Sizmek Inc. - FORM 10-Q - August 13, 2015

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - Sizmek Inc.	exhibit_31-2.htm
EX-32.1 - EXHIBIT 32.1 - Sizmek Inc.	exhibit_32-1.htm
EX-31.1 - EXHIBIT 31.1 - Sizmek Inc.	exhibit_31-1.htm
EX-10.1 - EXHIBIT 10.1 - Sizmek Inc.	exhibit_10-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2015

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: 001-36219

Sizmek Inc.

(Exact name of registrant as specified in its charter)

Delaware		37-1744624
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

500 West 5th Street, Suite 900

Austin, Texas 78701

(Address of principal executive offices) (Zip Code)

(512) 469-5900

(Registrant’s telephone number, including area code)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of August 11, 2015, the registrant had 29,550,310 shares of Common Stock, par value $0.001, outstanding.

SIZMEK INC.

Cautionary Note Regarding Forward-Looking Statements

The Securities and Exchange Commission ("SEC") encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. Certain statements contained herein may be deemed to constitute "forward-looking statements."

Words such as "believe," "expect," "anticipate," "project," "estimate," "budget," "continue," "could," "intend," "may," "plan," "potential," "predict," "seek," "should," "will," "would," "objective," "forecast," "goal," "guidance," "outlook," "effort," "target" and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made. All forward-looking statements are management's present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, among other things:

our ability to further identify, develop and achieve commercial success for new online video and mobile products;

continued or accelerating decline in our rich-media business;

delays in product offerings;

the development and pricing of competing online services and products;

consolidation of the digital industry and of digital advertising networks;

slower than expected development of the digital advertising market;

our ability to protect our proprietary technologies;

identifying acquisition and disposition opportunities and integrating our acquisitions with our operations, systems, personnel and technologies;

security threats to our computer networks;

operating in a variety of foreign jurisdictions;

fluctuations in currency exchange rates;

adaption to new, changing, and competitive technologies;

potential additional impairment of our goodwill and potential impairment of our other long-lived assets;

our ability to achieve some or all of the expected benefits of the spin-off and merger transaction; and

other risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2014.

In particular, information included under the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained herein might not occur. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this filing. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All subsequent forward-looking statements attributable to management or to any person authorized to act on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

PART I—FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

SIZMEK INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

	June 30, 2015			December 31, 2014
	(unaudited)
Assets
CURRENT ASSETS:
Cash and cash equivalents	$	66,932		$	90,672
Accounts receivable (less allowances of $773 and $813 as of June 30, 2015 and December 31, 2014, respectively)		48,471			51,125
Deferred income taxes		588			636
Restricted cash		1,578			1,538
Other current assets		7,468			5,254
Current assets of TV business		1,270			2,470
Total current assets		126,307			151,695
Property and equipment, net		39,071			34,036
Goodwill		51,288			40,154
Intangible assets, net		68,894			71,306
Deferred income taxes		354			387
Restricted cash		4,590			3,941
Other non-current assets		3,074			3,393
Total assets	$	293,578		$	304,912

Liabilities and Stockholders’ Equity
CURRENT LIABILITIES:
Accounts payable	$	3,813		$	3,976
Accrued liabilities		26,101			19,171
Current liabilities of TV business		206			395
Total current liabilities		30,120			23,542
Deferred income taxes		7,645			8,242
Other non-current liabilities		7,797			6,433
Non-current liabilities of TV business		273			260
Total liabilities		45,835			38,477

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value—Authorized 15,000 shares; issued and outstanding—none		—			—
Common stock, $0.001 par value—Authorized 200,000 shares; 30,496 issued and 29,550 outstanding at June 30, 2015; 30,399 issued and 30,071 outstanding at December 31, 2014		30			30
Treasury stock, at cost (946 shares and 328 shares at June 30, 2015 and December 31, 2014, respectively)		(6,500	)		(2,000	)
Additional capital		372,995			371,261
Accumulated deficit		(117,183	)		(101,341	)
Accumulated other comprehensive loss		(1,599	)		(1,515	)
Total stockholders’ equity		247,743			266,435
Total liabilities and stockholders’ equity	$	293,578		$	304,912

The accompanying notes are an integral part of these financial statements.

SIZMEK INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenues:
Platform related	$	35,645		$	39,440		$	68,537		$	74,266
Programmatic managed services		4,571			4,561			8,438			8,114
Total		40,216			44,001			76,975			82,380
Cost of revenues (excluding depreciation and amortization):
Platform related		11,175			12,126			22,010			24,031
Programmatic managed services		3,317			3,142			6,142			5,723
Total		14,492			15,268			28,152			29,754
Selling and marketing		15,433			14,514			29,636			30,102
Research and development		3,674			3,193			6,577			6,741
General and administrative		4,739			5,083			9,293			13,188
Merger, integration and other		1,170			1,344			2,004			6,289
Depreciation and amortization		7,771			6,449			15,210			12,977
Loss from operations		(7,063	)		(1,850	)		(13,897	)		(16,671	)
Other expense, net		366			205			1,345			208
Loss before income taxes		(7,429	)		(2,055	)		(15,242	)		(16,879	)
Provision (benefit) for income taxes		468			(413	)		600			(819	)
Net loss	$	(7,897	)	$	(1,642	)	$	(15,842	)	$	(16,060	)

Basic and diluted loss per common share	$	(0.27	)	$	(0.05	)	$	(0.53	)	$	(0.53	)

Weighted average common shares outstanding:
Basic and diluted		29,549			30,399			29,666			30,399

The accompanying notes are an integral part of these financial statements.

SIZMEK INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OFCOMPREHENSIVE LOSS

(In thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Net loss	$	(7,897	)	$	(1,642	)	$	(15,842	)	$	(16,060	)
Other comprehensive income (loss):
Unrealized gain (loss) on derivatives, net of tax		469			(15	)		374			(92	)
Unrealized gain (loss) on available for sale securities, net of tax		(6	)		770			(234	)		36
Foreign currency translation adjustment		580			375			(224	)		472
Total other comprehensive income (loss)		1,043			1,130			(84	)		416

Total comprehensive loss	$	(6,854	)	$	(512	)	$	(15,926	)	$	(15,644	)

The accompanying notes are an integral part of these financial statements.

SIZMEK INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

	Common Stock (Shares / Amount)				Treasury Stock (Shares / Amount)						Additional Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance at December 31, 2014		30,399	$	30		(328	)	$	(2,000	)	$	371,261		$	(101,341	)	$	(1,515	)	$	266,435
Net loss		—		—		—			—			—			(15,842	)		—			(15,842	)
Share-based compensation		—		—		—			—			1,903			—			—			1,903
Common stock issued pursuant to RSU agreements, net of shares tendered to satisfy required tax withholding		97		—		—			—			(169	)		—			—			(169	)
Purchase of treasury stock		—		—		(618	)		(4,500	)		—			—			—			(4,500	)
Other comprehensive loss		—		—		—			—			—			—			(84	)		(84	)
Balance at June 30, 2015		30,496	$	30		(946	)	$	(6,500	)	$	372,995		$	(117,183	)	$	(1,599	)	$	247,743

The accompanying notes are an integral part of these financial statements.

SIZMEK INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(15,842	)	$	(16,060	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation of property and equipment		7,335			4,959
Amortization of intangibles		7,875			8,018
Share-based compensation		1,903			7,533
Deferred income taxes		(590	)		(702	)
Benefit for accounts receivable recoveries		(40	)		(157	)
Gain from recovery of TV business net assets		(50	)		—
Other		(2	)		(349	)
Changes in operating assets and liabilities:
Accounts receivable		6,252			1,814
Other assets		(1,574	)		(1,568	)
Accounts payable and other liabilities		(5,598	)		(1,322	)
Net cash (used in) provided by operating activities		(331	)		2,166

Cash flows from investing activities:
Purchases of property and equipment		(3,131	)		(2,310	)
Capitalized costs of developing software		(8,370	)		(5,639	)
Acquisition, net of cash acquired		(7,541	)		—
Purchase of long term investment		—			(975	)
Other		(433	)		(776	)
Net cash used in investing activities		(19,475	)		(9,700	)

Cash flows from financing activities:
Purchases of treasury stock		(4,500	)		—
Payments of TV business liabilities		(126	)		(9,346	)
Proceeds from TV business assets		1,200			43,013
Payment of tax withholding obligation for shares tendered		(169	)		—
Net contributions from Parent		—			44,833
Net cash (used in) provided by financing activities		(3,595	)		78,500

Effect of exchange rate changes on cash and cash equivalents		(339	)		32
Net (decrease) increase in cash and cash equivalents		(23,740	)		70,998
Cash and cash equivalents at beginning of year		90,672			22,648

Cash and cash equivalents at end of period	$	66,932		$	93,646

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	445		$	1,396
Cash received for interest	$	(47	)	$	—
Extended payment obligations incurred to purchase software	$	960		$	—

The accompanying notes are an integral part of these financial statements.

SIZMEK INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

1. Basis of Presentation

The Company

Sizmek Inc. ("Sizmek," the "Company," "we," "us," and "our"), a Delaware corporation formed in 2013, operates a leading independent global online ad campaign management and distribution platform as measured by the number of advertising impressions served and the number of countries in which we serve customers. Our revenues are principally derived from services related to online advertising. We help advertisers, agencies and publishers engage with consumers across multiple online media channels (mobile, display, rich media, video and social) while delivering efficient, impactful and measurable ad campaigns. We connect approximately 17,000 advertisers and 3,500 agencies to audiences in about 60 countries, serving more than 1.4 trillion impressions a year.

Separation from Digital Generation, Inc.

Prior to February 7, 2014, we operated as the online segment of Digital Generation, Inc. ("DG"), a leading global television and online advertising management and distribution business. On February 7, 2014, pursuant to the terms of the Agreement and Plan of Merger, dated as of August 12, 2013 (the "Merger Agreement"), by and among Extreme Reach, Inc. ("Extreme Reach"), Dawn Blackhawk Acquisition Corp., a wholly-owned subsidiary of Extreme Reach ("Acquisition Sub"), and DG, all of our issued and outstanding shares of common stock, par value $0.001 per share ("Sizmek Common Stock") were distributed by DG pro rata to its stockholders (the "Spin-Off") with the DG stockholders receiving one share of Sizmek Common Stock for each share of DG common stock ("DG Common Stock") they held. Immediately after the distribution of the Sizmek Common Stock, pursuant to the Merger Agreement, Acquisition Sub merged with and into DG with DG as the surviving corporation (the "Merger") and each of the outstanding shares of DG Common Stock was converted into the right to receive $3.00 per share, and DG became a wholly-owned subsidiary of Extreme Reach. Prior to the Spin-Off, pursuant to the Separation and Redemption Agreement and related documents, DG contributed to us all of the business and operations of its online advertising segment, all of DG's cash, most of the working capital from its television segment, and certain other corporate assets; and we agreed to indemnify DG and affiliates of DG (including Extreme Reach) for all pre-closing liabilities of DG, including stockholder litigation, tax obligations, and employee liabilities. Sizmek now operates as a separate, stand-alone publicly-traded company in the online advertising services business segment.

Carve-out Financial Statements Prior to Spin-Off

Prior to our Spin-Off from DG on February 7, 2014, our combined financial statements were derived from the consolidated financial statements and accounting records of DG. These statements reflected the combined historical results of operations, financial position and cash flows of DG's online business primarily conducted through MediaMind Technologies Inc., EyeWonder, LLC, Peer39, Inc., and Unicast EMEA, Ltd., and an allocable portion of DG's corporate costs. For the period prior to the Spin-Off, our financial statements are presented as if such businesses had been combined for all periods presented.

All intercompany transactions have been eliminated. All intercompany transactions between us and DG have been included in these combined financial statements and are considered to be effectively settled for cash in the combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statements of cash flows as a financing activity.

For the period prior to our Spin-Off on February 7, 2014, the combined financial statements include expense allocations for (1) certain corporate functions historically provided by DG, including, but not limited to, finance, audit, legal, information technology, human resources, communications, compliance, and shared services; (2) employee benefits and incentives; and (3) share-based compensation. These expenses have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of combined revenues, headcount or other measures of the Company and DG. We consider the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to, or the benefit received by, us during the period presented. The allocations may not, however, reflect the expense we would have incurred as an independent, publicly-traded company for the period presented. We benefited from sharing the corporate cost structure of DG rather than incurring such costs ourselves on a stand-alone basis.

The majority of the pre Spin-Off expense allocations were charged to general and administrative expense. For the periods subsequent to the Spin-Off, general and administrative expense as a percentage of revenues (excluding the accelerated recognition of share-based payment awards in connection with the Spin-Off in February 2014) has been comparable to the corresponding period of the prior year. Accordingly, while we benefited from sharing DG's cost structure prior to the Spin-Off, since the Spin-Off we have been able to control our corporate overhead expenses to a level reasonably consistent with the pre Spin-Off periods.

2. General

Principles of Consolidation and Combination

The consolidated and combined financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of our wholly-owned, and majority-owned and controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation or combination. For the period prior to the Spin-Off, the carve-out financial statements have been prepared on a basis that management believes to be reasonable to reflect the results of operations and cash flows of the Company’s operations, including portions of DG’s corporate costs and administrative shared services. These unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

These financial statements have been prepared by us without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe the disclosures are adequate to make the information presented not misleading. The unaudited consolidated and combined financial statements reflect all adjustments, which are, in the opinion of management, of a normal and recurring nature and necessary for a fair presentation of our financial position as of the balance sheet dates, and the results of operations and cash flows for the periods presented.

Seasonality

Our business is seasonal. Revenues tend to be the highest in the fourth quarter as a large portion of our revenues follow the advertising spend or budgets of our customers which tend to be at their highest during the holiday season.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to the recoverability and useful lives of our long-lived assets, the adequacy of our allowance for doubtful accounts and credit memo reserves, contingent consideration and income taxes. We base our estimates on historical experience, future expectations and on other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Effective November 1, 2014, we shortened the estimated remaining useful life of our Sizmek MDX platform assets from an average of 46 months to 20 months in anticipation of our new platform, which is currently in development. We anticipate the new platform will be operational by the end of 2015 and we expect to retire our existing platform by mid-2016. For the first six months of 2015, this change increased our net loss and loss per share by $1.6 million and $0.05, respectively.

Risk of Goodwill Impairment

See Note 5 for a discussion of the risk of a future impairment of our goodwill.

Assets and Liabilities of DG’s TV Business

Pursuant to the Separation and Redemption Agreement, DG contributed to us substantially all of its television business current assets and certain other assets existing on February 7, 2014, and we agreed to assume substantially all of DG’s television business liabilities that existed on February 7, 2014 or were attributable to periods up to and including February 7, 2014. These net assets contributed were recorded at $78.5 million. The details of these assets and liabilities outstanding as of June 30, 2015 and December 31, 2014 were as follows (in thousands):

Description	June 30, 2015		December 31, 2014
Current assets of television business:
Income tax receivables	$	1,110	$	1,943
Trade accounts receivable	—		367
Springbox revenue sharing	160		160
Total	$	1,270	$	2,470

Current liabilities of television business:
Trade accounts payable	$	206	$	165
Accrued liabilities	—		230
Total	$	206	$	395

Non-current liabilities of television business:
Uncertain tax positions	$	273	$	260

Derivative Instruments

We enter into foreign currency forward contracts and options to hedge a portion of the exposure to the variability in expected future cash flows resulting from changes in related foreign currency exchange rates between the New Israeli Shekel (“NIS”) and the U.S. Dollar. These transactions were designated as cash flow hedges, as defined by Accounting Standards Codification (“ASC”) Topic 815, “Derivatives and Hedging.” ASC Topic 815 requires that we recognize derivative instruments as either assets or liabilities in our balance sheet at fair value. These contracts are Level 2 fair value measurements in accordance with ASC Topic 820, “Fair Value Measurements and Disclosures.” For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss), net of taxes, and reclassified into earnings (various operating expenses) in the same period or periods during which the hedged transaction affects earnings.

Our cash flow hedging strategy is to hedge against the risk of overall changes in cash flows resulting from certain forecasted foreign currency rent and salary payments during the next twelve months. We hedge portions of our forecasted expenses denominated in the NIS with a single counterparty using foreign currency forward contracts and options. At June 30, 2015, we had $12.6 million notional amount of foreign currency forward contracts and options outstanding that had a net fair value asset balance of $0.3 million ($0.4 million asset, net of a $0.1 million liability). At December 31, 2014, we had $14.3 million notional amount of foreign currency forward contracts and options outstanding that had a net fair value liability balance of $0.1 million ($0.2 million liability, net of a $0.1 million asset). The net asset at June 30, 2015 is included in "other current assets" and is expected to be recognized in our results of operations in the next twelve months. The net liability at December 31, 2014 was included in “accrued liabilities.” The vast majority of any gain or loss from hedging activities is included in our various operating expenses. As a result of our hedging activities, we incurred the following gains and losses in our results of operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015			2014
Hedging gain (loss) recognized in operations	$	24	$	29	$	(47	)	$	115

It is our policy to offset fair value amounts recognized for derivative instruments executed with the same counterparty. In connection with our foreign currency forward contracts and options and other banking arrangements, we have agreed to maintain $1.6 million of cash in bank accounts with our counterparty, which we classify as restricted cash on our balance sheet.

Accumulated Other Comprehensive Income (Loss)

Components of accumulated other comprehensive income (loss) (“AOCI” or “AOCL”), net of tax, for the three and six months ended June 30, 2015 and 2014 were as follows (in thousands):

	Three Months Ended June 30, 2015
	Foreign Currency Translation			Unrealized Gains (Losses) on Foreign Currency Derivatives			Unrealized Gains (Losses) on Available for Sale Securities			Total Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2015	$	(3,476	)	$	(193	)	$	1,027		$	(2,642	)

Other comprehensive income (loss) before reclassifications		580			491			(6	)		1,065
Amounts reclassified out of AOCL		—			(22	)		—			(22	)
Net current period activity		580			469			(6	)		1,043
Balance at June 30, 2015	$	(2,896	)	$	276		$	1,021		$	(1,599	)

	Six Months Ended June 30, 2015
	Foreign Currency Translation			Unrealized Gains (Losses) on Foreign Currency Derivatives			Unrealized Gains (Losses) on Available for Sale Securities			Total Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2014	$	(2,672	)	$	(98	)	$	1,255		$	(1,515	)

Other comprehensive income (loss) before reclassifications		(224	)		332			(234	)		(126	)
Amounts reclassified out of AOCL		—			42			—			42
Net current period activity		(224	)		374			(234	)		(84	)
Balance at June 30, 2015	$	(2,896	)	$	276		$	1,021		$	(1,599	)

	Three Months Ended June 30, 2014
	Foreign Currency Translation			Unrealized Gains (Losses) on Foreign Currency Derivatives			Unrealized Gains (Losses) on Available for Sale Securities		Total Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2014	$	(1,101	)	$	39		$	1,030	$	(32	)

Other comprehensive income (loss) before reclassifications		375			10			770		1,155
Amounts reclassified out of AOCL		—			(25	)		—		(25	)
Net current period activity		375			(15	)		770		1,130
Balance at June 30, 2014	$	(726	)	$	24		$	1,800	$	1,098

	Six Months Ended June 30, 2014
	Foreign Currency Translation			Unrealized Gains (Losses) on Foreign Currency Derivatives			Unrealized Gains (Losses) on Available for Sale Securities		Total Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2013	$	(1,198	)	$	116		$	1,764	$	682

Other comprehensive income (loss) before reclassifications		472			8			36		516
Amounts reclassified out of AOCI		—			(100	)		—		(100	)
Net current period activity		472			(92	)		36		416
Balance at June 30, 2014	$	(726	)	$	24		$	1,800	$	1,098

The following table summarizes the reclassifications from AOCI or AOCL to the consolidated and combined statements of operations for the three and six months ended June 30, 2015 and 2014 (in thousands):

	Amounts Reclassified out of AOCI or AOCL
	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014			Affected Line Items in the Consolidated and Combined Statements of Operations
Gains (losses) on cash flow hedges:
Foreign currency derivatives	$	3		$	4		Cost of revenues
Foreign currency derivatives		1			2		Selling and marketing
Foreign currency derivatives		14			19		Research and development
Foreign currency derivatives		3			5		General and administrative
Foreign currency derivatives		3			(1	)	Other, net
Total before taxes		24			29
Tax amounts		(2	)		(4	)
Income after tax	$	22		$	25

	Amounts Reclassified out of AOCI or AOCL
	Six Months Ended June 30, 2015			Six Months Ended June 30, 2014			Affected Line Items in the Consolidated and Combined Statements of Operations
Gains (losses) on cash flow hedges:
Foreign currency derivatives	$	(5	)	$	11		Cost of revenues
Foreign currency derivatives		(2	)		5		Selling and marketing
Foreign currency derivatives		(34	)		54		Research and development
Foreign currency derivatives		(8	)		15		General and administrative
Foreign currency derivatives		2			30		Other, net
Total before taxes		(47	)		115
Tax amounts		5			(15	)
Income (loss) after tax	$	(42	)	$	100

Merger, Integration and Other Expenses

Merger, integration and other expenses reflect the expenses incurred in (i) DG's Merger with Extreme Reach and our Spin-Off from DG, (ii) acquiring or disposing of a business, (iii) integrating an acquired operation (e.g., office closure costs) into the Company and (iv) certain other items of income or expense not deemed to be part of our core operations. A summary of our merger, integration and other expenses is as follows (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
Description	2015			2014		2015			2014
Merger and Spin-Off (1)	$	—		$	581	$	—		$	4,738
Severance		142			357		466			558
Integration and restructuring costs		565			374		1,070			955
Acquisition, legal and due diligence fees		611			32		730			38
Recovery of TV business net assets (2)		(148	)		—		(262	)		—
Total	$	1,170		$	1,344	$	2,004		$	6,289

(1) - See discussion of Merger and Spin-Off under “Separation from Digital Generation, Inc.” in Note 1.

(2) - Represents a reduction in expense due to realizing more TV business net assets than originally estimated at the time of the Spin-Off.

Israel Operations

The majority of our research and development activities and a large portion of our accounting functions are performed in Herzliya, Israel. In total, about 26% of our workforce is located in Israel. As a result, we are subject to risks associated with operating in the Middle East.

Recently Issued Accounting Guidance

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 modifies revenue recognition guidance for GAAP. Previous revenue recognition guidance in GAAP comprised broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. In contrast, International Accounting Standards Board ("IASB") provided limited guidance on revenue recognition. Accordingly, the FASB and IASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards ("IFRS"). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

For Sizmek, the amendments in ASU 2014-09 are presently effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and early adoption is not permitted. An entity shall adopt the amendments in ASU 2014-09 by either (i) retrospectively adjusting each prior reporting period presented or (ii) retrospectively adjusting for the cumulative effect of initially applying ASU 2014-09 at the date of initial adoption. We have not as yet determined (i) the extent to which we expect ASU 2014-09 will impact our reported revenues or (ii) the manner in which it will be adopted.

In July 2015, the FASB affirmed its proposal to defer the effective date of the guidance in ASU 2014-09 for all entities by one year. As a result, if the proposal is formally adopted by the issuance of a new ASU, the new revenue standard (currently discussed in ASU 2014-09) would be effective for Sizmek for annual reporting periods beginning after December 15, 2017. The FASB also affirmed its proposal to permit all entities to early adopt the guidance in the new revenue standard, but not before annual periods beginning after December 15, 2016.

3. Fair Value Measurements

ASC 820, Fair Value Measurement, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

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

Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

We have classified our assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

The tables below set forth by level, assets and liabilities that were accounted for at fair value as of June 30, 2015 and December 31, 2014. The carrying values of our accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these financial instruments. The tables do not include cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands).

		Fair Value Measurements at June 30, 2015
	Balance Sheet Location	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value Measurements
Assets:
Money market funds	(a)	$	28,964	$	—	$	—	$	28,964
Currency forward derivatives / options	(b)		—		319		—		319
Revenue sharing arrangement	(c)		—		—		160		160
Marketable equity securities	(d)		1,362		—		—		1,362
Total		$	30,326	$	319	$	160	$	30,805

		Fair Value Measurements at December 31, 2014
	Balance Sheet Location	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value Measurements
Assets:
Money market funds	(a)	$	35,953	$	—	$	—	$	35,953
Revenue sharing arrangement	(c)		—		—		160		160
Marketable equity securities	(d)		1,596		—		—		1,596
Total		$	37,549	$	—	$	160	$	37,709
Liabilities:
Currency forward derivatives / options	(e)	$	—	$	113	$	—	$	113

(a) Included in cash and cash equivalents.

(b) Included in other current assets.

(d) Included in other non-current assets.

(e) Included in accrued liabilities.

The fair value of our money market funds was determined based upon quoted market prices. The currency forward derivatives/options are derivative instruments whose value is based upon quoted market prices from various market participants. We have a zero cost basis in these derivative instruments. Our marketable equity securities relate to a single issuer and have a cost basis of $0.3 million.

In connection with our Spin-Off from DG, DG contributed a revenue sharing asset to us that resulted from DG's sale of its Springbox unit. We are entitled to a percentage of the revenues collected by the business for three years after the closing date (June 1, 2012). Revenue sharing payments are generally made once a year. We have estimated the future revenues of Springbox based on the historical revenues and certain other factors, discounted to their present value. The following table provides a reconciliation of changes in the fair values of our Level 3 assets (in thousands):

	Revenue Sharing Arrangement
	Six Months Ended June 30, 2015
Balance at beginning of year	$	160
Additions	—
Balance at end of period	$	160

In connection with an acquisition of a business, we sometimes include a contingent consideration component of the purchase price based on (i) future revenues or (ii) future revenues and operating results (e.g., adjusted EBITDA), that require minimum thresholds be met before any earnout payment becomes due. Accordingly, there can be significant volatility in the earnout liability. Each reporting period, we review our estimates of the performance indicators (e.g., revenue, adjusted EBITDA) and the corresponding earnout levels achieved, discounted to their present values. The change in fair value is recorded in cost of revenues in the accompanying statements of operations.

In connection with our acquisition of Republic Project, we agreed to make additional payments to the sellers if Republic's 2014 or 2015 revenues and adjusted EBITDA exceeded certain levels. As of June 30, 2015, we do not expect to make any payments with respect to the Republic Project contingent consideration arrangement.

Abakus Convertible Notes

In May 2014, we purchased $1.0 million of Abakus convertible promissory notes ("Convertible Notes") for $1.0 million. The Convertible Notes are due 90 days after written notice after the earlier of (i) May 30, 2016 or (ii) an occurrence of an Event of Default (as defined in the Convertible Notes). Abakus is a small private company that has developed a digital attribution software solution. The Convertible Notes bear interest at 5% per annum payable at maturity. The Convertible Notes are convertible into Abakus Series A Preferred Stock ("Series A Preferred") as follows:

Automatic conversion if Abakus sells $2.0 million of Series A Preferred ("Qualified Financing"), whereupon the Convertible Notes shall be converted, at Sizmek's option, at either (i) 75% of the share price in the Qualified Financing, or (ii) the quotient of $7.0 million divided by the number of shares outstanding upon exercise of all dilutive securities, or

Optional conversion at Sizmek's election if Abakus completes an Equity Financing (as defined in the Convertible Notes) that is not a Qualified Financing, whereupon the Convertible Notes shall be converted at 75% of the share price in the Equity Financing.

In addition, upon a Change in Control, as defined in the Convertible Notes, the Convertible Notes shall be paid off at the greater of (i) the outstanding balance, or (ii) the amount the holder would have received upon conversion of the Convertible Notes. The Convertible Notes are considered held-to-maturity securities and are carried at amortized cost. The fair value of the Convertible Notes is not readily determinable. We are not aware of a market for the Convertible Notes. The Convertible Notes are included in other non-current assets.

4. Acquisitions

StrikeAd

On May 28, 2015, we acquired substantially all the assets and operations, and assumed certain liabilities, of privately-held StrikeAd, Inc. and its affiliates (collectively, “StrikeAd”) for $10.3 million. The purchase price includes $7.7 million in cash paid at closing and deferred payment obligations totaling $2.6 million. StrikeAd operates a mobile demand side platform (“DSP”) based in the United Kingdom. We intend to combine the StrikeAd assets with our existing programmatic assets to build an end-to-end DSP for use by our customers.

The objective of the transaction was to accelerate the development of our mobile technology in order to better serve the advertising community. We expect to realize operating synergies from this transaction. StrikeAd has been included in our results of operations since the date of closing.

The $10.3 million purchase price was preliminarily allocated to the assets acquired and liabilities assumed based upon their estimated fair values. For estimation purposes, we preliminarily allocated $4.3 million to developed technology, $1.1 million to customer relationships and $11.1 million to goodwill. The developed technology and customer relationships acquired in the transaction are presently being amortized on a straight-line basis over 3.2 years and 5.7 years, respectively. The weighted average amortization period is 3.7 years. The goodwill and other intangible assets created in the acquisition are deductible for tax purposes. The acquired assets include $3.7 million of gross receivables, which we recognized at their estimated fair value of $3.5 million. For 2014, StrikeAd reported revenues of $11.0 million and a loss before income taxes of $6.2 million. For the period from the acquisition date through June 30, 2015, StrikeAd reported $0.8 million of revenues. The purchase price allocation is preliminary pending the completion of the valuation analysis.

Pixel

On September 4, 2014, we acquired all of the outstanding shares of Zestraco Investments Limited including its wholly-owned subsidiary PixelCo. D.O.O. (“Pixel”) for $0.45 million in cash and a deferred payment obligation of $0.05 million which was paid in December 2014. Pixel performed advertising service operations principally for us prior to our purchase and had no appreciable assets.

The objective of the transaction was to bring in-house the group of technology service personnel that had been providing advertising operations service to us through a contract. We expect to realize operating synergies from this transaction. Pixel has been included in our results of operations since the date of closing. The $0.5 million purchase price was allocated to goodwill and is not deductible for income tax purposes. The purchase price allocation is final.

Aerify Media

On August 11, 2014, we acquired substantially all the assets and operations of privately-held Aerify Media LLC (“Aerify”), a firm specializing in mobile tracking and retargeting, for $5.625 million in cash and a $0.625 million deferred payment obligation due in one-year. Aerify’s mobile in-app and web tracking technology expands our capabilities in the fast-growing mobile segment, adding both talent and technology to the platform.

The objective of the transaction was to accelerate the development of our mobile technology in order to better serve the advertising community. We expect to realize operating synergies from this transaction. Aerify has been included in our results of operations since the date of closing.

The $6.25 million purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values. We allocated $2.05 million to developed technology, $0.4 million to customer relationships and $3.8 million to goodwill. The developed technology and customer relationships acquired in the transaction are being amortized on a straight-line basis over 4 years and 5 years, respectively. The weighted average amortization period is 4.2 years. The goodwill and other intangible assets created in the acquisition are deductible for tax purposes. For 2013, Aerify reported revenues of $3.1 million and a loss before income taxes of $0.6 million. The purchase price allocation is final.

Purchase Price Allocations

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective dates of acquisition for the above referenced transactions (in millions).

Category	StrikeAd (preliminary)			Pixel		Aerify
Cash	$	0.1		$	—	$	—
Receivables		3.5			—		—
Other current assets		0.1			—		—
Customer relationships		1.1			—		0.4
Developed technology		4.3			—		2.1
Goodwill		11.1			0.5		3.8
Total assets acquired		20.2			0.5		6.3
Less liabilities assumed		(9.9	)		—		—
Net assets acquired	$	10.3		$	0.5	$	6.3

Pro Forma Information

The following pro forma information presents our results of operations for the six months ended June 30, 2015 and 2014 as if the acquisitions of StrikeAd, Pixel and Aerify had occurred on January 1, 2014 (in thousands). A table of actual amounts is provided for reference.

	As Reported Six Months Ended June 30,						Unaudited Pro Forma Six Months Ended June 30,
	2015			2014			2015			2014
Revenue	$	76,975		$	82,380		$	80,528		$	88,792
Net loss		(15,842	)		(16,060	)		(18,161	)		(19,009	)

5. Goodwill

We operate as a single reporting unit. Changes in the carrying value of our goodwill for the six months ended June 30, 2015 were as follows (in thousands):

	Goodwill		Accumulated Impairment Losses			Net Carrying Value
Balance at December 31, 2014	$	380,681	$	(340,527	)	$	40,154
Acquisition of StrikeAd		11,134		—			11,134
Balance at June 30, 2015	$	391,815	$	(340,527	)	$	51,288

We evaluate goodwill for possible impairment each year on December 31st and whenever events or changes in circumstances indicate the carrying value of our goodwill may not be recoverable. Generally, the goodwill impairment test involves a two-step process. In the first step, we compare the fair value of the Company to its carrying value. If the fair value of the Company exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the Company is less than its carrying value, we must perform the second step of the impairment test to measure the amount of the impairment loss. In the second step, the Company's fair value is allocated to its assets and liabilities, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the Company was being acquired in a business combination. If the implied fair value of the Company's goodwill is less than the carrying value, the difference is recorded as an impairment loss.

During the third quarter of 2014, we determined that indicators of potential impairment existed requiring us to perform an interim goodwill impairment test. As a result, we performed an extensive analysis to estimate the fair value of the Company using a discounted cash flow methodology. The analysis concluded that the implied fair value of the Company's goodwill was $98.2 million less than its carrying value, which we recorded as a goodwill impairment loss during the third quarter of 2014.

ASC 350-20-35 allows an entity to assess qualitatively whether it is necessary to perform step one of the prescribed two-step annual goodwill impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the two-step goodwill impairment test is not required. Since we had performed an extensive analysis of the fair value of the Company as of September 30, 2014, at December 31, 2014, we performed a qualitative assessment of our goodwill and determined that the two-step process was not necessary. Further, at June 30, 2015, we are not aware of any events or changes in circumstances that would indicate the carrying value of our goodwill may not be recoverable.

Risk of Future Impairment

At December 31, 2014, based on our discounted cash flow model that uses our internal forecast, we determined the fair value of the Company was only slightly in excess of its carrying value. In preparing our discounted cash flow model, we made assumptions about future revenues and expenses for several periods to determine the cash flows that would result.

As with any forecast, there is substantial risk our forecasted cash flows may fall short of our current expectations. If actual or expected future cash flows should fall sufficiently below our current forecast, it is likely we would be required to record another goodwill impairment charge. Future net cash flows are impacted by a variety of factors including revenues, operating margins, capital expenditures, income tax rates, and a discount rate.

Further, the market value of our common stock plus a reasonable control premium is an indicator of the fair value of our Company. If the market value of our common stock should fall sufficiently below the current level for an extended period of time, it would likely cause us to conclude that our goodwill is impaired and we would be required to record another goodwill impairment charge.

6. Share-based Compensation

Prior to our Spin-Off from DG on February 7, 2014, certain of our employees participated in DG’s equity based incentive programs. Share-based compensation expense reflected in the accompanying financial statements up until February 7, 2014 relates to DG’s stock plan awards and not to our stock awards. Immediately prior to completing the Spin-Off transaction, all outstanding equity awards became fully vested and were converted into shares of DG Common Stock to the extent the award had an intrinsic value. Equity awards with no intrinsic value were cancelled. DG’s equity incentive plans were terminated in connection with the Merger Agreement (see Note 1). Below is a summary of our share-based compensation expense related to the stock awards (in thousands):

	Six Months Ended June 30,
Description	2015		2014
DG stock options and RSUs awarded to our employees	$	—	$	2,650
DG share-based awards allocated to us as part of corporate services		—		3,817
Sizmek share-based awards granted		1,903		1,066
Total	$	1,903	$	7,533

In the first quarter of 2015, Sizmek’s Compensation Committee granted (i) 159,245 performance-based restricted stock units (“RSUs”), (ii) 192,867 time-based RSUs and (iii) 133,600 time-based stock options, to certain of our employees and directors. The RSUs and stock options expected to vest were valued at $2.8 million and $0.6 million, respectively. The awards (i) vest over periods ranging from one to three years, (ii) are subject to the employees’ continued employment with us or the director’s continued service on our Board of Directors, and (iii) with respect to the performance-based RSUs, are subject to reaching certain (a) revenue, (b) adjusted EBITDA and (c) free cash flow growth targets (i.e., performance conditions).

In the second quarter of 2015, Sizmek’s Compensation Committee granted (i) 87,251 performance-based RSUs, (ii) 361,112 time-based RSUs and (iii) 86,175 time-based stock options to certain of our employees. The RSUs and stock options expected to vest were valued at $3.4 million and $0.4 million, respectively. The awards (i) vest over periods ranging from one to three years, (ii) are subject to the employees’ continued employment with us, and (iii) with respect to the performance-based RSUs, are subject to reaching certain (a) revenue, (b) adjusted EBITDA and (c) free cash flow growth targets (i.e., performance conditions).

Generally, the awards granted in 2015 vest on an accelerated basis upon the occurrence of the holder’s (a) death, (b) termination by reason of disability, (c) termination without Cause (as defined) following a Change of Control (as defined) or (d) resignation for Good Reason (as defined) following a Change in Control. Unrecognized compensation costs related to unvested RSUs and stock options were $7.7 million at June 30, 2015.

7. Income Taxes

For the six months ended June 30, 2015, our effective tax rate was (3.9)% compared to 4.9% for the six months ended June 30, 2014. The effective tax rates for each period differ from the expected federal statutory rate of 35.0% as a result of state and foreign income taxes; certain non-deductible expenses; and changes in our valuation allowances in the U.S. and state jurisdictions within the U.S. In the U.S. and state jurisdictions within the U.S., we have historically experienced tax losses. As a result, we do not recognize a tax benefit in the U.S. or state jurisdictions within the U.S. when we incur taxable losses as realization of those tax benefits is not likely. Conversely, in certain foreign jurisdictions we report taxable income and pay tax on that income in accordance with the tax statutes of those jurisdictions.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than not sustain the position following an audit. For tax positions meeting the more-likely-than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. During the six months ended June 30, 2015, there were no additional uncertain tax positions. Interest and penalties related to uncertain tax positions are recognized in income tax expense. For each of the six month periods ended June 30, 2015 and 2014, we recognized less than $0.1 million of interest or penalties related to uncertain tax positions in our financial statements. The changes in uncertain tax positions for the six months ended June 30, 2015 and 2014 were as follows (in thousands):

	Six Months Ended June 30,
	2015		2014
Balance at beginning of year	$	1,507	$	1,701
Additions for tax positions related to prior years		39		—
Balance at end of period	$	1,546	$	1,701

If we reduced our reserve for uncertain tax positions, it would result in our recognition of a tax benefit.

As of June 30, 2015, we provided a valuation allowance against substantially all of our U.S. and state NOL carryforwards as ultimate realization of these NOLs was not determined to be more-likely-than not. Accordingly, we have NOL carryforwards available to us (should we have sufficient future taxable income to utilize them) that are not reflected in our consolidated balance sheets at June 30, 2015 and December 31, 2014.

We are subject to U.S. federal income tax, income tax from multiple foreign jurisdictions including Israel and the United Kingdom, and income taxes of multiple state jurisdictions. U.S. federal, state and local income tax returns for 2011 through February 7, 2014 remain open to examination. Israeli and United Kingdom income tax returns remain open to examination for 2010 through 2014 and 2009 through 2014, respectively. Prior to our Spin-Off, our operating results had been included in DG's U.S. federal and state tax returns or tax returns of non-U.S. jurisdictions. Subsequent to our Spin-Off, we file stand-alone income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. Prior to our Spin-Off, we entered into a tax matters agreement with DG that governs the parties' respective rights, responsibilities and obligations with respect to taxes. The tax matters agreement generally provides that the filing of tax returns, the control of audit proceedings, and the payment of any additional tax liability relative to DG and its consolidated subsidiaries for periods prior to February 8, 2014 is our responsibility.

We do not provide deferred taxes on the undistributed earnings of our non-U.S. subsidiaries in situations where our intention is to reinvest such earnings indefinitely. Furthermore, we believe both our U.S. and non-U.S. subsidiaries have significant net assets, liquidity, and other financial resources available to meet their operational and capital investment requirements.

8. Loss per Share

Basic earnings (loss) per common share excludes dilution and is calculated by dividing net earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated by dividing net earnings (loss) by the weighted-average number of common shares outstanding during the period, as adjusted for the potential dilutive effect of non-participating share-based awards such as stock options and RSUs.

On February 7, 2014, 30.4 million shares of our common stock were distributed to DG stockholders in conjunction with the Spin-Off. For comparative purposes, and to provide a more meaningful calculation of the weighted-average shares outstanding, we have assumed this amount to be outstanding for any period presented prior to the Spin-Off in the calculation of weighted-average shares outstanding.

The following table presents our loss per common share for the three and six months ended June 30, 2015 and 2014 (in thousands, except per share data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Net loss	$	(7,897	)	$	(1,642	)	$	(15,842	)	$	(16,060	)

Weighted average common shares outstanding — basic		29,549			30,399			29,666			30,399
Dilutive securities		—			—			—			—
Weighted average common shares outstanding - diluted		29,549			30,399			29,666			30,399

Basic and diluted loss per common share	$	(0.27	)	$	(0.05	)	$	(0.53	)	$	(0.53	)

Antidilutive securities not included:
Stock options and RSUs		1,268			864			1,266			503

9. Geographical Information and Product Categories

We have one operating segment. Our chief operating decision maker is considered to be our Chief Executive Officer. The chief operating decision maker allocates resources and assesses performance of the business and other activities at the operating segment level.

The following table summarizes our revenues by geographic area (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Revenues:
United States	$	20,975	$	19,779	$	40,575	$	38,541
Europe, Middle East and Africa		11,821		14,647		21,171		25,627
Asia Pacific		5,177		6,339		11,071		12,412
Latin America		1,398		2,203		2,749		3,716
North America (excluding U.S.)		845		1,033		1,409		2,084
Total	$	40,216	$	44,001	$	76,975	$	82,380

For the six months ended June 30, 2015, about 47% of our revenues were attributable to foreign jurisdictions. However, no one country other than the United States represented more than 10% of our consolidated revenues.

The following table summarizes our revenues by product category (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Revenues:
Core products	$	28,160	$	27,685	$	53,424	$	51,089
Rich media		7,485		11,755		15,113		23,177
Programmatic managed services		4,571		4,561		8,438		8,114
Total	$	40,216	$	44,001	$	76,975	$	82,380

The following table summarizes our long-lived assets by country (in thousands):

	June 30, 2015		December 31, 2014
Long-Lived Assets:
Israel	$	29,403	$	24,818
United States		7,717		7,181
Other countries		1,951		2,037
Total	$	39,071	$	34,036

10. Related Party Transactions

Prior to the Spin-Off, DG provided certain management and administrative services to us. These services included, among others, accounting, treasury, audit, tax, legal, executive oversight, human resources, real estate, information technology and risk management. These expenses have been allocated to us on a basis of direct usage when identifiable, with the remainder allocated on the basis of revenue, headcount, or other measures. DG also allocated to us (i) merger, integration and other expenses and (ii) share-based compensation, largely based on revenues. DG's allocation of these expenses to us was as follows (in thousands):

DG’s Expense Allocation to Sizmek	Six Months Ended June 30, 2014
Management and administrative services	$	637
Merger, integration and other	4,038
Share-based compensation	3,817
Total	$	8,492

Included in the above allocations are costs of DG's employee benefit plans and other employee incentives. Employee benefits and incentives include 401(k) matching contributions, participation in DG's long-term incentive compensation award plans and healthcare plans. The employee benefit and incentive costs are reflected in the statements of operations and are classified consistently with how the underlying employee's salary and other compensation costs have been recorded.

We consider the allocated cost for corporate services, employee benefits and incentives to be reasonable based on our utilization of such services. However, we believe the allocated cost for these services are different from the cost we would have incurred if we had been an independent publicly-traded company during those periods.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with our unaudited consolidated and combined financial statements and notes thereto contained elsewhere in this Quarterly Report on Form 10-Q (“Report”).

The following discussion contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed elsewhere in this Form 10-Q, particularly in “Cautionary Note Regarding Forward-Looking Statements.”

Critical Accounting Policies and Estimates

The following discussion and analysis of the financial condition and results of operations are based on the unaudited consolidated and combined financial statements and notes to unaudited consolidated and combined financial statements contained in this Report that have been prepared in accordance with the rules and regulations of the SEC and do not include all the disclosures normally required in annual financial statements prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of our assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

Our significant accounting policies are described in Note 2 to the consolidated and combined financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2014 (“Annual Report”). Our critical accounting policies are described in MD&A in our Annual Report. Our significant and critical accounting policies have not changed significantly since the filing of our Annual Report.

See Note 5 of our unaudited consolidated and combined financial statements regarding the risk of a future impairment of our goodwill.

Overview

We operate a leading open ad management and distribution platform. We assist approximately 17,000 advertisers and 3,500 agencies engage with consumers in approximately 60 countries across multiple online media channels (mobile, display, rich media, video and social). Our revenues are principally derived from services related to online advertising. Our technology and service help advertisers overcome the fragmentation in the online advertising market and achieve optimal results from their advertising campaigns.

Our business can be impacted by several factors, including general economic conditions, the overall advertising market, new emerging digital technologies, and the continued growth of online and other alternative advertising.

Our Business Strategy

Our goal is to operate the leading independent ad management platform worldwide, and become the platform of choice among advertisers, agencies and publishers. We are in the process of completing the development of a single, integrated ad management platform across multiple channels and formats that we anticipate making available to our customers by the end of 2015. In order to achieve our objective, we need to:

(i)

continue to expand the products available on our platform,

(ii)

expand our partnership program by inviting developers with the latest technology and features to partner with us and implement their technology onto our platform, and

(iii)

control our costs.

In 2015, we are focusing on four key growth areas:

(i)

Programmatic Analytics—we believe our Peer 39 unit is the largest provider of data for ad buying (and selling) decisions by customers’ world-wide. Our solutions provide page and event based data enabling advertisers to access safer, appropriate and relevant web page environments for their ads.

(ii)

Mobile—with our recent acquisition of Aerify, we now have a robust mobile offering across the mobile web and in-app technology.

(iii)

Video—our roots and heritage, video is an area of the market also experiencing heavy growth, and is the vehicle of choice for branding advertisers as they move to digital and programmatic managed services.

(iv)

Data—we intend to enable our clients to centralize, manage and activate their data and leverage deeper data sets within our Sizmek MDX platform for dynamic, creative targeting and frequency capping.

Completion of Merger and Spin-Off

Prior to February 7, 2014, we operated as the online segment of DG. On February 7, 2014 the Merger between DG, Extreme Reach and Acquisition Sub was completed. Immediately prior to the Merger, DG contributed its cash and most of its other working capital to us, and the shares of our common stock were distributed to DG's shareholders (the "Spin-Off") resulting in Sizmek becoming a new publicly-held company with its shares traded on the NASDAQ Global Select Market under the symbol SZMK. See Notes 1 and 10 of our consolidated and combined financial statements contained elsewhere herein.

Comparability of Operating Results before and after the Spin-Off

Prior to the Spin-Off, our combined financial statements were derived from the consolidated financial statements and accounting records of DG, which includes an allocation of DG's corporate costs. To a degree, prior to the Spin-Off we benefited from sharing the corporate cost structure of DG rather than incurring such costs ourselves on a stand-alone basis. Since the Spin-Off, we have been able to control our corporate overhead expenses to a level reasonably consistent with the pre Spin-Off periods. However, our operating results before and after the Spin-Off are not entirely comparable. In particular, operating results for the six months ended June 30, 2014 include (i) costs associated with accelerating the vesting of share-based payment awards in connection with consummating the Merger and Spin-Off ($6.3 million) and (ii) transaction related costs incurred in connection with completing the Merger and Spin-Off transactions ($4.7 million).

Acquisitions

We have a history of acquisitions. In August 2014, September 2014 and May 2015, we acquired Aerify Media, Pixel and StrikeAd, respectively. As a result of these acquisitions, our operating results from period to period are not entirely comparable. Each of the acquisitions has been included in our results of operations since their respective dates of closing.

Seasonality

Second Quarter 2015 Highlights

Revenues declined $3.8 million, or 9%, compared to the same quarter of 2014. Our rich media revenues continued to decline falling $4.3 million, or 36%, partially offset by a $0.5 million increase, or 2%, in our core products revenue.

In the second quarter of 2015, foreign currency exchange rates generally weakened compared with the U.S. Dollar, when compared to the second quarter of 2014. This resulted in us reporting lower revenues ($2.8 million) and lower operating expenses ($2.3 million) than if the exchange rates were held constant with those in effect in the second quarter of 2014.

Loss from operations increased $5.2 million in the second quarter of 2015 as compared to the same period of 2014. The increase in loss was due to lower revenues ($3.8 million) and higher operating expenses ($1.4 million). The increase in operating expenses was largely due to higher depreciation and amortization ($1.3 million) and selling and marketing expense ($0.9 million), partially offset by lower cost of revenues ($0.8 million). As a result of our operating performance being lower than expected, we reduced certain performance based compensation that we accrue during the year based upon our assumption of achieving performance based goals by year-end.

Results of Operations

Three Months Ended June 30, 2015 vs. Three Months Ended June 30, 2014

The following table sets forth certain historical financial data (dollars in thousands):

							% Change			As a % of Total Revenues
	Three Months Ended						2015			Three Months Ended
	June 30,						vs.			June 30,
	2015			2014			2014			2015			2014
Revenues:
Platform	$	35,645		$	39,440			(10	)%		88.6	%		89.6	%
Programmatic		4,571			4,561			—			11.4			10.4
Total		40,216			44,001			(9	)		100.0			100.0
Costs and expenses:
Cost of revenues:
Platform (a)		11,175			12,126			(8	)		27.8			27.6
Programmatic (a)		3,317			3,142			6			8.2			7.1
Total		14,492			15,268			(5	)		36.0			34.7
Selling and marketing		15,433			14,514			6			38.5			33.0
Research and development		3,674			3,193			15			9.1			7.3
General and administrative		4,739			5,083			(7	)		11.8			11.5
Merger, integration and other		1,170			1,344			(13	)		2.9			3.0
Depreciation and amortization		7,771			6,449			20			19.3			14.7
Total costs and expenses		47,279			45,851			3			117.6			104.2

Loss from operations		(7,063	)		(1,850	)		282			(17.6	)		(4.2	)

Other expense, net		366			205			79			0.9			0.5

Loss before income taxes		(7,429	)		(2,055	)		262			(18.5	)		(4.7	)
Provision (benefit) for income taxes		468			(413	)		(213	)		1.2			(1.0	)
Net loss	$	(7,897	)	$	(1,642	)		381			(19.7	)		(3.7	)

(a) Excludes depreciation and amortization.

Revenues – Platform. For the three months ended June 30, 2015, platform revenues decreased $3.8 million, or 10%, as compared to the same period in the prior year. The decrease was due to a decline in our rich media services revenue ($4.3 million), partially offset by growth in our core products revenue ($0.5 million). Our rich media services revenue declined due to a reduction in the number of impressions served and a decrease in the average selling price per impression served. Our core products revenue grew primarily due to greater usage of our mobile services and our smart versioning optimization product, partially offset by slight declines in other services.

Revenues – Programmatic. For the three months ended June 30, 2015, programmatic managed services revenues were essentially unchanged as compared to the same period in the prior year. A decrease in our trading revenues ($1.2 million) was offset by revenues from our acquisitions of Aerify Media (August 2014) and StrikeAd (May 2015).

Revenues – Foreign Currency Impact. For the three months ended June 30, 2015, foreign currency exchange rates compared to the U.S. Dollar were generally weaker than they were during the three months ended June 30, 2014. This resulted in us reporting revenues $2.8 million lower than if the exchange rates were held constant with those in effect in the second quarter of 2014.

Cost of Revenues – Platform. For the three months ended June 30, 2015, platform cost of revenues decreased $1.0 million, or 8%, as compared to the same period in the prior year. As a percentage of total revenues, platform cost of revenues increased to 27.8% in the second quarter of 2015, as compared to 27.6% in the second quarter of 2014. Platform cost of revenues decreased primarily due to a reduction in compensation costs ($0.8 million) and professional fees ($0.3 million), partially offset by an increase in delivery costs ($0.4 million). In the second quarter of 2015, compensation costs were reduced due to lower average compensation levels per employee. In the second quarter of 2015, delivery costs increased due to the larger file sizes we now deliver.

Cost of Revenues – Programmatic. For the three months ended June 30, 2015, programmatic cost of revenues increased $0.2 million, or 6%, as compared to the same period in the prior year. The increase was due to a reduction in the average gross margin we accept in our programmatic managed services business.

Selling and Marketing. For the three months ended June 30, 2015, selling and marketing expense increased $0.9 million, or 6%, as compared to the same period in the prior year. The increase relates to higher compensation costs ($1.3 million), partially offset by a reduction in professional fees ($0.2 million) and reseller costs ($0.1 million). In 2015, we added to our sales staff to better serve our customer base. Professional fees declined due to using more employees and less consultants to service our customers. Reseller costs involve paying a commission or fee to the party responsible for causing the customer to use our platform in their online advertising. In the second quarter of 2015, our reseller costs declined due to lower average fees paid to resellers and lower revenues generated by resellers. As a percentage of revenues, selling and marketing expense increased to 38.5% in the second quarter of 2015 as compared to 33.0% in the second quarter of 2014, due to an increase in selling and marketing spending and a 9% decline in our overall revenues as compared to the year-earlier quarter.

Research and Development. For the three months ended June 30, 2015, research and development expense increased $0.5 million, or 15%, as compared to the same period in the prior year. The increase was due to higher cloud computing costs.

General and Administrative. For the three months ended June 30, 2015, general and administrative expense decreased $0.3 million, or 7%, as compared to the same period in the prior year. The decrease was attributable to a reduction in the average salary, bonus and share-based compensation per general and administrative employee. As a percentage of revenues, general and administrative expense increased to 11.8% in 2015, as compared to 11.5% in 2014.

Merger, Integration and Other. For the three months ended June 30, 2015, merger, integration and other costs decreased $0.2 million, or 13%, as compared to the same period in the prior year. The decrease principally relates to a reduction in (i) Merger and Spin-Off costs and (ii) severance costs in connection with completing our Spin-Off from DG in February 2014, partially offset by an increase in acquisition related costs in connection with our purchase of StrikeAd in May 2015, and pursuing other corporate transactions.

Depreciation and Amortization. For the three months ended June 30, 2015, depreciation and amortization increased $1.3 million, or 20%, as compared to the same period in the prior year. The increase was attributable to greater depreciation of capitalized software ($1.5 million), partially offset by lower depreciation of other property and equipment ($0.1 million). The increase in depreciation of capitalized software relates to (i) shortening the estimated remaining useful life of our Sizmek MDX platform from 46 months to 20 months effective November 1, 2014 in anticipation of retiring the MDX platform in June 2016 ($0.9 million) and (ii) an increase in capitalized software, which is attributable to working on more software development projects that qualify for capitalization. See Use of Estimates in Note 2 to our consolidated and combined financial statements.

Other expense, net. For the three months ended June 30, 2015, other expense, net was $0.4 million as compared to $0.2 million for the same period in 2014. The 2015 expense primarily relates to foreign exchange losses, which resulted from the strengthening of the U.S. dollar in comparison with other currencies in which we conduct business.

Provision (Benefit) for Income Taxes. For the three months ended June 30, 2015, our effective tax rate was (6.3)% compared to 20.1% for the same period in 2014. The effective tax rate for each period differs from the expected federal statutory rate of 35% as a result of non-deductible expenses, a change in our valuation allowance and state and foreign income taxes. Presently, our operations in the U.S. are in a net operating loss position and we have not recognized a tax benefit for those losses as realization of the tax benefit has not been determined to be likely.

Effect of Foreign Currency Exchange Rates. For the three months ended June 30, 2015, foreign currency exchange rates had weakened against the U.S. Dollar when compared to the same period in 2014. As a result, we reported lower revenues ($2.8 million), lower operating expenses ($2.3 million), and a larger operating loss ($0.5 million) than if the exchange rates were held constant during both periods.

Six Months Ended June 30, 2015 vs. Six Months Ended June 30, 2014

The following table sets forth certain historical financial data (dollars in thousands):

							% Change			As a % of Total Revenues
	Six Months Ended						2015			Six Months Ended
	June 30,						vs.			June 30,
	2015			2014			2014			2015			2014
Revenues
Platform	$	68,537		$	74,266			(8	)%		89.0	%		90.2	%
Programmatic		8,438			8,114			4			11.0			9.8
Total		76,975			82,380			(7	)		100.0			100.0
Costs and expenses:
Cost of revenues:
Platform (a)		22,010			24,031			(8	)		28.6			29.2
Programmatic (a)		6,142			5,723			7			8.0			6.9
Total		28,152			29,754			(5	)		36.6			36.1
Selling and marketing		29,636			30,102			(2	)		38.5			36.5
Research and development		6,577			6,741			(2	)		8.5			8.2
General and administrative		9,293			13,188			(30	)		12.1			16.0
Merger, integration and other		2,004			6,289			(68	)		2.6			7.6
Depreciation and amortization		15,210			12,977			17			19.8			15.8
Total costs and expenses		90,872			99,051			(8	)		118.1			120.2

Loss from operations		(13,897	)		(16,671	)		(17	)		(18.1	)		(20.2	)

Other expense, net		1,345			208		NM				1.7			0.3

Loss before income taxes		(15,242	)		(16,879	)		(10	)		(19.8	)		(20.5	)
Provision (benefit) for income taxes		600			(819	)		(173	)		0.8			(1.0	)
Net loss	$	(15,842	)	$	(16,060	)		(1	)		(20.6	)		(19.5	)

(a) Excludes depreciation and amortization.

NMNot meaningful.

Revenues – Platform. For the six months ended June 30, 2015, revenues decreased $5.7 million, or 8%, as compared to the same period in the prior year. The decrease was due to a decline in our rich media services revenue ($8.0 million), partially offset by growth in our core products revenue ($2.3 million). Our rich media services revenue declined due to a reduction in the number of impressions served and a decrease in the average selling price per impression served. Our core products revenue grew primarily due to greater usage of our mobile services and our analytics capabilities, partially offset by slight declines in other services.

Revenues – Programmatic. For the six months ended June 30, 2015, programmatic managed services revenues increased $0.3 million, or 4%, as compared to the same period in the prior year. Revenues from our acquisitions of Aerify Media (August 2014) and StrikeAd (May 2015) of $1.8 million were partially offset by a decrease in our trading revenues ($1.5 million).

Revenues – Foreign Currency Impact. For the six months ended June 30, 2015, foreign currency exchange rates compared to the U.S. Dollar were generally weaker than they were during the six months ended June 30, 2014. This resulted in us reporting revenues $5.0 million lower than if the exchange rates were held constant with those in effect in the first six months of 2014.

Cost of Revenues – Platform. For the six months ended June 30, 2015, platform cost of revenues decreased $2.0 million, or 8%, as compared to the same period in the prior year. As a percentage of total revenues, platform cost of revenues decreased to 28.6% in the first half of 2015, as compared to 29.2% in the same 2014 period. Platform cost of revenues decreased primarily due to a reduction in compensation costs ($2.5 million) and professional fees ($0.6 million), partially offset by increases in delivery costs ($1.0 million). In 2015, compensation costs were reduced due to lower average compensation levels per employee. In addition, our share-based compensation expense was higher in the 2014 period due to the accelerated vesting of all outstanding share-based payment awards in connection with the completion of the Merger and Spin-Off in February 2014. Professional fees decreased due primarily to lower consulting costs. In 2015, delivery costs increased due to higher data center costs which increased partially as a result of the larger file sizes we now deliver.

Cost of Revenues – Programmatic. For the six months ended June 30, 2015, programmatic cost of revenues increased $0.4 million, or 7%, as compared to the same period in the prior year. The increase was due to a reduction in the average gross margin we accept in our programmatic managed services business.

Selling and Marketing. For the six months ended June 30, 2015, selling and marketing expense decreased $0.5 million, or 2%, as compared to the same period in the prior year. The decrease relates to a reduction in reseller costs ($0.5 million) and professional fees ($0.3 million), partially offset by an increase in compensation costs ($0.2 million). In the first half of 2015, our reseller costs declined due to lower average fees paid to resellers and lower revenues generated by resellers. Professional fees declined due to lower legal and consulting fees. Compensation costs increased due to hiring more sales and marketing personnel to serve our customers. As a percentage of revenues, selling and marketing expense increased to 38.5% in the six months ended June 30, 2015 as compared to 36.5% in the same 2014 period.

Research and Development. For the six months ended June 30, 2015, research and development expense decreased $0.2 million, or 2%, as compared to the same period in the prior year. The decrease was due to lower compensation costs ($0.7 million), partially offset by an increase in cloud computing costs ($0.5 million). Compensation costs decreased due to higher capitalized wages. The increase in capitalized wages was due to working more hours on software development projects that qualified for capitalization.

General and Administrative. For the six months ended June 30, 2015, general and administrative expense decreased $3.9 million, or 30%, as compared to the same period in the prior year. As a percentage of revenues, general and administrative expense decreased to 12.1% in the first half of 2015, as compared to 16.0% in the same 2014 period. The decrease was attributable to recognizing a smaller amount of share-based compensation. In the six months ended June 30, 2014, we recognized $4.1 million of share-based compensation as a result of the accelerated vesting of share-based payment awards in connection with the completion of the Merger and Spin-Off.

Merger, Integration and Other. For the six months ended June 30, 2015, merger, integration and other costs decreased $4.3 million, or 68%, as compared to the same period in the prior year. The decrease principally relates to a reduction in (i) Merger and Spin-Off costs and (ii) severance costs in connection with completing our Spin-Off from DG in February 2014, partially offset by an increase in acquisition related costs in connection with our purchase of StrikeAd in May 2015 and pursuing other corporate transactions.

Depreciation and Amortization. For the six months ended June 30, 2015, depreciation and amortization increased $2.2 million, or 17%, as compared to the same period in the prior year. The increase was attributable to greater depreciation of capitalized software ($2.8 million), partially offset by lower depreciation of other property and equipment ($0.4 million) and lower amortization of intangible assets ($0.1 million). The increase in depreciation of capitalized software for the six months ended June 30, 2015 relates to (i) shortening the estimated remaining useful life of our Sizmek MDX platform from 46 months to 20 months effective November 1, 2014 in anticipation of retiring the MDX platform in June 2016 ($1.7 million) and (ii) an increase in capitalized software, which is attributable to working on more software development projects that qualify for capitalization. See Use of Estimates in Note 2 to our consolidated and combined financial statements. The reduction in property and equipment depreciation in the first half of 2015 was due to certain assets becoming fully depreciated.

Other expense, net. For the six months ended June 30, 2015, other expense, net was $1.3 million as compared to $0.2 million for the same period in 2014. The increase in expense ($1.1 million) relates to increases in foreign exchange losses, which resulted from the U.S. dollar strengthening in comparison with other currencies in which we conduct our business.

Provision (Benefit) for Income Taxes. For the six months ended June 30, 2015, our effective tax rate was (3.9)% compared to 4.9% for the same period in 2014. The effective tax rate for each period differs from the expected federal statutory rate of 35% as a result of non-deductible expenses, a change in our valuation allowance and state and foreign income taxes. Presently, our operations in the U.S. are in a net operating loss position and we have not recognized a tax benefit for those losses as realization of the tax benefit has not been determined to be likely.

Effect of Foreign Currency Exchange Rates. For the six months ended June 30, 2015, foreign currency exchange rates had weakened against the U.S. Dollar when compared to the same period in 2014. As a result, we reported lower revenues ($5.0 million), lower operating expenses ($4.4 million), and a larger operating loss ($0.6 million) than if the exchange rates were held constant during both periods.

Financial Condition

The following table sets forth certain major balance sheet accounts as of June 30, 2015 and December 31, 2014 (in thousands):

	June 30, 2015		December 31, 2014
Assets:
Cash and cash equivalents	$	66,932	$	90,672
Accounts receivable, net		48,471		51,125
Assets of TV business		1,270		2,470
Property and equipment, net		39,071		34,036
Goodwill		51,288		40,154
Intangible assets, net		68,894		71,306

Liabilities:
Accounts payable and accrued liabilities		29,914		23,147
Deferred income taxes		7,645		8,242

Stockholders’ equity		247,743		266,435

Cash and cash equivalents fluctuate with changes in operating, investing and financing activities. In particular, cash and cash equivalents fluctuate with (i) operating results, (ii) the timing of payments, (iii) capital expenditures, (iv) acquisition and investment activity, and (v) capital activity, including the purchase and sale of our common stock. The decrease in cash and cash equivalents during 2015 primarily relates to (i) our investment in capital assets ($11.5 million), (ii) our purchase of StrikeAd ($7.5 million) and (iii) our purchases of treasury stock ($4.5 million).

Accounts receivable generally fluctuate with revenues. As revenues increase or decrease, accounts receivable tend to increase or decrease, correspondingly. The number of days of revenue included in accounts receivable was 110 days and 96 days at June 30, 2015 and December 31, 2014, respectively.

Assets of TV business relate to assets contributed by DG immediately prior to the Spin-Off. The majority of these assets consists of income tax receivables.

Property and equipment tends to increase when we make significant improvements to our equipment or properties, expand our platform or capitalize software development initiatives. It also can increase as a result of acquisition activity. Further, the balance of property and equipment is decreased by recording depreciation expense. For the six months ended June 30, 2015 and 2014, purchases of property and equipment used to support our ad serving platform were $3.1 million and $2.3 million, respectively. For the six months ended June 30, 2015 and2014, capitalized costs of developing software were $8.4 million and $5.6 million, respectively.

Intangible assets decreased during the six months ended June 30, 2015 as a result of amortization, partially offset by intangible assets acquired in our purchase of StrikeAd.

Accounts payable and accrued liabilities increased $6.8 million to $29.9 million at June 30, 2015 as compared to $23.1 million at December 31, 2014. The increase relates to the liabilities assumed in the purchase of StrikeAd and the portion of the purchase price that was deferred ($2.6 million).

Stockholders' equity decreased by $18.7 million to $247.7 million at June 30, 2015 compared to $266.4 million at December 31, 2014, principally as a result of reporting a $15.8 million net loss and our $4.5 million of purchases of treasury stock.

Liquidity and Capital Resources

The following table sets forth a summary of our statements of cash flows (in thousands):

	Six Months Ended June 30,
	2015			2014
Operating activities:
Net loss	$	(15,842	)	$	(16,060	)
Depreciation and amortization		15,210			12,977
Share-based compensation and other		1,221			6,325
Changes in operating assets and liabilities, net		(920	)		(1,076	)
Total		(331	)		2,166

Investing activities:
Purchases of property and equipment		(3,131	)		(2,310	)
Capitalized costs of developing software		(8,370	)		(5,639	)
Acquisition, net of cash acquired		(7,541	)		—
Other		(433	)		(1,751	)
Total		(19,475	)		(9,700	)

Financing activities:
Purchases of treasury stock		(4,500	)		—
Payments of TV business liabilities		(126	)		(9,346	)
Proceeds from TV business assets		1,200			43,013
Other		(169	)		—
Net contributions from Parent		—			44,833
Total		(3,595	)		78,500

Effect of exchange rate changes on cash and cash equivalents		(339	)		32

Net (decrease) increase in cash and cash equivalents	$	(23,740	)	$	70,998

We generate cash from operating activities principally from net loss adjusted for certain non-cash expenses such as (i) depreciation and amortization and (ii) share-based compensation. In the first six months of 2015, we used $0.3 million of cash in operating activities, as compared to generating $2.2 million in cash from operating activities in the first six months of 2014. In the first six months of 2015, the reduction in cash generated from operating activities ($2.5 million), as compared to the first six months of 2014, was primarily due to a decline in aggregate non-cash operating expenses (depreciation and amortization and share-based compensation) of $3.4 million, while the net loss for both periods remained relatively unchanged.

Historically, we have invested our cash in (i) property and equipment, (ii) the development of software, (iii) strategic investments and (iv) the acquisition of complementary businesses.

In the first six months of 2014, we obtained cash from financing activities as a result of capital contributions from DG, our former parent, and liquidating the net TV assets contributed by DG. In the first six months of 2015, we used cash in financing activities as a result of our purchases of our common stock, and used cash in investing activities with our purchase of StrikeAd ($7.5 million).

Sources of Liquidity

Our sources of liquidity include:

cash and cash equivalents on hand (including $8.9 million held outside the United States at June 30, 2015, all of which can be repatriated into the United States with little or no adverse tax consequences);

cash generated from operating activities;

borrowings from a credit facility we may enter into; and

the issuance of equity securities.

We believe our sources of liquidity, including (i) cash and cash equivalents on hand and (ii) cash generated from operating activities, will satisfy our capital needs for the next twelve months.

Cash Requirements

We routinely evaluate our liquidity requirements, including alternative sources and uses of cash. As a result of this process:

we expect to use cash in connection with:

the purchase of capital assets (including the development of capitalized software projects);

the organic growth of our business; and

we could use cash in connection with:

the strategic acquisition of related businesses, with cash requirements varying depending on if our common stock is used to fund all or part of any acquisition; and

purchases of our common stock.

In August 2014, our Board of Directors approved a $15 million share repurchase program. In March 2015, our Board of Directors increased the share repurchase program to $30 million. The program allows us to repurchase shares of our common stock through open market purchases, privately negotiated transactions or otherwise, subject to certain conditions. The share repurchase program does not have an expiration date. Since implementation of our share repurchase program through June 30, 2015, we made share repurchases totaling $6.5 million. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without notice. We have no obligation to repurchase shares under the share repurchase program.

During 2015, we expect we will purchase property and equipment and incur capitalized software development costs of approximately $22 million to $24 million, a portion of which will be used toward completion of our new ad serving platform. We expect to use cash to further expand and develop our business as we anticipate our new ad serving platform will be operational by the end of 2015 and we expect to retire our existing platform by mid-2016.

Off-Balance Sheet Arrangements

We have entered into operating leases for all of our office facilities and certain equipment rentals. Generally these leases are for periods of three to ten years and usually contain one or more renewal options. We use leasing arrangements to preserve capital. We expect to continue to lease the majority of our office facilities under arrangements substantially consistent with the past.

Other than our operating leases, we are not a party to any off-balance sheet arrangement that we believe is likely to have a material impact on our current or future financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have no material changes to the disclosure on this matter made in our Annual Report.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as of the end of the period covered by this Report, our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on their evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the date of such evaluation.

Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2015, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

See a description of our share repurchase program in Part I, Item 2 of this Report under the heading “Liquidity and Capital Resources” and sub heading “Cash Requirements.” There were no purchases made under our share repurchase program during the three months ended June 30, 2015. As of June 30, 2015, $23.5 million remained available for future share repurchases under the share repurchase program.

Item 6. EXHIBITS

Exhibits
3.1(a) 3.2(b) 10.1 31.1		Amended and Restated Certificate of Incorporation of Registrant. Second Amended and Restated Bylaws of Registrant. Separation Agreement and General Release of Claims dated May 8, 2015 between Sizmek Inc. and Sean Markowitz.* Rule 13a-14(a)/15d-14(a) Certification.
31.2 **		Rule 13a-14(a)/15d-14(a) Certification.
32.1 **		Section 1350 Certifications.
101 **		The following materials from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Unaudited Consolidated and Combined Statements of Operations, (iii) Unaudited Consolidated and Combined Statements of Comprehensive Loss, (iv) Unaudited Consolidated Statement of Stockholders’ Equity, (v) Unaudited Consolidated and Combined Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated and Combined Financial Statements.

* **	Management contract or compensatory plan or arrangement. Filed herewith.
(a)	Incorporated by reference to the exhibit bearing the same title filed with the Registrant’s Current Report on Form 8-K filed February 4, 2014.
(b)	Incorporated by reference to the exhibit bearing the same title filed with the Registrant’s Current Report on Form 8-K filed November 3, 2014.

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.

	SIZMEK INC.

Date: August 13, 2015	By:	/s/ NEIL H. NGUYEN
	Name:	Neil H. Nguyen
	Title:	Chief Executive Officer and President

Date: August 13, 2015	By:	/s/ KENNETH SAUNDERS
	Name:	Kenneth Saunders
	Title:	Chief Financial Officer

Sizmek Inc. - FORM 10-Q - August 13, 2015

Attached files

Sizmek Inc. Reports