to provide services to consumers depends on our ability to communicate with CPGs, retailers and customers through the public Internet and electronic networks that are owned and operated by third parties. Our products and services also depend on the ability of our users to access the public Internet. In addition, in order to provide services promptly, our computer equipment and network servers must be functional 24 hours per day, which requires access to telecommunications facilities managed by third parties and the availability of electricity, which we do not control. A severe disruption of one or more of these networks, including as a result of utility or third-party system interruptions, could impair our ability to process information, which could impede our ability to provide digital promotions and media to consumers, harm our reputation, result in a loss of customers or CPGs and retailers and adversely affect our business and operating results. For example, currently, as a result of work and travel restrictions related to the ongoing COVID-19 pandemic, all of our employees are working remotely and dependent upon their respective internet service providers to be able to access the internet, our systems and systems of our service providers. In other words, our business workflows now rely on availability of residential broadband bandwidth as well as connectivity which is currently under considerable strain. If the residential broadband and internet access break down under strain, our business and operations would be harmed.

If our security measures or information we collect and maintain are compromised or publicly exposed, CPGs, retailers and consumers may curtail or stop using our platforms and we could be subject to claims, penalties and fines.

We collect and maintain data about consumers, including personally identifiable information, as well as other confidential or proprietary information. Like all businesses that use computer systems and the Internet, our security measures, and those of companies we may acquire and our third-party service providers and partners, may not detect or prevent all attempts to gain access to our systems, denial-of-service attacks, viruses, malicious software including malware and ransomware, break-ins, phishing attacks, social engineering, human error, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by our systems or solutions or that we or our third-party service providers and partners otherwise maintain, including payment systems, any of which could lead to interruptions, delays, or website shutdowns, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or other confidential information or proprietary data, or subject us to fines or higher transaction fees or limit or result in the termination of our access to certain payment methods. Due to the COVID-19 pandemic, our employees are temporarily working remotely, which may pose additional data security risks. If we, or our service providers and partners, experience compromises to our security that result in performance or availability problems, the complete shutdown of one or more of our websites and mobile applications, or the misuse, loss or unauthorized access to or disclosure of confidential information, personally identifiable information, or other personal or proprietary data, CPGs, retailers, and consumers may lose trust and confidence in us and decrease their use of our platforms or stop using our platforms entirely. Such compromises to personal or sensitive information or proprietary data could lead to litigation or other adversarial actions by business partners such as retailers or consumers.

Because the techniques used to obtain unauthorized access are often sophisticated and change frequently, neither we nor third-party service providers and partners can guarantee that our systems will not be breached. In addition, consumer information including email addresses, phone numbers, transaction data, and data on consumer usage of our and our retailer partners’ websites and mobile applications could be hacked, hijacked, altered or otherwise claimed or controlled by unauthorized persons. Security breaches can also occur as a result of nontechnical issues, including intentional or inadvertent actions by our employees or by persons with whom we have commercial relationships that lead to exposure of any types of personal, sensitive or proprietary information. Any or all of these issues, or the perception that any of them has occurred, even if inaccurate, could negatively impact our reputation and our ability to attract and retain CPGs and retailers as well as consumers or could reduce the frequency with which our platforms are used, cause existing or potential CPG or retailer customers to cancel their contracts or subject us to third-party lawsuits, regulatory fines or other action or liability, and harm our business and results of operations.

Remediation of any potential cyber security breach may involve significant time, resources, and expenses, which may result in potential regulatory inquiries, litigation or other investigations, and can affect our financial and operational condition.

Failure to deal effectively with fraudulent or other improper transactions could harm our business.

Digital promotions are issued in the form of redeemable coupons, coupon codes with unique identifiers or cash-back rebates. It is possible that third parties may create counterfeit digital coupons or coupon codes or exceed print or use limits in order to fraudulently or improperly claim discounts or credits for redemption. It is also possible that third parties may fraudulently or improperly claim cash-back rebates causing us to pay out cash that we are not able to get reimbursement from our customers. It is possible that individuals will circumvent our anti-fraud systems using increasingly sophisticated methods or methods that our anti-fraud systems are not able to counteract. Further, we may not detect any of these unauthorized activities in a timely manner. Third parties who succeed in circumventing our anti-fraud systems may sell the fraudulent or fraudulently obtained digital coupons on social networks, which would damage our brand and relationships with CPGs and harm our business. Legal measures we take or attempt to take against these third parties may be costly and may not be ultimately successful. In addition, our service could be subject to employee fraud or other internal security breaches, and we may be required to reimburse CPGs and retailers for any funds stolen or revenues lost as a result of such breaches. Our CPGs and retailers could also request reimbursement, or stop using digital coupons, if they are affected by buyer fraud or other types of fraud. We may incur significant losses from fraud and counterfeit digital coupons. If our anti-fraud technical and legal measures do not succeed, our business may suffer.

Factors adversely affecting performance marketing programs and our relationships with performance marketing networks and brand partners, or the termination of these relationships, may adversely affect our ability to attract and retain merchants and our coupon codes business.

A portion of our business is based upon consumers using coupon codes from specialty retailers in connection with the purchase of goods or services. The commissions we earn for coupon codes accessed through our platform are tracked by performance marketing networks. Third-party performance marketing networks provide publishers with affiliate tracking links that allow for revenues to be attributed to publishers. When a consumer executes a purchase on a publisher’s website as a result of a performance marketing program, most performance marketing conversion tracking tools credit the most recent link or ad clicked by the consumer prior to that purchase. This practice is generally known as “last-click attribution.” We generate revenues through transactions for which we receive last-click attribution. Risks that may adversely affect our performance marketing programs and our relationships with performance marketing networks include the following, some of which are outside our control:

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we may not be able to adapt to changes in the way in which CPGs and merchants attribute credit to us in their performance marketing programs, whether it be “first-click attribution” or “multichannel attribution,” which applies weighted values to each of a retailer’s advertisements and tracks how each of those advertisements contributes to a purchase, or otherwise;

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we may not receive revenue if consumers make purchases from their mobile devices as many retailers currently do not recognize affiliate tracking links on their mobile-optimized websites or applications, and tracking mechanisms on mobile websites or applications may not function to allow retailers to properly attribute sales to us;

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we may not generate revenue if consumers use mobile devices for shopping research but make purchases using coupon codes found on our sites in ways where we do not get credit;

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refund rates for products delivered on merchant sites may be greater than we estimate;

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performance marketing networks may not provide accurate and timely reporting on which we rely, we could fail to properly recognize and report revenues and misstate financial reports, projections and budgets and misdirect our advertising, marketing and other operating efforts for a portion of our business;

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we primarily rely on a small number of performance marketing networks in non-exclusive arrangements, the loss of which could adversely affect our coupon codes business;

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we primarily rely, in connection with our search engine marketing business, on a small number of brand partners that work with us in non-exclusive arrangements, the loss of which could adversely affect our coupon codes business;

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industry changes relating to the use of performance marketing networks could adversely impact our commission revenues;

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to the extent performance marketing networks serve as intermediaries between us and merchants, it may create challenges to building our own brand awareness and affinity with merchants, and the termination of our relationship with the performance marketing networks would terminate our ability to receive payments from merchants we service through that network;

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performance marketing networks may compete with us; and

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economic uncertainty related to COVID-19 and its impact on consumer spending.

While coupon codes from specialty retailers represent a declining portion of our business, any of these risks could adversely affect our revenues in this area.

Our business is subject to complex and evolving laws, regulations and industry standards, and unfavorable interpretations of, or changes in, or failure by us to comply with these laws, regulations and industry standards could substantially harm our business and results of operations.

We are subject to a variety of foreign, federal, state, local and municipal laws, regulations and industry standards that relate to privacy, electronic communications, data protection, intellectual property, e-commerce, competition, price discrimination, consumer protection, taxation, and the use of promotions. Many of these laws, regulations, and standards are still evolving and being tested in courts and industry standards are still developing. Our business, including our ability to operate and expand, could be adversely affected if legislation, regulations or industry standards are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices or the design of our platform. Existing and future laws, regulations and industry standards could restrict our operations, and our ability to retain or increase our CPGs and retailers and consumers’ use of digital promotions delivered on our platform may be adversely affected and we may not be able to maintain or grow our revenues as anticipated.

For example, the California Consumer Privacy Act of 2018 (“CCPA”) came into effect on January 1, 2020; the CCPA has already been amended once and grants consumers new rights with respect to their personal information. We believe our policies and practices comply in material respects with applicable privacy, data protection, data security, marketing and consumer protection guidelines, laws and regulations. However, if our belief is incorrect, or if these guidelines, laws or regulations or their interpretation change or new legislation or regulations are enacted, we may be compelled to provide additional disclosures to our consumers, obtain additional consents from our consumers before collecting, using, or disclosing their information or implement new safeguards or business processes to help individuals manage our use of their information, among other changes. We also cannot control our retail partners’ approach or interpretation of CCPA or other privacy regulations, which may impact their willingness or ability to provide us data that our platforms and solutions are dependent upon, or the terms on which they are willing or able to provide it. Changes to our data sources may restrict our ability to maintain or grow our revenues as anticipated.

If the use of third-party cookies or other tracking technology is rejected by Internet users, restricted by third parties outside of our control, or otherwise subject to unfavorable regulation, our performance could decline and we could lose customers and revenue.

We use a number of technologies to collect information used to deliver our solutions. For instance, we use small text files (referred to as "cookies"), placed through an Internet browser on an Internet user's machine which corresponds to a data set that we keep on our servers, to gather important data to help deliver our solution. Certain of our cookies, including those that we predominantly use in delivering our solution through Internet browsers, are known as "third-party" cookies because they are delivered by third parties rather than by us. Our cookies collect anonymous information, such as when an Internet user views an advertisement, clicks on an advertisement, or visits one of our advertisers' websites. In some countries, including countries in the European Economic Area, this information may be considered personal information under applicable data protection laws. On mobile devices, we may also obtain location based information about the user's device through our cookies or other tracking technologies. We use these technologies to achieve our customers' campaign goals, to ensure that the same Internet user does not unintentionally see the same media too frequently, to report aggregate information to our customers regarding the performance of their digital promotions and marketing campaigns, and to detect and prevent fraudulent activity throughout our network. We also use data from cookies to help us decide whether and how much to bid on an opportunity to place an advertisement in a certain Internet location and at a given time in front of a particular Internet user. A lack of data associated with or obtained from third-party cookies may detract from our ability to make decisions about which inventory to purchase for an advertiser's campaign and may adversely affect the effectiveness of our solution and harm our business.

Cookies may easily be deleted or blocked by Internet users. All of the most commonly used Internet browsers (including Chrome, Firefox, Internet Explorer, and Safari) allow Internet users to prevent cookies from being accepted by their browsers. Internet users can also delete cookies from their computers at any time. Some Internet users also download "ad blocking" software that prevents cookies from being stored on a user's computer. If more Internet users adopt these settings or delete their cookies more frequently than they currently do, our business could be harmed. In addition, the Safari and Firefox browsers block third-party cookies by default, and other browsers may do so in the future. Unless such default settings in browsers are altered by Internet users to permit the placement of third-party cookies, we would be able to set fewer of our cookies in users’ browsers, which could adversely affect our business. In addition, companies such as Google have publicly disclosed their intention to move away from cookies to another form of persistent unique identifier, or ID, to identify individual Internet users or Internet-connected devices in the bidding process on advertising exchanges. If companies do not use shared IDs across the entire ecosystem, this could have a negative impact on our ability to find the same anonymous user across different web properties, and reduce the effectiveness of our solution.

In addition, in the European Union, or EU, Directive 2009/136/EC, commonly referred to as the "Cookie Directive," directs EU member states to ensure that collecting information on an Internet user's computer, such as through a cookie, is allowed only if the Internet user has appropriately given his or her prior freely given, specific, informed and unambiguous consent. Similarly, this Directive, which also contains specific rules for the sending of marketing communications, limits the use of marketing texts messages and e-mails. Additionally, an e-Privacy Regulation, which will replace the Cookie Directive with requirements that could be stricter in certain respects, apply directly to activities within the EU without the need to be transposed in each Member State’s Law, and could impose stricter requirements regarding the use of cookies and marketing e-mails and text messages and additional penalties for noncompliance, has been proposed, although at this time it is unclear whether it will be approved as it is currently drafted or when its requirements will be effective. We may experience challenges in obtaining appropriate consent to our use of cookies from consumers or to send marketing communications to consumers within the EU, which may affect our ability to run promotions and our operating results and business in European markets, and we may not be able to develop or implement additional tools that compensate for the lack of data associated with cookies. Moreover, even if we are able to do so, such additional tools may be subject to further regulation, time consuming to develop or costly to obtain, and less effective than our current use of cookies.

Failure to comply with federal, state and international privacy, data protection, marketing and consumer protection laws, regulations and industry standards, or the expansion of current or the enactment or adoption of new privacy, data protection, marketing and consumer protection laws, regulations or industry standards, could adversely affect our business.

We and our service providers and partners are subject to a variety of federal, state and foreign laws, regulations and industry standards regarding privacy, data protection, data security, marketing and consumer protection, which address the collection, storing, sharing, using, processing, disclosure and protection of data relating to individuals, as well as the tracking of consumer behavior and other consumer data. We are also subject to laws, regulations and industry standards relating to endorsements and influencer marketing. Many of these laws, regulations and industry standards are changing and may be subject to differing interpretations, costly to comply with or inconsistent among jurisdictions. For example, the Federal Trade Commission, or the FTC, expects companies like ours to comply with guidelines issued under the Federal Trade Commission Act that govern the collection, use, disclosure, and storage of consumer information, and establish principles relating to notice, consent, access and data integrity and security. The laws and regulations in many foreign countries relating to privacy, data protection, data security, marketing and consumer protection often are more restrictive than in the United States, and may in some cases be interpreted to have a greater scope. Additionally, the laws, regulations and industry standards, both foreign and domestic, relating to privacy, data protection, data security, marketing and consumer protection are dynamic and may be expanded or replaced by new laws, regulations or industry standards.

Various industry standards on privacy and data security have been developed and are expected to continue to develop, which may be adopted by industry participants at any time. We are subject to the terms of our privacy policies and obligations to third parties relating to privacy, data protection and data security, including contractual obligations relating to privacy rights, data protection, data use and data security measures. We are also required, under certain regulatory regimes and industry standards, to contractually require our service providers to meet certain privacy and security requirements. Certain of our solutions, including Quotient Promotions, Media, Audience and Analytics Cloud platforms and solutions depend in part on our ability to use data that we obtain in connection with our offerings, and our ability to use this data may be subject to restrictions in our commercial agreements and subject to the privacy policies of the entities that provide us with this data. Our, or our service providers and partners’, failure to adhere to these third-party restrictions on data use may result in claims, proceedings or actions against us by our business counterparties or other parties, or other liabilities, including loss of business, reputational damage, and remediation costs, which could adversely affect our business.

We strive to comply with applicable laws, policies, contractual and other legal obligations and certain applicable industry standards of conduct relating to privacy, data security, data protection, marketing and consumer protection. However, these obligations and standards of conduct often are complex, vague, and difficult to comply with fully, and it is possible that these obligations and standards of conduct may be interpreted and applied in new ways and/or in a manner that is inconsistent with each other or that new laws, regulations or other obligations may be enacted. It is possible that our practices may be argued or held to conflict with applicable laws, policies, contractual or other legal obligations, or applicable industry standards of conduct relating to privacy, data security, data protection, marketing or consumer protection. Any failure, or perceived failure, by us to comply with our posted privacy policies or any other federal, state or, as we continue to expand internationally, international privacy, data security, data protection, marketing or consumer protection-related laws, regulations, contractual obligations or self-regulatory principles or other industry standards could result in claims, proceedings or actions against us by governmental entities or others or other liabilities or could result in a loss of consumers using our digital coupons or loss of CPGs and retailers. Any of these circumstances could adversely affect our business. Further, if third parties we work with violate applicable laws, our policies or other privacy-related obligations, such violations may also put our consumers’ information at risk and could in turn have an adverse effect on our business.

European data protection laws, including the GDPR, generally restrict the transfer of personal data from Europe, including the EEA, UK and Switzerland, to the United States and most other countries unless the parties to the transfer have implemented specific safeguards to protect the transferred personal data. One of the primary safeguards allowing U.S. companies to import personal data from Europe to the United States has been certification to the EU-U.S. Privacy Shield and Swiss-U.S. Privacy Shield frameworks administered by the U.S. Department of Commerce. However, in July 2020, the Court of Justice of the European Union issued a decision invalidating the EU-U.S. Privacy Shield framework. The same decision also raised questions about whether one of the primary alternatives to the EU-U.S. Privacy Shield, namely, the European Commission’s Standard Contractual Clauses, can lawfully be used to transfer personal data from Europe to the United States or other countries. At present, there are few if any viable alternatives to the Privacy Shield and the Standard Contractual Clauses, the latter of which is a mechanism upon which we have relied for transfers of personal data from the EU to the United States. Authorities in the UK and Switzerland may similarly invalidate use of the EU-U.S. Privacy Shield and Swiss-U.S. Privacy Shield, respectively, and raise questions on the viability of the Standard Contractual Clauses as mechanisms for lawful data transfers from those countries to the United States. As such, if we are unable to implement a valid solution for personal information transfers from Europe, we may face increased exposure to regulatory actions, GDPR sanctions, and injunctions against processing personal data from Europe, and we may be required to increase our data processing capabilities in Europe at significant expense. Inability to import personal data from Europe may decrease demand for our services as our customers that are subject to the GDPR seek alternative services that do not involve personal data transfers out of Europe. Additionally, other countries outside of Europe have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, which could increase the cost and complexity of delivering our services and operating our business. In addition, we may experience reluctance or refusal by European consumers, retailers or CPGs to continue to using our solutions, and we may be at risk of enforcement actions taken by a European data protection authority until we ensure that all applicable data transfers to us from the EEA are compliant with the GDPR.

Additionally, the United Kingdom has exited from the EU, commonly referred to as “Brexit,” which could also lead to further legislative and regulatory changes. While the UK Data Protection Act of 2018, that “implements” and complements the GDPR is effective in the United Kingdom, it remains unclear whether transfer of data from the EEA to the United Kingdom will remain lawful under the GDPR following the Brexit transition period ending on December 31, 2020. We may incur liabilities, expenses, costs, and other operational losses under the GDPR and applicable EU Member States and United Kingdom privacy laws in connection with any measures we take to comply with them. Additionally, the California Consumer Privacy Act, or CCPA, which became effective on January 1, 2020, creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA gives consumers expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches, which is expected to increase the volume and success of class action data breach litigations. In addition to increasing our compliance costs and potential liability, the CCPA created restrictions on “sales” of personal information that may restrict the use of retailer data.

We expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States and other jurisdictions, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. For instance, with the increased focus on the use of data for advertising, the anticipation and expectation of future laws, regulations, standards and other obligations could impact us and our existing and potential business partners and delay certain business partnerships or deals until there is greater certainty. In addition, as we expand our data analytics and other data-related product offerings there may be increased scrutiny on our use of data and we may be subject to new and unexpected regulations. Future laws, regulations, standards and other obligations could, for example, impair our ability to collect or use information that we utilize to provide targeted digital promotions and media to consumers, CPGs and retailers, thereby impairing our ability to maintain and grow our total customers and increase revenues. Future restrictions on the collection, use, sharing or disclosure of our users’ data or additional requirements for express or implied consent of users for the use and disclosure of such information could require us to modify our solutions, possibly in a material manner, and could limit our ability to develop or outright prohibit new solutions and features. Any such new laws, regulations, other legal obligations or industry standards, or any changed interpretation of existing laws, regulations or other standards may require us to incur additional costs and restrict our business operations. If our measures fail to comply with current or future laws, regulations, policies, legal obligations or industry standards relating to privacy, data protection, data security, marketing or consumer protection, we may be subject to litigation, regulatory investigations, fines or other liabilities, as well as negative publicity and a potential loss of business. Moreover, if future laws, regulations, other legal obligations or industry standards, or any changed interpretations of the foregoing limit our users’, CPGs’ or retailers’ ability to use and share personally identifiable information or our ability to store, process and share personally identifiable information or other data, demand for our solutions could decrease, our costs could increase, our revenue growth could slow, and our business, financial condition and operating results could be harmed.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses including unauthorized use or disclosure of consumer data.

Our agreements with CPGs, retailers and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement or other liabilities relating to or arising from our products, services or other contractual obligations including those relating to data use and consumer consent. The term of these indemnity provisions generally survives termination or expiration of the applicable agreement. Large indemnity payments could harm our business.

We may not be able to adequately protect our intellectual property rights.

We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology, and similar intellectual property as critical to our success.

We strive to protect our intellectual property rights in a number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location. We strive to protect our intellectual property rights by relying on federal, state and common law rights, contractual restrictions as well as rights provided under foreign laws. These laws are subject to change at any time and could further restrict our ability to protect our intellectual property rights.

We also may not be able to acquire or maintain appropriate domain names in all countries in which we do business. Furthermore, regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights.

We typically enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. Also, from time to time, we make our intellectual property rights available to others under license agreements. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation or disclosure of our proprietary information, infringement of our intellectual property rights or deter independent development of similar technologies by others and may not provide an adequate remedy in the event of such misappropriation or infringement. Third parties that license our proprietary rights also may take actions that diminish the value of our proprietary rights or reputation.

Obtaining and maintaining effective intellectual property rights is expensive, including the costs of defending our rights. Even where we have such rights, they may be later found to be unenforceable or have a limited scope of enforceability. We may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. Litigation may be necessary to enforce our intellectual property rights, protect our respective trade secrets or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business and operating results. If we fail to maintain, protect and enhance our intellectual property rights, our business and operating results may be harmed.

We may be accused of infringing intellectual property rights of third parties.

Other parties may claim that we infringe their proprietary rights. We are, have been subject to, and expect to continue to be subject to, claims and legal proceedings regarding alleged infringement by us of the intellectual property rights of third parties. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, injunctions against us, or the payment of damages, including to satisfy indemnification obligations. We may need to obtain licenses from third parties who allege that we have infringed their rights, but such licenses may not be available on terms acceptable to us or at all. In addition, we may not be able to obtain or utilize on terms that are favorable to us, or at all, licenses or other rights with respect to intellectual property we do not own. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims.

We may be unable to continue to use the domain names that we use in our business, or prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks.

We may lose significant brand equity in our “Coupons.com” domain name, our “Quotient.com” domain name, and other valuable domain names. If we lose the ability to use a domain name, whether due to trademark claims, failure to renew an applicable registration, or any other cause, we may be forced to market our products under new domain names, which could cause us substantial harm, or to incur significant expense in order to purchase rights to the domain names in question. In addition, our competitors and others could attempt to capitalize on our brand recognition by using domain names similar to ours. We also may not be able to acquire or maintain appropriate domain names or trademarks in all countries in which we do business. Domain names similar to ours have been registered in the United States and elsewhere. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks. Protecting and enforcing our rights in our domain names may require litigation, which could result in substantial costs and diversion of management’s attention and harm our business.

Our business depends on strong brands, and if we are not able to maintain and enhance our brands, or if we receive unfavorable media coverage, our ability to retain and expand our number of CPGs, retailers and consumers will be impaired and our business and operating results will be harmed.

We believe that the brand identity that we have developed has significantly contributed to the success of our business. We also believe that maintaining and enhancing our brands are critical to expanding our base of CPGs, retailers and consumers. Maintaining and enhancing our brands may require us to make substantial investments and these investments may not be successful. If we fail to promote and maintain our brands, or if we incur excessive expenses in this effort, our business would be harmed. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brands may become increasingly difficult and expensive. Maintaining and enhancing our brands will depend on our ability to continue to provide sufficient quantities of reliable, trustworthy and high quality digital coupons, which we may not do successfully.

Unfavorable publicity or consumer perception of our websites, platforms, practices or service offerings, or the offerings of our CPGs and retailers, could adversely affect our reputation, resulting in difficulties in recruiting, decreased revenues and a negative impact on the number of CPGs and retailers we feature and our user base, the loyalty of our consumers and the number and variety of digital coupons we offer. As a result, our business could be harmed.

Some of our solutions contain open source software, which may pose particular risks to our proprietary software and solutions.

We use open source software in our solutions and will use open source software in the future. From time to time, we may face claims from third parties claiming ownership of, or demanding release of, the open source software and/or derivative works that we developed using such software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to purchase a costly license or cease offering the implicated solutions unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a negative effect on our business and operating results.

We may be required to record a significant charge to earnings if our goodwill or amortizable intangible assets become impaired.

We are required under GAAP to review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. The events and circumstances we consider include the business climate, legal factors, operating performance indicators and competition. In the future we may be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined. This could adversely impact our results of operations and harm our business.

If we fail to expand effectively in international markets, our revenues and our business may be harmed.

We currently generate almost all of our revenues from the United States. We also operate to a limited extent in the United Kingdom, France and other countries in Europe. Many CPGs and retailers on our platforms have global operations and we plan to grow our operations and offerings through expansion in existing international markets and by partnering with our CPGs and retailers to enter new geographies that are important to them. Further expansion into international markets will require management attention and resources and we have limited experience entering new geographic markets. Entering new foreign markets will require us to localize our services to conform to a wide variety of local cultures, business practices, laws and policies. The different commercial and Internet infrastructure in other countries may make it more difficult for us to replicate our business model. In some countries, we will compete with local companies that understand the local market better than we do, and we may not benefit from first-to-market advantages. We may not be successful in expanding into particular international markets or in generating revenues from foreign operations. As we expand internationally, we will be subject to risks of doing business internationally, including the following:

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competition with strong local competitors and preference for local providers, or foreign companies entering the same markets;

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the cost and resources required to localize our platform;

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burdens of complying with a wide variety of different laws and regulations, including intellectual property laws and regulation of digital coupons and media, Internet services, privacy and data protection, marketing and consumer protection laws, anti-competition regulations and different liability standards, which may limit or prevent us from offering of our solutions in some jurisdictions or limit our ability to enforce contractual obligations;

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differences in how trade promotion spending is allocated;

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differences in the way digital coupons and advertising are delivered and how consumers access and use digital coupons;

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technology compatibility;

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difficulties in recruiting and retaining qualified employees and managing foreign operations;

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different employee/employer relationships and the existence of workers’ councils and labor unions;

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shorter payment cycles, different accounting practices and greater problems in collecting accounts receivable;

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higher product return rates;

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seasonal reductions in business activity;

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adverse tax effects and foreign exchange controls making it difficult to repatriate earnings and cash; and

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political and economic instability.

Changes in the U.S. taxation of international activities may increase our worldwide effective tax rate and harm our financial condition and results of operations. The taxing authorities of the jurisdictions in which we plan to operate may challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate our business does not achieve the intended tax consequences, which could increase our worldwide effective tax rate and harm our financial position and results of operations. Significant judgment will be required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there will be many transactions and calculations for which the ultimate tax determination is uncertain. As we expand our business to operate in numerous taxing jurisdictions, the application of tax laws may be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views. In addition, tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, or the Tax Act, enacted many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. For example, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act, or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of expenses under the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. income tax expense.

Our planned corporate structure and intercompany arrangements will be implemented in a manner we believe is in compliance with current prevailing tax laws. However, the tax benefits which we intend to eventually derive could be undermined if we are unable to adapt the manner in which we operate our business and due to changing tax laws.

Our failure to manage these risks and challenges successfully could materially and adversely affect our business, financial condition and results of operations.

The loss of one or more key members of our management team, or our failure to attract, integrate and retain other highly qualified personnel in the future, could harm our business.

The loss of key personnel, including key members of management as well as our marketing, sales, product development and technology personnel, could disrupt our operations and have an adverse effect on our ability to grow our business.

As we become a more mature company, we may find our recruiting and retention efforts more challenging. We are seeking to continue to hire a significant number of personnel, including certain key management personnel. We may be limited in our ability to recruit global talent by U.S. immigration laws, including those related to H1-B visas. The demand for H1-B visas to fill highly-skilled IT and computer science jobs is greater than the number of H-1B visas available each year. In addition, the regulatory environment related to immigration under the current presidential administration may increase the likelihood that immigration laws may be modified to further limit the availability of H1-B visas. If a new or revised visa program is implemented, it may impact our ability to recruit, hire and retain qualified skilled personnel, which could adversely impact our business, operating results and financial condition. If we do not succeed in attracting, hiring and integrating qualified personnel, or retaining and motivating existing personnel, we may be unable to grow effectively.

If our estimates or judgements relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to business combinations, goodwill and intangible assets, treatment of our convertible senior notes, revenue recognition, promotion revenue, media revenue, gross versus net revenue reporting, arrangements with multiple performance obligations, stock-based compensation and provision for income taxes. For example, the recognition of our revenue is governed by certain criteria that determine whether we report revenue either on a gross basis, as a principal, or net basis, as an agent, depending upon the nature of the sales transaction. Historically, our media products revenue has generally been recognized on a gross basis. However, in the first quarter of 2020, we announced that effective second quarter of 2020, we plan to modify the way we process and deliver certain media products to enhance the customer experience. As a result of these changes, we expect that we will recognize certain revenue on a net basis, as compared to the prior recognition on a gross basis, and expect that this will cause a decrease in our revenue growth and impact our revenues. We may have gross reporting for portions of our media products and other revenue in the future as a result of the evolution of our existing business practices, development of new products, acquisitions, or changes in accounting standards or interpretations, that in any case result in transactions with characteristics that dictate gross reporting. It is also possible that revenue reporting for existing businesses may change from gross to net or vice versa as a result of changes in contract terms or transaction mechanics. We may experience significant fluctuations in revenue in future periods depending upon, in part, the nature of our sales and our reporting of such revenue and related accounting treatment, without proportionate correlation to our underlying activity or net income. Any combination of net and gross revenue reporting would require us to make estimates and assumptions about the mix of gross and net-reported transactions based upon the volumes and characteristics of the transactions we think will make up the total mix of revenue in the period covered by the projection. Those estimates and assumptions may be inaccurate when made, or may be rendered inaccurate by subsequent circumstances, such as changing the characteristics of our offerings or particular transactions in response to client demands, market developments, regulatory pressures, acquisitions, and other factors. Even apparently minor changes in transaction terms from those initially envisioned can result in different accounting conclusions from those foreseen. In addition, we may incorrectly extrapolate from revenue recognition treatment of prior transactions to future transactions that we believe are similar, but that ultimately are determined to have different characteristics that dictate different revenue reporting treatment. These factors may make our financial reporting more complex and difficult for investors to understand, may make comparison of our results of operations to prior periods or other companies more difficult, may make it more difficult for us to give accurate guidance, and could increase the potential for reporting errors.

Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock.

Changes to financial accounting standards or the SEC’s rules and regulations may affect our financial statements and cause us to change our business practices.

We prepare our financial statements to conform to U.S. GAAP. These accounting principles are subject to interpretation by the FASB, American Institute of Certified Public Accountants (“AICPA”), the SEC and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. For example, in June 2016, the FASB issued a new standard, Topic 326, which requires us to estimate expected credit losses, measured over the contractual life of an asset, beginning in our first quarter of fiscal year 2020.

We are currently or could be exposed in the future to fluctuations in currency exchange rates and interest rates.

To date, we have generated almost all of our revenues from within the United States. As a result, we currently do not have significant revenues or expenses in our international operations and we do not hedge our foreign currency exchange risk. However, we plan to grow our operations and offerings through expansion in existing international markets and by partnering with our existing CPGs and retailers to enter new geographies that are important to them. For example, we opened a research and development facility in Bangalore, India and acquired Ubimo, which has research and development operations in Tel-Aviv, Israel. As we expand our business outside the United States we will face exposure to adverse movements in currency exchange rates. We will be exposed to foreign exchange rate fluctuations from the conversion of collections and expenses not denominated in U.S. dollars. If the U.S. dollar weakens against foreign currencies, the conversion of these foreign currency denominated transactions will result in increased revenues, operating expenses and net income. Similarly, if the U.S. dollar strengthens against foreign currencies, the conversion of these foreign currency denominated transactions will result in decreased revenues, operating expenses and net income. As exchange rates vary, sales and other operating results, when translated, may differ materially from expectations. Our risks related to currency fluctuations will increase as our international operations become an increasing portion of our business. In addition, we face exposure to fluctuations in interest rates which may impact our investment income unfavorably.

Our use of and reliance on international research and development resources and operations may expose us to unanticipated costs or events.

We have research and development centers in India, France, and Israel. We expect to increase our headcount, development, and operations activity in India. There is no assurance that our reliance upon international research and development resources and operations will enable us to achieve our research and development and operational goals or greater resource efficiency. Further, our international research and development and operations efforts involve significant risks, including:

•

difficulty hiring and retaining appropriate personnel due to intense competition for such resources and resulting wage inflation in the cities where our research and development activities and operations are located;

•

different labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to United States, including deemed hourly wage and overtime regulations in these locations;

•

exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, and similar applicable laws and regulations in other jurisdictions;

•

delays and inefficiencies caused by geographical separation of our international research and development activities and operations and other challenges inherent to efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;

•

the knowledge transfer related to our technology and resulting exposure to misappropriation of intellectual property or information that is proprietary to us, our customers and other third parties;

•

heightened exposure to change in the economic, security and political conditions in the countries where our research and development activities and operations are located;

•

fluctuations in currency exchange rates and regulatory compliance in the countries where our research and development activities and operations are located; and

•

interruptions to our operations in the countries where our research and development activities and operations are located as a result of floods and other natural catastrophic events as well as other events beyond our control such as power disruptions or terrorism.

Difficulties resulting from the factors above could increase our research and development or operational expenses, delay the introduction of new products, or impact our product quality, the occurrence of any of which could adversely affect our business and operating results.

Our business is subject to interruptions, delays or failures resulting from earthquakes, other natural catastrophic events or terrorism.

Our headquarters is located in Mountain View, California. Our current technology infrastructure is hosted across two data centers in co-location facilities in California and Nevada. In addition, we use two other co-location facilities in California and Virginia to host our Retailer iQ platform. Our services, operations and the data centers from which we provide our services are vulnerable to damage or interruption from earthquakes, fires, floods, public health crises such as pandemics and epidemics, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins and similar events (such as the COVID-19 pandemic). A significant natural disaster, such as an earthquake, fire or flood, could have a material adverse impact on our business, financial condition and results of operations and our insurance coverage may be insufficient to compensate us for losses that may occur. Acts of terrorism could cause disruptions to the Internet, our business or the economy as a whole. We may not have sufficient protection or recovery plans in certain circumstances, such as natural disasters affecting areas where data centers upon which we rely are located, and our business interruption insurance may be insufficient to compensate us for losses that may occur. Such disruptions could negatively impact our ability to run our websites, which could harm our business.

Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.

We may in the future be required to raise additional capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. Additional equity or equity-linked financing, such as our convertible senior notes, may dilute the interests of our stockholders, and debt financing, if available, may involve restrictive covenants and could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business. In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity in the future.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, and similar state law provisions, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset post-change taxable income. If we have experienced an ownership change our existing NOLs may be subject to limitations under Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, also could result in an ownership change under Section 382 of the Code. Additionally, our NOLs arising in tax years beginning prior to January 1, 2018 are subject to expiration and may expire prior to being utilized. Under the Tax Act, as modified by the CARES Act, NOLs arising in tax years beginning after December 31, 2017, are not subject to expiration and may be carried forward indefinitely, but the deductibility of such NOLs in tax years beginning after December 31, 2020, is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act. There is also a risk that our NOLs could otherwise be unavailable to offset future income tax liabilities due to changes in the law, including regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons. In addition, at the state level, there may be periods during which the use of net operating loss carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. We do not expect this to have a material impact on our financials because we currently maintain a full valuation allowance on our U.S. deferred tax assets. For these reasons, we may not be able to utilize all of our NOLs, even if we attain profitability.

State and foreign laws regulating money transmission could impact our cash-back applications.

Many states and certain foreign jurisdictions impose license and registration obligations on those companies engaged in the business of money transmission, with varying definitions of what constitutes money transmission. If our cash-back applications were to subject us to any applicable state or foreign laws, it could subject us to increased compliance costs and delay our ability to offer this product in certain jurisdictions pending receipt of any necessary licenses or registrations. If we need to make product and operational changes in light of these laws, the growth and adoption of these products may be adversely impacted, and our revenues may be harmed.

Risks Related to Our Convertible Senior Notes

We are leveraged financially, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future growth, business needs and development plans.

In November 2017, we issued $200 million aggregate principal amount of convertible senior notes (the “notes”). Our leveraged capital structure could have negative consequences, including, but not limited to, the following:

•

we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions;

•

our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes may be limited;

•

a substantial portion of our cash flow from operations in the future may be required for the payment of the principal amount of our existing indebtedness when it becomes due; and

•

we may elect to make cash payments upon any conversion of the convertible notes, which would reduce our cash on hand

Our ability to meet our payment obligations under our notes depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we were unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.

The conditional conversion feature of the notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the notes is triggered, holders of the notes will be entitled to convert their notes at any time during specified periods at their option. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. If one or more holders elect to convert their notes, (unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share)), we intend to settle a portion or all of our conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders of notes do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the notes, could have a material effect on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of the convertible debt instruments (such as the notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the notes. As a result, we will be required to record a greater amount of non-cash interest expense as a result of the amortization of the discounted carrying value of the notes to their face amount over the term of the notes. We will report larger net losses (or lower net income) in our financial results because ASC 470-20 will require interest to include both the amortization of the debt discount and the instrument’s nonconvertible coupon interest rate, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the notes.

The Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The effect of which is that the shares issuable upon conversion of such notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share could be adversely affected.

Conversion of our notes will dilute the ownership interest of existing stockholders and may depress the price of our common stock.

The conversion of some or all of our notes, if such conversion occurs, will dilute the ownership interests of then-existing stockholders to the extent we deliver shares upon conversion of any of the notes. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the notes may encourage short selling by market participants because the conversion of the notes could be used to satisfy short positions, or anticipated conversion of the notes into shares of our common stock could depress the price of our common stock.

Risks Related to Ownership of our Common Stock

The market price of our common stock has been, and is likely to continue to be, subject to wide fluctuations and could subject us to litigation.

The price of our common stock may change in response to variations in our operating results and also may change in response to other factors, including factors specific to technology companies, many of which are beyond our control. As a result, our stock price may experience significant volatility. Among other factors that could affect our stock price are:

•

the financial projections that we or analysts may choose to provide to the public, any changes in these projections or our failure for any reason to meet these projections;

•

actual or anticipated changes or fluctuations in our results of operations;

•

whether our results of operations meet the expectations of securities analysts or investors;

•

addition or loss of significant customers or commercial business partners;

•

price and volume fluctuations in the overall stock market from time to time;

•

fluctuations in the trading volume of our shares or the size of our public float;

•

success of competitive products or services;

•

the public’s response to press releases or other public announcements by us or others, including our filings with the SEC;

•

disputes or other developments related to proprietary rights, including patents, litigation matters or our ability to obtain intellectual property protection for our technologies;

•

announcements relating to litigation;

•

speculation about our business in the press or the investment community;

•

reports, guidance and ratings issued by securities or industry analysts;

•

future sales of our common stock by our significant stockholders, officers and directors;

•

changes in our capital structure, such as future issuances of debt or equity securities;

•

our entry into new markets;

•

regulatory developments in the United States or foreign countries;

•

strategic actions by us or our competitors, such as acquisitions or restructurings; and

•

changes in accounting principles.

If any of the foregoing occurs, it could cause our stock price or trading volume to decline. In addition, the stock market in general has experienced substantial price and volume volatility that is often seemingly unrelated to the operating results of any particular companies. Moreover, if the market for technology stocks or the stock market in general experiences uneven investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The market price for our stock might also decline in reaction to events that affect other companies within, or outside, our industry, even if these events do not directly affect us. Some companies that have experienced volatility in the trading price of their stock have been subject of securities litigation. If we are the subject of such litigation, it could result in substantial costs and a diversion of management’s attention and resources.

Substantial future sales of shares by our stockholders could negatively affect our stock price.

Sales of a substantial number of shares of our common stock in the public market could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We have approximately 89,371,199 shares of common stock outstanding as of December 31, 2019, assuming no exercise of our outstanding options or vesting of our outstanding RSUs.

Our equity incentive plans allow us to issue, among other things, stock options, restricted stock and restricted stock units and we have filed a registration statement under the Securities Act to cover the issuance of shares upon the exercise or vesting of awards granted under those plans.

The concentration of our common stock ownership with our executive officers, directors and owners of 5% or more of our outstanding common stock will limit our ability to influence corporate matters.

Our executive officers, directors and owners of 5% or more of our outstanding common stock together beneficially own approximately 43% of our outstanding common stock, based on the number of shares outstanding as of June 30, 2020. These stockholders therefore have significant influence over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentrated control limits your ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. This ownership could affect the value of your shares of common stock.

Our stock repurchase program could affect the price of our common stock and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the trading price of our common stock.

Our Board of Directors previously approved programs for us to repurchase shares of our common stock. In April 2019, our Board of Directors authorized a one-year share repurchase program (“May 2019 Program”) for us to repurchase up to $60.0 million of our common stock from May 2019 through May 2020. In August 2019, our Board of Directors authorized a one-year share repurchase program (the “August 2019 Program”) for us to repurchase up to $50.0 million of our common stock from August 2019 through August 2020. In March 2020, we suspended the August 2019 Program, as a precautionary measure to maximize liquidity and increase available cash on hand during this time of uncertainty. During the three and six months ended June 30, 2020, we did not repurchase any shares of our common stock. As of June 30, 2020, $50.0 million remained available for repurchase under the August 2019 Program. If our Board of Directors were to authorize a new repurchase program, the existence of such program could cause the price of our common stock to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our common stock. Additionally, repurchases under any stock repurchase program will diminish our cash reserves, which could impact our ability to further develop our technology, access and/or retrofit additional facilities and service our indebtedness. In addition, we may face media or other scrutiny for past and any future stock repurchase programs. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased such shares. Any failure to repurchase shares after we have announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively impact our stock price. Although our stock repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program’s effectiveness.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

We are subject to the reporting requirements of the Exchange Act, SOX, and the rules and regulations of the New York Stock Exchange, or the NYSE. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.

SOX requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will be required to include in our periodic reports we will file with the SEC under Section 404 of SOX. In the event that we are not able to demonstrate compliance with Section 404 of SOX, that our internal control over financial reporting is perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and our stock price could decline.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and could result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of management evaluations and independent registered public accounting firm audits of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, our common stock may not be able to remain listed on the NYSE.

Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results, and cause a decline in the price of our common stock.

If securities analysts do not publish research or if securities analysts or other third parties publish inaccurate or unfavorable research about us, the price of our common stock could decline.

The trading market for our common stock will rely in part on the research and reports that securities analysts and other third parties choose to publish about us. We do not control these analysts or other third parties. The price of our common stock could decline if one or more securities analysts downgrade our common stock or if one or more securities analysts or other third parties publish inaccurate or unfavorable research about us or cease publishing reports about us.

We do not intend to pay dividends for the foreseeable future.

We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business and do not anticipate paying cash dividends on our common stock. As a result, you can expect to receive a return on your investment in our common stock only if the market price of the stock increases.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.

Provisions in our certificate of incorporation and by-laws may have the effect of delaying or preventing a change of control or changes in our management. Amongst other things, these provisions:

•

authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to defend against a takeover attempt;

•

establish a classified Board of Directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

•

require that directors only be removed from office for cause and only upon a majority stockholder vote;

•

provide that vacancies on the Board of Directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders;

•

prevent stockholders from calling special meetings; and

•

prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder becomes an “interested” stockholder.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

In August 2019, the Company’s Board of Directors authorized a one-year share repurchase program for the Company to repurchase up to $50.0 million of its common stock from August 2019 through August 2020. During the three and six months ended June 30, 2020, the Company did not repurchase any shares of its common stock. As of June 30, 2020, $50.0 million remained available for repurchase under the August 2019 Program. In March 2020, the Company suspended the August 2019 Program, as a precautionary measure to maximize liquidity and increase available cash on hand during this time of uncertainty.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

Lease Amendment

On August 3, 2020, the Company entered into the Third Amendment (“Lease Amendment”) to the Lease Agreement with MG 400 Logue LLC, a Delaware limited liability company, effective August 3, 2020, pursuant to which it extended the lease for its principal executive office through December 31, 2021. Under the Lease Amendment, The Company also agreed to pay a basic annual rent of $1.2 million for the period of January 1, 2021 to December 31, 2021.

The foregoing description of the Lease Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Lease Amendment, a copy of which is filed herewith as Exhibit 10.1 and is incorporated by reference herein.

Transition of Chief Operating Officer

On July 31, 2020, Chad Summe transitioned out of his role as Chief Operating Officer (“COO”) to become the Company’s Chief Strategy Officer.

Item 6.

Exhibits.

Incorporated by Reference

Number

Exhibit Title

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

3.1

Amended and Restated Certificate of Incorporation of the Registrant, as amended effective October 20, 2015.

10-K

001-36331

3.1

03/11/16

3.2

Amended and Restated Bylaws of the Registrant.

8-K

001-36331

3.2

10/06/15

4.1

Form of Registrant’s Common Stock Certificate.

S-1/A

333-193692

4.1

02/25/14

4.2

Eighth Amended and Restated Investors’ Rights Agreement among the Registrant and certain holders of its capital stock, dated June 1, 2011.

S-1

333-193692

4.2

01/31/14

10.1

Amendment No. 3 to Lease Agreement by and between Registrant and 400 Logue LLC, dated August 3, 2020.

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certificate of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Quotient under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	QUOTIENT TECHNOLOGY INC.


Dated: August 4, 2020	By:	/s/ Steven Boal
		Steven Boal
		Chief Executive Officer
		(Principal Executive Officer)

Dated: August 4, 2020	By:	/s/ Pamela Strayer
		Pamela Strayer
		Chief Financial Officer and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)