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

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - Sizmek Inc.	exhibit_31-1.htm
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-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 September 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 November 11, 2015, the registrant had 29,584,359 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 products and services including mobile, video and programmatic managed services;

our ability to replace our existing Sizmek MDX platform with a new platform that is currently in development without experiencing service disruptions;

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)

	September 30, 2015			December 31, 2014
	(unaudited)
Assets
CURRENT ASSETS:
Cash and cash equivalents	$	64,865		$	90,672
Accounts receivable (less allowances of $978 and $813 as of September 30, 2015 and December 31, 2014, respectively)	43,835			51,125
Deferred income taxes	620			636
Restricted cash	1,524			1,538
Other current assets	7,501			5,254
Current assets of TV business	957			2,470
Total current assets	119,302			151,695
Property and equipment, net	39,637			34,036
Goodwill	51,288			40,154
Intangible assets, net	65,293			71,306
Deferred income taxes	358			387
Restricted cash	4,625			3,941
Other non-current assets	3,231			3,393
Total assets	$	283,734		$	304,912

Liabilities and Stockholders’ Equity
CURRENT LIABILITIES:
Accounts payable	$	4,177		$	3,976
Accrued liabilities	24,167			19,171
Current liabilities of TV business	420			395
Total current liabilities	28,764			23,542
Deferred income taxes	7,299			8,242
Other non-current liabilities	7,494			6,433
Non-current liabilities of TV business	273			260
Total liabilities	43,830			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; 29,584 issued and outstanding at September 30, 2015; 30,399 issued and 30,071 outstanding at December 31, 2014	30			30
Treasury stock, at cost (328 shares at December 31, 2014)	—			(2,000		)
Additional capital	367,566			371,261
Accumulated deficit	(124,731		)	(101,341		)
Accumulated other comprehensive loss	(2,961		)	(1,515		)
Total stockholders’ equity	239,904			266,435
Total liabilities and stockholders’ equity	$	283,734		$	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 September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues:
Platform related	$	32,869		$	35,380		$	101,406		$	109,646
Programmatic managed services	7,397			4,133			15,835			12,247
Total	40,266			39,513			117,241			121,893
Cost of revenues (excluding depreciation and amortization):
Platform related	11,029			11,708			33,039			35,739
Programmatic managed services	6,002			2,566			12,144			8,289
Total	17,031			14,274			45,183			44,028
Selling and marketing	15,597			14,082			45,233			44,184
Research and development	3,816			3,300			10,393			10,041
General and administrative	5,005			4,276			14,298			17,464
Merger, integration and other	1,447			221			3,451			6,510
Depreciation and amortization	7,524			6,280			22,734			19,257
Goodwill impairment	—			98,196			—			98,196
Loss from operations	(10,154		)	(101,116		)	(24,051		)	(117,787		)
Other (income) expense, net	(58		)	479			1,287			687
Loss before income taxes	(10,096		)	(101,595		)	(25,338		)	(118,474		)
Benefit for income taxes	(2,548		)	(213		)	(1,948		)	(1,032		)
Net loss	$	(7,548	)	$	(101,382	)	$	(23,390	)	$	(117,442	)

Basic and diluted loss per common share	$	(0.26	)	$	(3.34	)	$	(0.79	)	$	(3.86	)

Weighted average common shares outstanding:
Basic and diluted	29,567			30,399			29,633			30,399

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

SIZMEK INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net loss	$	(7,548	)	$	(101,382	)	$	(23,390	)	$	(117,442	)
Other comprehensive loss:
Unrealized loss on derivatives, net of tax		(381	)		(24	)		(7	)		(116	)
Unrealized loss on available for sale securities, net of tax		(176	)		(157	)		(410	)		(121	)
Foreign currency translation adjustment		(805	)		(989	)		(1,029	)		(517	)
Total other comprehensive loss		(1,362	)		(1,170	)		(1,446	)		(754	)

Total comprehensive loss	$	(8,910	)	$	(102,552	)	$	(24,836	)	$	(118,196	)

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		—			—		—			—			—			(23,390	)		—			(23,390	)
Share-based compensation		—			—		—			—			3,141			—			—			3,141
Common stock issued pursuant to RSU agreements, net of shares tendered to satisfy required tax withholding		131			—		—			—			(336	)		—			—			(336	)
Purchase of treasury stock		—			—		(618	)		(4,500	)		—			—			—			(4,500	)
Retirement of treasury stock		(946	)		—		946			6,500			(6,500	)		—			—			—
Other comprehensive loss		—			—		—			—			—			—			(1,446	)		(1,446	)
Balance at September 30, 2015		29,584		$	30		—		$	—		$	367,566		$	(124,731	)	$	(2,961	)	$	239,904

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)

	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(23,390	)	$	(117,442	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Goodwill impairment		—			98,196
Depreciation of property and equipment		11,205			7,484
Amortization of intangibles		11,529			11,773
Share-based compensation		3,141			8,430
Deferred income taxes		(929	)		(1,040	)
Provision (benefit) for accounts receivable recoveries		165			(134	)
Write-off (recovery) of TV business net assets		94			(1,819	)
Other		23			(384	)
Changes in operating assets and liabilities:
Accounts receivable		10,174			4,333
Other assets		(2,524	)		1,092
Accounts payable and other liabilities		(6,665	)		(1,370	)
Net cash provided by operating activities		2,823			9,119

Cash flows from investing activities:
Purchases of property and equipment		(3,488	)		(3,840	)
Capitalized costs of developing software		(12,557	)		(9,643	)
Acquisitions, net of cash acquired		(7,541	)		(6,079	)
Purchase of long term investment		—			(975	)
Other		(476	)		(842	)
Net cash used in investing activities		(24,062	)		(21,379	)

Cash flows from financing activities:
Purchases of treasury stock		(4,500	)		—
Payment of seller financing		(625	)		—
Payments of TV business liabilities		(342	)		(9,431	)
Proceeds from TV business assets		1,809			45,408
Payment of tax withholding obligation for shares tendered		(336	)		—
Net contributions from Parent		—			44,833
Net cash (used in) provided by financing activities		(3,994	)		80,810

Effect of exchange rate changes on cash and cash equivalents		(574	)		31
Net (decrease) increase in cash and cash equivalents		(25,807	)		68,581
Cash and cash equivalents at beginning of year		90,672			22,648

Cash and cash equivalents at end of period	$	64,865		$	91,229

Supplemental disclosures of cash flow information:
Cash paid (received) for income taxes	$	574		$	(1,272	)
Cash paid (received) for interest	$	(61	)	$	(340	)
Holdback obligations incurred to acquire businesses	$	1,097		$	625
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) from 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 nine months of 2015, this change increased our net loss and loss per share by $2.3 million and $0.08, 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 September 30, 2015 and December 31, 2014 were as follows (in thousands):

Description	September 30, 2015		December 31, 2014
Current assets of television business:
Income tax receivables	$	748	$	1,943
Trade accounts receivable	9		367
Springbox revenue sharing	200		160
Total	$	957	$	2,470

Current liabilities of television business:
Trade accounts payable	$	—	$	165
Accrued liabilities	420		230
Total	$	420	$	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 September 30, 2015, we had $16.2 million notional amount of foreign currency forward contracts and options outstanding that had a net fair value liability balance of $0.1 million ($0.3 million liability, net of a $0.2 million asset). 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 liability at September 30, 2015 is included in accrued liabilities and is expected to be recognized in our results of operations in the next twelve months. The net liability at December 31, 2014 was also 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 September 30,					Nine Months Ended September 30,
	2015			2014		2015				2014
Hedging gain (loss) recognized in operations	$	(24	)	$	6		$	(71	)		$	121

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 $1.5 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 nine months ended September 30, 2015 and 2014 were as follows (in thousands):

	Three Months Ended September 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 June 30, 2015	$	(2,896	)	$	276		$	1,021		$	(1,599	)

Other comprehensive loss before reclassifications		(805	)		(403	)		(176	)		(1,384	)
Amounts reclassified out of AOCL		—			22			—			22
Net current period activity		(805	)		(381	)		(176	)		(1,362	)
Balance at September 30, 2015	$	(3,701	)	$	(105	)	$	845		$	(2,961	)

	Nine Months Ended September 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 loss before reclassifications		(1,029	)		(71	)		(410	)		(1,510	)
Amounts reclassified out of AOCL		—			64			—			64
Net current period activity		(1,029	)		(7	)		(410	)		(1,446	)
Balance at September 30, 2015	$	(3,701	)	$	(105	)	$	845		$	(2,961	)

	Three Months Ended September 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 June 30, 2014	$	(726	)	$	24		$	1,800		$	1,098

Other comprehensive loss before reclassifications		(989	)		(18	)		(157	)		(1,164	)
Amounts reclassified out of AOCI		—			(6	)		—			(6	)
Net current period activity		(989	)		(24	)		(157	)		(1,170	)
Balance at September 30, 2014	$	(1,715	)	$	—		$	1,643		$	(72	)

	Nine Months Ended September 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 loss before reclassifications		(517	)		(10	)		(121	)		(648	)
Amounts reclassified out of AOCI		—			(106	)		—			(106	)
Net current period activity		(517	)		(116	)		(121	)		(754	)
Balance at September 30, 2014	$	(1,715	)	$	—		$	1,643		$	(72	)

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

	Amounts Reclassified out of AOCI or AOCL
	Three Months Ended September 30, 2015			Three Months Ended September 30, 2014		Affected Line Items in the Consolidated and Combined Statements of Operations
Gains (losses) on cash flow hedges:
Foreign currency derivatives	$	(2	)	$	1	Cost of revenues
Foreign currency derivatives		(1	)		—	Selling and marketing
Foreign currency derivatives		(13	)		4	Research and development
Foreign currency derivatives		(4	)		1	General and administrative
Foreign currency derivatives		(4	)		—	Other, net
Total before taxes		(24	)		6
Tax amounts		2			—
Income (loss) after tax	$	(22	)	$	6

	Amounts Reclassified out of AOCI or AOCL
	Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014			Affected Line Items in the Consolidated and Combined Statements of Operations
Gains (losses) on cash flow hedges:
Foreign currency derivatives	$	(7	)	$	12		Cost of revenues
Foreign currency derivatives		(3	)		5		Selling and marketing
Foreign currency derivatives		(47	)		58		Research and development
Foreign currency derivatives		(12	)		16		General and administrative
Foreign currency derivatives		(2	)		30		Other, net
Total before taxes		(71	)		121
Tax amounts		7			(15	)
Income (loss) after tax	$	(64	)	$	106

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 September 30,					Nine Months Ended September 30,
Description	2015		2014			2015		2014
Merger and Spin-Off (1)	$	—	$	471		$	—	$	5,209
Severance		1		504			467		1,062
Integration and restructuring costs		1,057		912			2,127		1,867
Acquisition, legal and due diligence fees		33		153			763		191
Write-off (recovery) of TV business net assets (2)		356		(1,819	)		94		(1,819	)
Total	$	1,447	$	221		$	3,451	$	6,510

___________________

(1)

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

(2)

Represents an increase (reduction) in expense due to realizing less (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.

In August 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09 by one year. As a result, for Sizmek, the amendments in ASU 2014-09 are now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. 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 September 2015, the FASB issued ASU 2015-16, "Business Combinations (Topic 805)." ASU 2015-16 modifies how changes to provisional amounts determined during the measurement period of a business combination are recognized. Under existing accounting literature, changes to provisional amounts determined during the measurement period of a business combination, resulting from facts and circumstances that existed at the acquisition date, are recognized by retrospectively adjusting the provisional amounts at the acquisition date. However, under ASU 2015-16, an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are determined. For Sizmek, ASU 2015-16 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period.

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 September 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 September 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)	$	28,920	$	—	$	—	$	28,920
Revenue sharing arrangement	(b)	—		—		200		200
Marketable equity securities	(c)	1,186		—		—		1,186
Total		$	30,106	$	—	$	200	$	30,306
Liabilities:
Currency forward derivatives / options	(d)	$	—	$	130	$	—	$	130

		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	(b)	—		—		160		160
Marketable equity securities	(c)	1,596		—		—		1,596
Total		$	37,549	$	—	$	160	$	37,709
Liabilities:
Currency forward derivatives / options	(d)	$	—	$	113	$	—	$	113

_____________________________

(a) Included in cash and cash equivalents.

(b) Included in current assets of TV business.

(d) 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
	Nine Months Ended September 30, 2015
Balance at beginning of year	$	160
Additions recognized in operating results	40
Balance at end of period	$	200

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 September 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

b)	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 $8.8 million. The purchase price includes $7.7 million in cash paid at closing and deferred payment obligations totaling $1.1 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 $8.8 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 September 30, 2015, StrikeAd reported $3.0 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		(11.4	)		—		—
Net assets acquired	$	8.8		$	0.5	$	6.3

Pro Forma Information

The following pro forma information presents our results of operations for the nine months ended September 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 Nine Months Ended September 30,						Unaudited Pro Forma Nine Months Ended September 30,
	2015			2014			2015			2014
Revenue	$	117,241		$	121, 893		$	120,794		$	131,214
Net loss		(23,390	)		(117,442	)		(25,709	)		(121,742	)

5. Goodwill

We operate as a single reporting unit. Changes in the carrying value of our goodwill for the nine months ended September 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 September 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.

During the third quarter of 2015, we considered our recent performance and the impact the acquisition of StrikeAd is likely to have on our long term performance. We also considered our future revenue growth, synergies and increases in operating leverage we expect to realize, our recent market capitalization and other qualitative factors. Taking into account these considerations, at September 30, 2015, we continue to believe the Company's fair value exceeds its carrying value and goodwill is not impaired.

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, we may 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):

	Nine Months Ended September 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		3,141		1,963
Total	$	3,141	$	8,430

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).

In the third quarter of 2015, Sizmek’s Compensation Committee granted 5,230 time-based RSUs valued at less than $0.1 million to one of our employees. The award vests over three years and is subject to the employee’s continued employment with us.

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 $6.5 million at September 30, 2015.

7. Income Taxes

For the nine months ended September 30, 2015, our effective tax rate was 7.7% compared to 0.9% for the nine months ended September 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 more-likely-than-not. Conversely, in certain foreign jurisdictions we report earnings and recognize a tax expense or benefit 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 nine months ended September 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 nine month periods ended September 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 nine months ended September 30, 2015 and 2014 were as follows (in thousands):

	Nine Months Ended September 30,
	2015			2014
Balance at beginning of year	$	1,507		$	1,701
Changes for tax positions related to prior years		(13	)		362
Balance at end of period	$	1,494		$	2,063

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

As of September 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 determined to be not 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 September 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 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 our U.S. subsidiaries have significant net assets, liquidity, and other financial resources available to meet their operational and capital investment requirements such that we do not need to repatriate the undistributed earnings of our non-U.S. subsidiaries to the U.S.

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 nine months ended September 30, 2015 and 2014 (in thousands, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net loss	$	(7,548	)	$	(101,382	)	$	(23,390	)	$	(117,442	)

Weighted average common shares outstanding — basic		29,567			30,399			29,633			30,399
Dilutive securities		—			—			—			—
Weighted average common shares outstanding - diluted		29,567			30,399			29,633			30,399

Basic and diluted loss per common share	$	(0.26	)	$	(3.34	)	$	(0.79	)	$	(3.86	)

Antidilutive securities not included:
Stock options and RSUs		862			847			979			847

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 September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Revenues:
United States	$	21,918	$	19,594	$	62,493	$	58,135
Europe, Middle East and Africa		10,783		10,522		31,954		36,149
Asia Pacific		5,609		6,506		16,680		18,918
Latin America		1,233		2,068		3,982		5,784
North America (excluding U.S.)		723		823		2,132		2,907
Total	$	40,266	$	39,513	$	117,241	$	121,893

For the nine months ended September 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 September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Revenues:
Core products	$	28,727	$	25,337	$	82,151	$	76,426
Rich media		4,142		10,043		19,255		33,220
Programmatic managed services		7,397		4,133		15,835		12,247
Total	$	40,266	$	39,513	$	117,241	$	121,893

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

	September 30, 2015		December 31, 2014
Long-Lived Assets:
Israel	$	30,710	$	24,818
United States		7,180		7,181
Other countries		1,747		2,037
Total	$	39,637	$	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	Nine Months Ended September 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.

11. Subsequent Event – Purchase of Point Roll

On November 12, 2015, we acquired all of the shares of Point Roll, Inc. (“Point Roll”), from TEGNA, Inc. (“Seller”) for a total purchase price of $20 million, subject to adjustment. Point Roll is in the business of providing rich media and dynamic creative ad serving technologies that allow interactivity in online advertising, such as streaming video, polling, and e-mail and data collection. Of the total purchase price (i) $11 million was paid in cash at closing, (ii) $7 million will be paid one year after the closing date and (iii) $2 million will be paid one year after the closing date, subject to any indemnification claims. The purchase price was paid from cash on hand. Point Roll does not have any debt and its net working capital, as defined, is expected to be at least $8.5 million.

We expect to realize certain operating synergies as we combine our existing operation with the business of Point Roll. In connection with the transaction, the Seller has agreed not to compete (as defined) with the business of Point Roll for a period of three years after the closing date. We have not as yet allocated the purchase price to the assets acquired and the liabilities assumed.

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 Report, 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 / Mobile—with our recent acquisition of StrikeAd, a mobile DSP operator, we now have a robust mobile offering across the mobile web and in-app technology which supplements our HTML based products.

(ii)

Data 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.

(iii)

Data Management—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.

(iv)

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.

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 nine months ended September 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 ($5.2 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

Third Quarter 2015 Highlights

Revenues increased $0.8 million, or 2%, compared to the same quarter of 2014. Our core products revenue grew by $3.4 million, or 13%, and our programmatic managed services revenue grew $3.3 million, or 79%. This growth was offset by a continued decline in our rich media revenues which fell $5.9 million, or 59%.

In the third quarter of 2015, foreign currency exchange rates generally weakened compared with the U.S. Dollar, when compared to the third quarter of 2014. This resulted in us reporting lower revenues ($2.4 million) and lower operating expenses ($2.2 million) than if the exchange rates were held constant with those in effect in the third quarter of 2014.

Excluding the goodwill impairment charge in the third quarter of 2014, our loss from operations increased $7.2 million in the third quarter of 2015 as compared to the same period of 2014. The increase in loss was due to higher operating expenses ($8.0 million), partially offset by a slight increase in revenues ($0.8 million). A portion of the increase in operating loss was due to the following unusual items:

Our purchase of StrikeAd increased our operating expenses more than the revenue it produced. Over time, we expect StrikeAd will experience significant revenue growth and leverage its operating expenses to make solid contributions to operating income.

In late 2014 we made the decision to shorten the estimated remaining useful life of our Sizmek MDX platform by about two years in anticipation of completing the development of our new platform. As a result, in each quarter of 2015 we are recognizing an additional $0.9 million of depreciation expense.

In the third quarter of 2015 merger, integration and other expense increased $1.2 million over the same period in 2014. The increase was due to the 2014 period recognizing a credit of $1.8 million from recovering more TV net assets than originally anticipated.

In 2015, we also increased our staffing levels (to further expand our business) in anticipation that our revenues would be substantially higher. The higher levels of revenue have not yet occurred and, as a result, our operating loss increased.

Results of Operations

Three Months Ended September 30, 2015 vs. Three Months Ended September 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
	September 30,						vs.			September 30,
	2015			2014			2014			2015			2014
Revenues:
Platform – core products	$	28,727		$	25,337			13	%		71.3	%		64.1	%
Platform – rich media		4,142			10,043			(59	)		10.3			25.4
Subtotal		32,869			35,380			(7	)		81.6			89.5
Programmatic		7,397			4,133			79			18.4			10.5
Total		40,266			39,513			2			100.0			100.0
Costs and expenses:
Cost of revenues:
Platform (a)		11,029			11,708			(6	)		27.4			29.6
Programmatic (a)		6,002			2,566			134			14.9			6.5
Total		17,031			14,274			19			42.3			36.1
Selling and marketing		15,597			14,082			11			38.7			35.6
Research and development		3,816			3,300			16			9.5			8.4
General and administrative		5,005			4,276			17			12.4			10.8
Merger, integration and other		1,447			221		NM				3.6			0.6
Depreciation and amortization		7,524			6,280			20			18.7			15.9
Goodwill impairment		—			98,196			(100	)		—			248.5
Total costs and expenses		50,420			140,629		NM				125.2			355.9

Loss from operations		(10,154	)		(101,116	)	NM				(25.2	)		(255.9	)
Other (income) expense, net		(58	)		479		NM				(0.1	)		1.2

Loss before income taxes		(10,096	)		(101,595	)	NM				(25.1	)		(257.1	)
Benefit for income taxes		(2,548	)		(213	)	NM				(6.3	)		(0.5	)

Net loss	$	(7,548	)	$	(101,382	)	NM				(18.8	)		(256.6	)

__________________________

(a) Excludes depreciation and amortization.

NM – Not meaningful.

Revenues – Platform. For the three months ended September 30, 2015, platform revenues decreased $2.5 million, or 7%, as compared to the same period in the prior year. The decrease was due to a decline in our rich media services revenue ($5.9 million), partially offset by growth in our core products revenue ($3.4 million). Our rich media services revenue declined due to a continuing reduction in the number of impressions served and 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 September 30, 2015, programmatic managed services revenues increased $3.3 million, or 79%, as compared to the same period in the prior year. The increase was principally due to our acquisition of StrikeAd, a demand side platform (DSP) operator that we purchased in May 2015. We are in the process of combining StrikeAd’s operations with our existing programmatic business. We expect to grow our programmatic business over the next few years as our operations are combined and product offering is optimized.

Revenues – Foreign Currency Impact. For the three months ended September 30, 2015, foreign currency exchange rates compared to the U.S. Dollar were generally weaker than they were during the three months ended September 30, 2014. This resulted in us reporting revenues that were $2.4 million lower than if the exchange rates were held constant in both periods.

Cost of Revenues – Platform. For the three months ended September 30, 2015, platform cost of revenues decreased $0.7 million, or 6%, as compared to the same period in the prior year. As a percentage of total revenues, platform cost of revenues decreased to 27.4% in the third quarter of 2015, as compared to 29.6% in the third quarter of 2014. Platform cost of revenues decreased primarily due to a reduction in compensation costs ($0.8 million) and professional fees ($0.1 million), partially offset by an increase in delivery costs ($0.4 million). Compensation costs were reduced due to lower average compensation levels per employee. Delivery costs increased due to a 2015 decision to lease file servers rather than own file servers. The decision to lease servers gives us greater flexibility and more reliability but increases costs. In addition, the entire leasing cost is charged to the area using the server. When the file server was owned only the maintenance cost was charged to the area using the server and the cost of the equipment was recognized over time as depreciation expense.

Cost of Revenues – Programmatic. For the three months ended September 30, 2015, programmatic cost of revenues increased $3.4 million, or 134%, as compared to the same period in the prior year. Our programmatic gross profit percentage decreased to 18.9% in the third quarter of 2015, as compared to 37.9% in the third quarter of 2014. The decrease was largely due to (i) the acquisition of StrikeAd, which operates at a lower gross profit percentage than our historical trading operation and (ii) our decision to accept a lower gross profit margin in order to attract more business.

Selling and Marketing. For the three months ended September 30, 2015, selling and marketing expense increased $1.5 million, or 11%, as compared to the same period in the prior year. The increase principally relates to higher compensation costs ($1.4 million). Our compensation costs increased due to a 30% increase in sales personnel and a revision to our commission program to place a greater emphasis on performance based compensation.

Research and Development. For the three months ended September 30, 2015, research and development expense increased $0.5 million, or 16%, as compared to the same period in the prior year. The increase was primarily due to higher deployment costs. Deployment costs increased due to a 2015 decision to lease file servers rather than own the servers. Generally, the cost of leasing servers is greater than the cost of owning servers. See “Cost of Revenues – Platform” above for more detail about the decision to lease rather than own the file servers.

General and Administrative. For the three months ended September 30, 2015, general and administrative expense increased $0.7 million, or 17%, as compared to the same period in the prior year. The increase was primarily attributable to higher compensation costs ($0.3 million) and legal and consulting fees ($0.3 million). Compensation costs increased due to (i) an increase in our administrative staff and (ii) higher share-based compensation.

Merger, Integration and Other. For the three months ended September 30, 2015, merger, integration and other costs increased $1.2 million as compared to the same period in the prior year. The increase principally relates to higher TV business net asset charges of $2.2 million, partially offset by reductions in (i) severance charges ($0.5 million) and (ii) Merger and Spin-Off costs ($0.5 million). In the third quarter of 2015, we incurred TV business net asset charges of $0.4 million, compared to a credit of $1.8 million in the same period in 2014. The 2014 credit of $1.8 million reflects the realization of more TV business net assets than originally estimated at the time of the Spin-Off from DG in February 2014.

Depreciation and Amortization. For the three months ended September 30, 2015, depreciation and amortization increased $1.2 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 (i) depreciation of other property and equipment ($0.2 million) and (ii) amortization of intangible assets ($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 (income) expense, net. For the three months ended September 30, 2015, other income and expense was a net income of $0.1 million as compared to a net expense of $0.5 million for the same period in 2014. The 2014 expense primarily related to foreign exchange losses, which resulted from the strengthening of the U.S. dollar in comparison with other currencies in which we conduct business.

Benefit for Income Taxes. For the three months ended September 30, 2015, our effective tax rate was 25.2% compared to 0.2% 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 (i) not recognizing any tax benefit for the tax losses we incur in the U.S., (ii) reporting taxable income in several foreign jurisdictions where the marginal tax rates are different from the U.S. tax rate, (iii) non-deductible expenses, and (iv) state 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 September 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 ($2.4 million), lower operating expenses ($2.2 million), and a larger operating loss ($0.2 million) than if the exchange rates were held constant during both periods.

Nine Months Ended September 30, 2015 vs. Nine Months Ended September 30, 2014

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

							% Change			As a % of Total Revenues
	Nine Months Ended						2015			Nine Months Ended
	September 30,						vs.			September 30,
	2015			2014			2014			2015			2014
Revenues
Platform – core products	$	82,151		$	76,426			7	%		70.1	%		62.7	%
Platform – rich media		19,255			33,220			(42	)		16.4			27.3
Subtotal		101,406			109,646			(8	)		86.5			90.0
Programmatic		15,835			12,247			29			13.5			10.0
Total		117,241			121,893			(4	)		100.0			100.0
Costs and expenses:
Cost of revenues:
Platform (a)		33,039			35,739			(8	)		28.2			29.3
Programmatic (a)		12,144			8,289			47			10.3			6.8
Total		45,183			44,028			3			38.5			36.1
Selling and marketing		45,233			44,184			2			38.6			36.3
Research and development		10,393			10,041			4			8.9			8.2
General and administrative		14,298			17,464			(18	)		12.2			14.3
Merger, integration and other		3,451			6,510			(47	)		2.9			5.3
Depreciation and amortization		22,734			19,257			18			19.4			15.8
Goodwill impairment		—			98,196			(100	)		—			80.6
Total costs and expenses		141,292			239,680			(41	)		120.5			196.6

Loss from operations		(24,051	)		(117,787	)		(80	)		(20.5	)		(96.6	)
Other expense, net		1,287			687			87			1.1			0.6

Loss before income taxes		(25,338	)		(118,474	)		(79	)		(21.6	)		(97.2	)
Benefit for income taxes		(1,948	)		(1,032	)		89			(1.7	)		(0.8	)

Net loss	$	(23,390	)	$	(117,442	)		(80	)		(19.9	)		(96.4	)

___________________________

(a) Excludes depreciation and amortization.

Revenues – Platform. For the nine months ended September 30, 2015, platform revenues decreased $8.2 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 ($13.9 million), partially offset by growth in our core products revenue ($5.7 million). Our rich media services revenue declined due to a continuing reduction in the number of impressions served and the average selling price per impression served. Our core products revenue grew primarily due to greater usage of our (i) mobile services (ii) smart versioning optimization product, (iii) in-stream product and (iv) and our analytics tools, partially offset by declines in other services.

Revenues – Programmatic. For the nine months ended September 30, 2015, programmatic managed services revenues increased $3.6 million, or 29%, as compared to the same period in the prior year. Revenues from our May 2015 acquisition of StrikeAd ($3.0 million) and growth in Aerify Media’s revenues ($1.3 million) (principally due to including nine months of Aerify’s revenues in the current year period versus only two months in the prior year period), were partially offset by a decrease in our trading revenues ($0.7 million).

Revenues – Foreign Currency Impact. For the nine months ended September 30, 2015, foreign currency exchange rates compared to the U.S. Dollar were generally weaker than they were during the nine months ended September 30, 2014. This resulted in us reporting revenues that were $7.4 million lower than if the exchange rates were held constant during both periods.

Cost of Revenues – Platform. For the nine months ended September 30, 2015, platform cost of revenues decreased $2.7 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 28.2% in the first nine months of 2015, as compared to 29.3% in the same period of 2014. Platform cost of revenues decreased primarily due to a reduction in compensation costs ($3.3 million) and professional fees and outsourcing costs ($0.6 million), partially offset by an increase in delivery costs ($1.5 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 primarily due to lower consulting and trafficking costs. Delivery costs increased due to a 2015 decision to lease file servers rather than own file servers. The decision to lease servers gives us greater flexibility and more reliability but increases costs. In addition, the entire leasing cost is charged to the area using the server. When the file server was owned only the maintenance cost was charged to the area using the server and the cost of the equipment was recognized over time as depreciation expense.

Cost of Revenues – Programmatic. For the nine months ended September 30, 2015, programmatic cost of revenues increased $3.9 million, or 47%, as compared to the same period in the prior year. Our programmatic gross profit percentage decreased to 23.3% in the first nine months of 2015, as compared to 32.3% in the same period of 2014. The decrease was largely due to (i) the acquisition of StrikeAd, which operates at a lower gross profit percentage than our historical trading operation and (ii) our decision to accept a lower gross profit margin in order to attract more business.

Selling and Marketing. For the nine months ended September 30, 2015, selling and marketing expense increased $1.0 million, or 2%, as compared to the same period in the prior year. The increase relates to higher compensation costs ($1.6 million) partially offset by a reduction in reseller costs ($0.7 million). Our compensation costs increased due to an increase in sales personnel and a revision to our commission program to place a greater emphasis on performance based compensation. 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 38.6% in the nine months ended September 30, 2015 as compared to 36.3% in the same period of 2014.

Research and Development. For the nine months ended September 30, 2015, research and development expense increased $0.4 million, or 4%, as compared to the same period in the prior year. The increase was due to higher deployment costs ($0.8 million) and information technology costs ($0.3 million), partially offset by lower compensation costs ($0.7 million). Deployment costs increased due to a 2015 decision to lease file servers rather than own the servers. Generally, the cost of leasing servers is greater than the cost of owning servers. See “Cost of Revenues – Platform” above for more detail about the decision to lease rather than own the file servers. Our 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 nine months ended September 30, 2015, general and administrative expense decreased $3.2 million, or 18%, as compared to the same period in the prior year. As a percentage of revenues, general and administrative expense decreased to 12.2% in the first nine months of 2015, as compared to 14.3% in the same period of 2014. The decrease was primarily attributable to recognizing a smaller amount of share-based compensation ($3.6 million), partially offset by an increase in professional fees ($0.9 million) which principally represent legal and consulting fees. In the nine months ended September 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 nine months ended September 30, 2015, merger, integration and other costs decreased $3.1 million, or 47%, 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 a reduction in TV business net asset recoveries. In the 2014 period, we recorded a credit of $1.8 million reflecting the realization of more TV business net assets than originally estimated at the time of the Spin-Off from DG in February 2014.

Depreciation and Amortization. For the nine months ended September 30, 2015, depreciation and amortization increased $3.5 million, or 18%, as compared to the same period in the prior year. The increase was attributable to greater depreciation of capitalized software ($4.3 million), partially offset by lower depreciation of other property and equipment ($0.6 million) and lower amortization of intangible assets ($0.2 million). The increase in depreciation of capitalized software for the nine months ended September 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 ($2.6 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 nine months of 2015 was due to certain assets becoming fully depreciated.

Other expense, net. For the nine months ended September 30, 2015, other expense, net was $1.3 million as compared to $0.7 million for the same period in 2014. The increase in expense ($0.6 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.

Benefit for Income Taxes. For the nine months ended September 30, 2015, our effective tax rate was 7.7% compared to 0.9% 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 (i) not recognizing any tax benefit for the tax losses we incur in the U.S., (ii) reporting taxable income in several foreign jurisdictions where the marginal tax rates are different from the U.S. tax rate, (iii) non-deductible expenses, and (iv) state 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 nine months ended September 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 ($7.4 million), lower operating expenses ($6.6 million), and a larger operating loss ($0.8 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 September 30, 2015 and December 31, 2014 (in thousands):

	September 30, 2015		December 31, 2014
Assets:
Cash and cash equivalents	$	64,865	$	90,672
Accounts receivable, net		43,835		51,125
Assets of TV business		957		2,470
Property and equipment, net		39,637		34,036
Goodwill		51,288		40,154
Intangible assets, net		65,293		71,306

Liabilities:
Accounts payable and accrued liabilities		28,344		23,147
Deferred income taxes		7,299		8,242

Stockholders’ equity		239,904		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 ($16.0 million), (ii) our purchase of StrikeAd ($7.5 million), (iii) our purchases of treasury stock ($4.5 million) and (iv) proceeds from TV business assets, net of payments of TV business liabilities ($1.5 million), partially offset by cash generated by operating activities ($2.8 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 100 days and 96 days at September 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 city and state 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 nine months ended September 30, 2015 and 2014, purchases of property and equipment (used primarily to improve our ad serving platform) were $3.5 million and $3.8 million, respectively. For the nine months ended September 30, 2015 and 2014, capitalized costs of developing software were $12.6 million and $9.6 million, respectively.

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

Accounts payable and accrued liabilities increased $5.2 million to $28.3 million at September 30, 2015 as compared to $23.1 million at December 31, 2014. The increase relates primarily to the liabilities assumed in the purchase of StrikeAd and the portion of the purchase price that was deferred ($1.1 million).

Stockholders' equity decreased by $26.5 million to $239.9 million at September 30, 2015 compared to $266.4 million at December 31, 2014, principally as a result of reporting a $23.4 million net loss and purchasing $4.5 million of treasury stock.

Liquidity and Capital Resources

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

	Nine Months Ended September 30,
	2015			2014
Operating activities:
Net loss	$	(23,390	)	$	(117,442	)
Goodwill impairment		—			98,196
Depreciation and amortization		22,734			19,257
Share-based compensation and other		2,494			5,053
Changes in operating assets and liabilities, net		985			4,055
Total		2,823			9,119

Investing activities:
Purchases of property and equipment		(3,488	)		(3,840	)
Capitalized costs of developing software		(12,557	)		(9,643	)
Acquisitions, net of cash acquired		(7,541	)		(6,079	)
Other		(476	)		(1,817	)
Total		(24,062	)		(21,379	)

Financing activities:
Purchases of treasury stock		(4,500	)		—
Payments of TV business liabilities		(342	)		(9,431	)
Proceeds from TV business assets		1,809			45,408
Other		(961	)		—
Net contributions from Parent		—			44,833
Total		(3,994	)		80,810

Effect of exchange rate changes on cash and cash equivalents		(574	)		31

Net (decrease) increase in cash and cash equivalents	$	(25,807	)	$	68,581

We generate cash from operating activities principally from net loss adjusted for certain non-cash expenses such as (i) goodwill impairment, (ii) depreciation and amortization and (iii) share-based compensation. In the first nine months of 2015, we generated $2.8 million in cash from operating activities, as compared to generating $9.1 million in the same period of 2014. Cash provided by operating activities declined by $6.3 million in the first nine months of 2015 when compared to the same period in 2014 due primarily to a decline in operating results after adjusting for non-cash expenses (depreciation and amortization, share-based compensation and goodwill impairment charge).

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 nine 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 nine months of 2015, we used cash in financing activities to purchase shares of our common stock ($4.5 million), and used cash in investing activities to purchase StrikeAd ($7.5 million). We also used cash in investing activities to develop our software ($12.6 million in the 2015 period compared to $9.6 million in the 2014 period).

Sources of Liquidity

Our sources of liquidity include:

cash and cash equivalents on hand (including $10.1 million held outside the United States at September 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 or investments, 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 September 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 $21 million to $23 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.

On November 12, 2015 we acquired all of the shares of Point Roll for a total purchase price of $20 million, subject to adjustment. Of the total purchase price (i) $11 million was paid in cash at closing, (ii) $7 million will be paid one year after the closing date and (iii) $2 million will be paid one year after the closing date, subject to any indemnification claims. See Note 11 to our combined and consolidated financial statements.

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 September 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 September 30, 2015. As of September 30, 2015, $23.5 million remained available for future share repurchases under the share repurchase program.

Item 6. EXHIBITS

Exhibits
3.1(a)		Amended and Restated Certificate of Incorporation of Registrant.
3.2(b)		Second Amended and Restated Bylaws of Registrant.
10.1**		Securities Purchase Agreement by and among Sizmek Technologies, Inc., Sizmek Inc. and TEGNA, Inc. dated November 12, 2015.
31.1 **		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 September 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.

______________________

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

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

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

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Sizmek Inc. Reports