ADTHEORENT HOLDING COMPANY, INC. Management report and analysis of the financial situation and operating results. (Form 10-K)

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The following discussion and analysis should be read in conjunction with other
sections of this Annual Report, including "Item 1. Business," "Item 1A. Risk
Factors," and the accompanying Consolidated Financial Statements and related
Notes included elsewhere in this Report. Unless otherwise indicated, the terms
"AdTheorent," "we," "us," or "our" refer to AdTheorent Holdings, LLC, together
with its consolidated subsidiaries.

Company Overview

Founded in 2012, we are a digital media platform that focuses on performance and privacy-driven methods to run programmatic digital advertising campaigns, serving ad agencies and client brands. Without relying on individualized profiles or sensitive personal data for targeting, we use machine learning and advanced data analytics to make programmatic digital advertising more effective and efficient at scale, delivering measurable real value to advertisers. Our differentiated advertising capabilities and superior campaign performance, measured by client-defined business metrics or KPIs, have helped fuel our client adoption and year-over-year growth.


We use machine learning and advanced data science to organize, analyze and
operationalize non-sensitive data to deliver real-world value for customers.
Central to our ad-targeting and campaign optimization methods, we build custom
machine learning models for each campaign using historic and real-time data to
predict future consumer conversion actions for every digital ad impression. We
have integrations with Ad Exchanges/SSPs, from which we are sent ad impression
opportunities to evaluate and purchase. We predictively score all of these ad
impression opportunities for the purpose of deciding which ad impressions will
likely drive valuable conversions or engagement activity for our customers. Our
predictive platform scores over one million digital ad impressions per second
and 75 billion to 90 billion digital ad impressions per day, assigning a
"predictive score" to each. Each predictive score is determined by correlating
non-personal data attributes associated with the particular impression with data
corresponding to previously purchased impressions that yielded consumer
conversion or engagement activity. Such non-individualized attributes include
variables such as publisher, content and URL keywords, device make, device
operating system and other device attributes, ad position, geographic data,
weather, demographic signals, creative type and size, etc. The "predictive
scores" generated by our platform allow us and our advertising clients to
determine which ad impressions are more likely or less likely to result in
client-desired KPIs. Our machine learning models are customized for every
campaign and our platform "learns" over the course of each campaign as it
processes more data related to data attributes and actual conversion experience.
Based on these statistical probabilities or "predictive scores," our platform
automatically determines bidding optimizations to drive conversions and
advertiser ROI or ROAS, bidding on less than .001 of the evaluated impressions.
Our use of machine learning and data science helps us to maximize efficiency and
performance, enabling our customers to avoid wasted ad spend related to
suboptimal impressions such as impressions that are predicted to be at a greater
risk for fraud/invalid traffic or impressions with a higher likelihood of being
unviewable, unmeasurable, and not brand safe, among other factors.


Our capabilities extend across the digital ecosystem to identify and engage
digital actors with the highest likelihood of completing customer-desired
actions, including online sales, other online actions, and real-world actions
such as physical location visitation, in-store sales or vertical specific KPI's
such as prescription fills/lift or submitted credit card applications. Our
custom and highly impactful campaign executions encompass popular digital
screens - mobile, desktop, tablet, CTV - and all digital ad formats, including
display, rich media, video, native and streaming audio. We actively manage our
digital supply to provide advertisers with scale and reach, while minimizing
redundant inventory, waste and other inefficiencies. Our CTV capability delivers
scale and reach supplemented by innovative and industry recognized
machine-learning optimizations towards real-world actions and value-added
measurement services.

Our platform and machine learning-based targeting provide privacy advantages
that are lacking from alternatives which rely on individual user profiles or
cookies employing a "one-to-one" approach to digital ad targeting. Our targeting
approach is statistical, not individualized, and as a result we do not need to
compile or maintain user profiles, and we do not rely on cookies or user
profiles for targeting. Our solution-set is especially valuable to regulated
customers, such as financial institutions and pharmaceutical companies, and
other privacy-forward advertisers who desire efficient and effective digital
ad-targeting without individualized or personal targeting data. We adhere to
data usage protocols and model governance processes which help to ensure that
each customer's data is safeguarded and used only for that customer's benefit,
and the Company takes a consultative and collaborative approach to data use best
practices with all of our customers.

Supplementing our core machine learning-powered platform capabilities, we offer
customized vertical solutions to address the needs of advertisers in specialized
industries. These specialized solutions feature vertical-specific capabilities
related to targeting, measurement and audience validation. Our Pharmaceutical
and Healthcare offering ("AdTheorentRx") harnesses the power of machine learning
to drive superior performance on campaigns targeting both HCP and patients,

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leveraging HIPAA-compliant methods and targeting practices that comply with NAI
Code and other self-regulatory standards. Our BFSI solutions drive real-world
performance within the context of regulatory requirements and data use best
practices intended to prevent discrimination in the promotion of federally
regulated credit-extension products. We have created additional
industry-tailored offerings to address the unique challenges and opportunities
in a growing range of verticals, including retail, automotive, dining, and
entertainment.

Recent Developments

Business Combination

On December 22, 2021 (the "Closing Date"), MCAP, now known as AdTheorent Holding
Company, Inc., consummated the previously announced business combination
pursuant to that certain Business Combination Agreement, dated as of July 27,
2021 (as amended, restated, supplemented or otherwise modified, the "Business
Combination Agreement"), by and among MCAP, GRNT Merger Sub 1 LLC, a Delaware
limited liability company ("Merger Sub 1"), GRNT Merger Sub 2 LLC, a Delaware
limited liability company ("Merger Sub 2"), GRNT Merger Sub 3 LLC, a Delaware
limited liability company ("Merger Sub 3"), GRNT Merger Sub 4 LLC, a Delaware
limited liability company ("Merger Sub 4" and, together with Merger Sub 1,
Merger Sub 2 and Merger Sub 3, the "Merger Sub Entities"), H.I.G.
Growth-AdTheorent Intermediate, LLC, a Delaware limited liability company (the
"Blocker"), H.I.G. Growth-AdTheorent, LLC, a Delaware limited liability company,
and AdTheorent Holding Company, LLC, a Delaware limited liability company
("Legacy AdTheorent"). Pursuant to the terms of the Business Combination
Agreement, Legacy AdTheorent, the Blocker and the Merger Sub Entities engaged in
a series of four mergers, which resulted in Legacy AdTheorent becoming a wholly
owned subsidiary of MCAP (the "Business Combination'). On the Closing Date, and
in connection with the closing of the Business Combination, MCAP changed its
name to AdTheorent Holding Company, Inc.

Beginning December 23, 2021, our shares of Common Stock traded on the Nasdaq
Capital Market under the ticker symbol "ADTH" and our warrants traded on Nasdaq
under the ticker symbol "ADTHW".

Factors affecting our performance

Growth of the programmatic advertising market


Our operating results and prospects will be impacted by the overall continued
adoption of programmatic advertising by inventory owners and content providers,
as well as advertisers and the agencies that represent them. Programmatic
advertising has grown rapidly in recent years, and any acceleration, or slowing,
of this growth would affect our operating and financial performance. In
addition, even if the programmatic advertising market continues to grow at its
current rate, our ability to successfully position itself within the market will
impact the future growth of the business.

Investment in platform and solutions to provide continuous differentiation in a changing market


We believe that the capabilities and differentiation of our platform and
solutions has been critical to our historical growth. Continued innovation in an
evolving programmatic marketplace will be an important driver of our future
growth. We anticipate that operating expenses will increase in the foreseeable
future as it invests in platform operations and technology, data science and
machine learning capabilities and data infrastructure and tools to enhance our
custom solutions and value-added offerings. We believe that these investments
will contribute to our long-term growth, although they may have a negative
impact on profitability in the near-term.

Customer Spend Growth and Retention


We plan to make incremental investments in sales and marketing to acquire new
customers and increase existing customers' usage of our platform and solutions.
We believe that there is significant room for growth within our existing
customers, which include many large global brands and advertising agencies.
Future revenue and profitability growth depends upon our ability to cost
effectively on-board new customers and our on-going ability to retain and scale
existing customers.

Ability to continue to access powerful media inventory in existing and emerging channels


Our ability to deliver upon clients' targeted key performance indicators is
reliant upon our ability to access high quality media inventory across multiple
advertising channels at scale. Our future growth will depend on our ability to
maintain and grow spend on existing and emerging channels, including advertising
on display, rich media, native, video and audio ad formats across mobile,
desktop and CTV formats.

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Development of international markets


Although almost all of our historic revenue is attributable to campaigns and
operations in the United States and Canada, we plan to explore opportunities to
serve new international markets, including serving the global needs of existing
customers. We believe that the global opportunity for programmatic advertising
is significant and should continue to expand as publishers and advertisers
outside the United States and Canada increasingly seek to adopt the benefits
that programmatic advertising provides. We believe that our privacy-forward
approach to ad targeting and data usage will provide desired differentiation and
value in highly and increasingly regulated markets such as the EU, which is
subject to the GDPR. Our ability to efficiently expand into new markets will
affect our operating results.

Managing Seasonality

The global advertising industry experiences seasonal trends that affect the vast
majority of participants in the digital advertising ecosystem. Most notably,
advertisers have historically spent relatively more in the fourth quarter of the
calendar year to coincide with the holiday shopping season, and relatively less
in the first quarter. In addition to the impact on revenue, increased fourth
quarter demand for advertising inventory applies additional upward pressure on
fourth quarter media costs, which adversely impacts profitability. We expect
seasonality trends to continue, and our ability to manage resources in
anticipation of these trends could affect operating results.

Key business metric

To analyze our business performance, make financial forecasts, and help shape long-term strategic plans, we review the following key business metrics:

Active customers


We track active customers, which are defined as our customers who spent over
$5,000 during the previous twelve months. We monitor active customers to help
understand our revenue performance. Additionally, monitoring active customers
helps us understand the nature and extent to which the active customer base is
growing, which assists management in establishing operational goals.

The number of active customers for the year ended December 31, 2021 was 309 and
for the year ended December 31, 2020 was 270, increasing by 39 customers, or
14.4%.

Components of operating results

Income

Media services revenue


We generate Managed Programmatic and Direct Access (collectively "Media
Services") revenue by using our proprietary machine learning-powered technology
platform to execute targeted digital advertising campaigns, offering advanced
predictive targeting solutions across different customer industry verticals and
consumer screens (desktop, mobile, and CTV), including customized targeting,
measurement and analytical services to address unique advertiser challenges. Our
customers consist of brands working directly with the Company and advertising
agencies working on behalf of our customers.

Managed programmatic revenue


For Managed Programmatic Revenue, we negotiate Insertion Orders ("IOs") with the
advertising agency or brand, which specifies the material terms of the campaign.
IOs are subject to cancellation by the client, usually with no penalty, for the
unfilled portion of the IO. Our performance obligation is to deliver digital
advertisements in accordance with the terms of the IO. We have concluded that
this constitutes a single performance obligation for financial reporting
purposes and that such obligation is recognized over the time, using the output
method, for which we are transferring value to the customer through delivered
advertising units.

Our contracts with a customer may convey a right to discounted or free of charge
impressions. We determine whether rights to discounted future impressions
provide a material right to the customer and revenue related to such material
right should be deferred to the period when such right to discount expires or is
exercised by the customer. For periods presented, we did not identify material
rights related to such discounts.

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Managed Programmatic Revenue is recorded on a gross basis. We are responsible
for fulfilling advertising delivery, including optimization and reporting,
establishes the selling price for the delivery, and we perform billing and
collections, including ultimately retaining credit risk. We have therefore
determined that we serve as a principal and that gross presentation of revenue
is appropriate.

Direct Access Revenue

Direct Access customers access our platform directly and manage all aspects of
their advertising campaigns. We provide advertiser and marketer customers direct
access to the platform so that they can execute and manage advertising
campaigns. Advertising Services Agreements with customers specify the pricing
framework, which typically involves a percentage of customer spend and
additional fees applicable to various data science model deployments and uses as
applicable to a given campaign. Additional services can be procured on a
per-service pricing basis. Platform fee revenue is recognized, on an over time
basis, when the customer makes a purchase through the platform during the month.
Our performance obligation is to provide the use of the platform to customers.
We are not primarily responsible for the purchase of advertising inventory,
third party data, and other related expenses. Revenue for customers working with
us on this basis is recorded net of the amount incurred and payable to suppliers
for the cost of advertising inventory, third party data and other add-on
features, as we do not control the purchase nor have pricing discretion with
regard to these items. We have therefore determined that we serve as an agent
and that net presentation of revenue is appropriate. We bill clients for their
purchases through our platform and the associated platform fees.

A customer cannot take possession of the software platform, nor is it feasible
or permissible for a customer to contract with a third party to host the
software or for a customer to host the software. Fees are entirely variable, and
revenue is recognized in the period we have the contractual right to the fee.

Functionnary costs

We classify our operating expenses into the following four categories. Each expense category includes overhead costs, including rent and related occupancy costs, which are allocated based on headcount.

Platform operations


Platform operations consists of the cost of revenue including advertising
inventory, third party inventory validation and measurement, ad-serving,
ad-verification, research and data (collectively referred to as "traffic
acquisition costs" or "TAC") and other platform operations costs, which consist
of amortization related to capitalized software, depreciation expense, allocated
costs of personnel which set up and monitor campaign performance, and platform
hosting, license and maintenance costs.

Sales and Marketing

Sales and marketing expenses include compensation and commission costs for sales and related support teams, as well as travel, trade show and other marketing-related expenses. Advertising costs are charged to operations when incurred.

Technology and development


Technology and development costs include costs to maintain and develop our
technology platform. Costs incurred for research and product development are
expensed as incurred and include salaries, taxes and benefits, contracting, and
travel expenses related to research and development.

General and administrative costs

General and administrative expenses include remuneration of management and administrative personnel, fees for professional services, insurance, supplies and other fixed costs.


Rent Expense

Rent expense is recognized on a straight-line basis over the term of the lease, with the difference between the cash rent expense and the straight-line expense being recognized as deferred rent.

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Share-based compensation


Compensation expense related to employee equity-based awards is measured and
recognized in the Consolidated Financial Statements based on the fair value of
the awards granted. We granted awards to employees that vest based solely on
continued service, or service conditions, and awards that vest based on the
achievement of performance targets, or performance conditions. The fair value of
each option award containing service and/or performance conditions is estimated
on the grant date using the Black-Scholes option-pricing model. For service
condition awards, equity-based compensation expense is recognized on a
straight-line basis over the requisite service periods of the awards. For
performance condition awards, equity-based compensation expense is recognized
using a graded vesting model over the requisite service period of the awards.
Forfeitures are recorded as they occur.

Debt issuance cost


Deferred issuance costs relate to our debt instruments, the short-term and
long-term portions are reflected as a deduction from the carrying amount of the
related debt. The debt issuance costs are amortized using the straight-line
method over the term of the related debt instrument which approximates the
effective interest method. Debt issuance costs incurred with line-of-credit
arrangements are recorded as contra debt on our consolidated balance sheets and
amortized over the term of the arrangement. Debt may be considered extinguished
when it has been modified and the terms of the new debt instruments and old debt
instruments are "substantially different" (as defined in the debt modification
guidance in FASB Accounting Standards Codification ("ASC") Topic 470-50,
Debt - Modifications and Extinguishments ("ASC 470-50")).

Income taxes


Income tax expense includes federal, state, and foreign taxes and is based on
reported income before income taxes. We recognize deferred tax assets and
liabilities based on the differences between the financial statement carrying
amounts and the tax basis of assets and liabilities. The deferred tax assets and
liabilities are determined based on the enacted tax rates expected to apply in
the periods in which the deferred tax assets or liabilities are anticipated to
be settled or realized.

We regularly review deferred tax assets for recoverability and establish a
valuation allowance if it is more likely than not that some portion, or all, of
a deferred tax asset will not be realized. The determination as to whether a
deferred tax asset will be realized is made on a jurisdictional basis and is
based on the evaluation of positive and negative evidence. This evidence
includes historical taxable income, projected future taxable income, the
expected timing of the reversal of existing temporary differences and the
implementation of tax planning strategies.

We recognize the tax benefit from uncertain tax positions only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefits recognized from uncertain tax positions are measured at the largest
amount of benefit that is greater than fifty percent likely of being realized
upon ultimate settlement. No tax benefits are recognized for positions that do
not meet this threshold. Interest related to uncertain tax positions is
recognized as part of the provision for income taxes and is accrued beginning in
the period that such interest would be applicable under relevant tax law until
such time that the related tax benefits are recognized. We are required to file
tax returns in the U.S. federal jurisdiction, various states, and in Canada. Our
policy is to recognize interest and penalties related to uncertain tax benefits
(if any) in the tax provision.

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Operating results


The period-to-period comparisons of our results of operations have been prepared
using the historical periods included in our audited consolidated financial
statements. The following discussion should be read in conjunction with the
audited consolidated financial statements and related notes included elsewhere
in this document.

Year ended December 31, 2021 Compared to the year ended December 31, 2020


The following table summarizes our historical results of operation for the
periods presented:

                                               Year Ended December 31,
                                           2021                        2020               Change          %
(amounts in US Dollars)                (in thousands, except for percentages)
Revenue                          $   165,365         100.0 %   $ 121,015       100.0 %   $  44,350        36.6 %
Operating expenses:
Platform operations                   77,770          47.0 %      59,458        49.1 %      18,312        30.8 %
Sales and marketing                   38,799          23.5 %      31,608        26.1 %       7,191        22.8 %
Technology and development            12,393           7.5 %       9,709         8.0 %       2,684        27.6 %
General and administrative            35,424          21.4 %       8,126         6.7 %      27,298       335.9 %
Total operating expenses             164,386          99.4 %     108,901        90.0 %      55,485        50.9 %
Income from operations                   979           0.6 %      12,114        10.0 %     (11,135 )     -91.9 %
Interest expense, net                 (2,404 )        -1.5 %      (3,285 )      -2.7 %         881       -26.8 %
Gain on change in fair value
of Seller's Earn-Out                  23,399          14.1 %           -         0.0 %      23,399          **
Gain on change in fair value
of warrants                            6,783           4.1 %           -         0.0 %       6,783          **
Other income, net                         22           0.0 %         646         0.5 %        (624 )     -96.6 %
Total other income (expense),
net                                   27,800          16.8 %      (2,639 )      -2.2 %      30,439          **
Income from operations before
income taxes                          28,779          17.4 %       9,475         7.8 %      19,304       203.7 %
Provision for taxes                   (3,360 )        -2.0 %      (2,780 )      -2.3 %        (580 )      20.9 %
Net income                       $    25,419          15.4 %   $   6,695         5.5 %   $  18,724       279.7 %


** Not meaningful

Revenue

Total revenue for years ended December 31, 2021 and 2020 was $165.4 million and
$121.0 million, respectively, an increase of $44.4 million, or 36.6%. Growth was
driven by a combination of continued increases in spend within COVID-resilient
verticals, including: BFSI; government and non-profit, and
healthcare/pharmaceutical, which increased approximately $22.3 million, or
33.1%, during the period, as well as growth and recovery within other verticals
impacted by COVID-19 that suffered declines in the fiscal year ended December
31, 2020, including primarily: automotive; travel and hospitality;
entertainment; and retail, which increased approximately $8.8 million, or 38.7%,
during the period. As measured on a by-channel basis, Video (including CTV)
revenue increased approximately $12.8 million , or 54.6%, during the period,
while revenue from other channels increased approximately $31.1 million, or
31.6%, during the period.

Operating Expenses


Total Operating Expenses for the years ended December 31, 2021 and 2020 were
$164.4 million and $108.9 million, respectively, an increase of $55.5 million,
or 50.9%.

Platform operations

Platform operations expenses for the years ended December 31, 2021 and 2020 were
$77.8 million and $59.5 million, respectively. The increase of $18.3 million, or
30.8%, was mainly attributable to revenue driven TAC costs which increased
approximately $14.0 million, or 33.4%. Volume driven increases in hosting
expense increased approximately $1.6 million and hiring driven increases in
allocated costs of our personnel which set up and monitor campaign performance
totaling approximately $1.8 million also contributed to the overall platform
operations expense increase.


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Sales and Marketing


Sales and marketing expenses for the years ended December 31, 2021 and 2020 were
$38.8 million and $31.6 million, respectively. The increase of $7.2 million, or
22.8%, was primarily due to an increase in sales commissions of $2.6 million.
Equity-based compensation and hiring for the sales and customer support teams
resulted in increases of $1.8 million and $1.7 million, respectively, in
employee expenses allocated to sales and marketing.

Technology and development


Technology and development expenses for the years ended December 31, 2021 and
2020 were $12.4 million and $9.7 million, respectively. The increase of $2.7
million, or 27.6%, was mainly due to the increases in hiring and employee
related costs to support research and product development.

general and administrative


General and administrative expenses for the years ended December 31, 2021 and
2020 were $35.4 million and $8.1 million, respectively. The increase of $27.3
million was primarily attributable to $19.8 million in costs incurred for the
year ended December 31, 2021 related to the Business Combination and public
company readiness related legal and professional services. Additionally, we paid
a one-time lease termination fee of approximately $4.2 million for terminating
our primary New York City headquarters office lease as we negotiated a more
cost-effective lease in the same building to reduce future rent obligations.
Also, an increase in equity-based compensation of $2.6 million contributed to
employee expenses allocated to general and administrative.

We anticipate that operating expenses will increase as we scale our operations
and incur the incremental costs of operating as a public company. We expect
increased expenses for general and director and officer insurance, investor
relations, and other administrative and professional services. In addition, we
expect to incur additional costs as we hire additional personnel and enhance our
infrastructure to support the anticipated growth of the business.

Interest expense


Total Interest expense, net for the years ended December 31, 2021 and 2020 was
$2.4 million and $3.3 million, respectively, a decrease of $0.9 million, or
26.8%. The decrease in interest expense was primarily the result of a reduction
in loan principal balance.

Gain on change in fair value of the selling price supplement


For the year ended December 31, 2021, the Seller's Earn-Out had a decrease in
fair value of $23.4 million resulting in a gain for this amount. The Seller's
Earn-Out was a result of the Business Combination.

Gain on change in fair value of warrants


For the year ended December 31, 2021, the warrants had a decrease in fair value
of $6.8 million resulting in a gain for this amount. The warrants were assumed
by the Company in connection with the Business Combination.

Other income (expenses)


Other income (expense) for the years ended December 31, 2021 and 2020 was $0 and
$0.6 million, respectively. The $0.6 million in 2020 was primarily due to an
escrow deposit recovery of $0.6 million related to the 2018 sale of our
Barometric department.

Provision for income taxes


Provision for Income Taxes for the years ended December 31, 2021 and 2020 was
$3.4 million and $2.8 million, respectively, an increase of $0.6 million or
20.9%. The overall increase was the result of an increase in state and local
taxes due to an increase in pre-tax book income, non-deductible Business
Combination costs, and change in the valuation allowance.

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Non-GAAP Financial Information


We calculate and monitor certain non-GAAP financial measures to help set
budgets, establish operational goals, analyze financial results and performance,
and make strategic decisions. We also believe that the presentation of these
non-GAAP financial measures in provides an additional tool for investors to use
in comparing our results of operations over multiple periods. However, the
non-GAAP financial measures may not be comparable to similarly titled measures
reported by other companies due to differences in the way that these measures
are calculated. The non-GAAP financial measures presented should not be
considered as the sole measure of our performance, and should not be considered
insolation from, or a substitute for, comparable financial measures calculated
in accordance with generally with accepted accounting principles in the United
States ("GAAP").

The information in the table below sets forth the non-GAAP financial measures
that we monitor. Because of the limitations associated with these non-GAAP
financial measures, "Adjusted Gross Profit," "EBITDA," "Adjusted EBITDA,"
"Adjusted Gross Profit as a % of Revenue" and "Adjusted EBITDA as a percent of
Adjusted Gross Profit" should not be considered in isolation or as a substitute
for performance measures calculated in accordance with GAAP. We compensate for
these limitations by relying primarily on our GAAP results and using non-GAAP
measures on a supplemental basis. You should review the reconciliation of the
non-GAAP financial measures below and not rely on any single financial measure
to evaluate our business.

Adjusted Gross Profit

Adjusted Gross Profit is a non-GAAP profitability measure. Adjusted Gross Profit
is a non-GAAP financial measure of campaign profitability, monitored by
management and the Board, used to evaluate our operating performance and trends,
develop short- and long-term operational plans, and make strategic decisions
regarding the allocation of capital. We believe this measure provides a useful
period to period comparison of campaign profitability and is useful information
to investors and the market in understanding and evaluating our operating
results in the same manner as our management and Board. Gross profit is the most
comparable GAAP measurement, which is calculated as revenue less platform
operations costs. In calculating Adjusted Gross Profit, we add back other
platform operations costs, which consist of amortization expense related to
capitalized software, depreciation expense, allocated costs of personnel which
set up and monitor campaign performance, and platform hosting, license, and
maintenance costs, to gross profit.

The following table presents the calculation of gross profit and reconciliation
of gross profit to Adjusted Gross Profit for the years ended December 31, 2021
and 2020.

                                        Year Ended December 31,
                                          2021             2020
(amounts in US Dollars)                      (in thousands)
Revenue                               $    165,365       $ 121,015
Less: Platform operations                   77,770          59,458
Gross Profit                                87,595          61,557
Add back: Other platform operations         21,748          17,475
Adjusted Gross Profit (1)             $    109,343       $  79,032


EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP financial measure defined by us as net income (loss),
before interest expense, net, depreciation, amortization and income tax expense.
Adjusted EBITDA is defined as EBITDA before stock compensation expense, Business
Combination transaction costs, management fees, non-core operations and other
potential non-recurring items.

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Collectively these non-GAAP financial measures are key profitability measures
used by our management and Board to understand and evaluate our operating
performance and trends, develop short-and long-term operational plans and make
strategic decisions regarding the allocation of capital. We believe that these
measures can provide useful period-to-period comparisons of campaign
profitability. Accordingly, we believe that these measures provide useful
information to investors and the market in understanding and evaluating our
operating results in the same manner as our management and the Board.

                                                          Year Ended December 31,
                                                            2021              2020
(amounts in US Dollars)                                        (in thousands)
Net income                                              $      25,419       $  6,695
Interest expense, net                                           2,404          3,285
Tax provision                                                   3,360          2,780
Depreciation and amortization                                   8,493          8,134
EBITDA (1)                                              $      39,676       $ 20,894
Equity based compensation                                       5,823            657
Seller's Earn-Out equity-based compensation                        55       

Transaction costs (2)                                          15,603       

1,412

Gain on change in fair value of earn-out price (3) (23,399)

Gain on change in fair value of warrants (4)                   (6,783 )            -
Management fees (5)                                             5,607            872
Lease termination fee (6)                                       4,243              -
Non-core operations (7)                                         2,155          1,047
Adjusted EBITDA (1)                                     $      42,980       $ 24,882

Adjusted EBITDA as a percentage of adjusted gross margin and adjusted gross margin as a percentage of sales

                                                              Year Ended December 31,
                                                           2021                    2020
(amounts in US Dollars)                                (in thousands, except for percentages)
Gross Profit                                           $     87,595           $        61,557
Net income                                             $     25,419           $         6,695
Net income as a % of Gross Profit                              29.0 %                    10.9 %
Adjusted Gross Profit (1)                              $    109,343           $        79,032
Adjusted EBITDA (1)                                    $     42,980           $        24,882
Adjusted EBITDA as a % of Adjusted Gross Profit (1)            39.3 %                    31.5 %
Gross Profit                                           $     87,595           $        61,557
Revenue                                                $    165,365           $       121,015
Gross Profit as a % of Revenue                                 53.0 %                    50.9 %
Revenue                                                $    165,365           $       121,015
Adjusted Gross Profit (1)                              $    109,343           $        79,032
Adjusted Gross Profit as a % of Revenue (1)                    66.1 %                    65.3 %



(1)
We use non-GAAP financial measures to help set budgets, establish operational
goals, analyze financial results and performance, and make strategic decisions.
(2)
Includes incurred transaction-related expenses and costs related to strategic
initiatives in the year ended December 31, 2020 which were suspended due to the
COVID-19 pandemic. In the year ended December 31, 2021, includes costs related
to a different strategic process, which led to the Business Combination.
(3)
In connection with the Business Combination, a Seller's Earn-Out liability was
recorded. The gain represents the change in fair value of the Seller's Earn-Out
from the date of the close of the Business Combination (December 22, 2021) to
December 31, 2021.
(4)
In connection with the Business Combination, a liability for warrants was
recorded. The gain represents the change in fair value of the warrants from the
date of the close of the Business Combination (December 22, 2021) to December
31, 2021.

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(5)

On December 22, 2016, we closed a growth recapitalization transaction with
H.I.G. Capital. As part of that transaction we agreed to pay monthly Management
Fees to H.I.G. Capital. In the year ended December 31, 2021, additional fees
were paid in connection with the completion of the Business Combination. The
agreements related to fees paid to H.I.G. Capital were discontinued effective
December 22, 2021, the closing date of the Business Combination.
(6)
In April 2021, we incurred a lease termination fee of approximately $4.2 million
in connection with moving our primary headquarters office in New York City to
another space in the same building at a lower cost.
(7)
Effective as of March 1, 2020, we effectuated a contribution of our SymetryML
department into a new subsidiary, SymetryML, Inc. We periodically raised capital
to fund Symetry operations, by entering into Simple Agreement for Future Equity
Notes ("SAFE Note") with several parties (Refer to Note 12 - SAFE Notes of our
Consolidated Financial Statements, included elsewhere in this Form 10-K, for
more information). We view SymetryML operations as non-core, and does not intend
to fund future operational expenses incurred in excess of SAFE Note funding
secured.

Cash and capital resources

Our business requires substantial cash for its operating activities, including salaries and wages paid to our employees, development costs, general and administrative expenses, and others. From December 31, 2021we have had
$100.1 million in cash and cash equivalents.


As of December 31, 2021, our working capital was $132.3 million and we were
fully drawn on our Revolving Credit Facility, as defined below. This amount was
re-paid in January 2022 and we do not anticipate a need to borrow on this
facility in the immediate future. We believe we have sufficient sources of
liquidity, including cash generated from operations as well as the capacity on
the Revolving Credit Facility, to support our operating needs, capital
requirements, and debt service requirements for the next twelve months.

The accompanying audited financial statements have been prepared assuming we
will continue as a going concern, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.

Our purchase commitments per our standard terms and conditions with our
suppliers and vendors are cancellable in whole or in part with or without cause
prior to delivery. If we terminate an order, we will have no liability beyond
payment of any balances owing for goods or services delivered previously.

Silicon Valley Bank Revolver


On September 21, 2017, Legacy AdTheorent entered into a Loan and Security
agreement ("Loan and Security Agreement") with Silicon Valley Bank ("SVB"). The
Loan and Security Agreement consisted of a revolving line of up to $8.0 million
("SVB Revolver") and letters of credit up to $2.8 million ("Letters of Credit")
(Refer to Note 21 - Commitments and Contingencies of our Consolidated Financial
Statements). Under the original terms, before subsequent amendments, the SVB
Revolver matured on September 21, 2019. The SVB Revolver is available on demand
and accrues interest at Prime (as defined in the Loan and Security Agreement)
plus 2.5% and interest shall be payable monthly. The borrowing base of the SVB
Revolver is 80.0% of the Company's eligible accounts receivable. Upon
expiration, all outstanding principal and interest are due. The collections of
our accounts receivable are applied to the outstanding loan balance daily.

Since the inception of the Loan and Security Agreement, Legacy AdTheorent has
entered into several amendments, primarily to extend the term of the agreement.
On October 23, 2020, the Company entered into the sixth amendment to the Loan
and Security Agreement. This amendment extended the previously amended maturity
date of July 31, 2020 to July 31, 2021. The interest rate definition was also
amended to accrue at a floating per annum rate equal to the greater of (a) 2.50%
above the Prime Rate and (b) 3.25%; provided, however, during a Streamline
Period, the principal amount outstanding under the SVB Revolver shall accrue
interest at a floating per annum rate equal to the greater of (x) 1.50% above
the Prime Rate and (y) 3.25%.

On July 27, 2021, the seventh amendment was executed which extended the
previously amended maturity date of July 31, 2021 to November 30, 2021.
Additionally, an amendment fee in the amount of $4 thousand was charged by SVB
to Legacy AdTheorent in connection with the amendment. Legacy AdTheorent
accounted for the extension of the maturity date as a modification of the debt
instrument.

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On December 22, 2021, we entered into a senior secured credit facilities credit
agreement (the "Senior Secured Agreement") with SVB. The Senior Secured
Agreement allows us to borrow up to $40.0 million in a revolving credit facility
("Revolving Credit Facility"), including a $10.0 million sub-limit for letters
of credit and a swing line sub-limit of $10.0 million. The Revolving Credit
Facility commitment termination date is December 22, 2026. We accounted for the
Senior Secured Agreement as a debt modification.

In accordance with the Senior Secured Agreement there are two types of revolving
loan, either a Secured Overnight Financing Rate Loan ("SOFR Loan") loan or an
ABR Alternate Base Rate Loan ("ABR Loan"). The revolving loans may from time to
time be SOFR Loans or ABR Loans, as determined by the Company. Interest shall be
payable quarterly based on the type of loan.

a)

Each SOFR Loan bears interest for each day at a rate per annum equal to Adjusted
Term SOFR, as defined in the Senior Secured Agreement, plus the Applicable
Margin, as defined in the Senior Secured Agreement. The Applicable Margin can
vary between 2.00% and 2.50% based on the leverage ratio of the Company.

b)

Each ABR Loan (including any swingline loan) bears interest at a rate per annum
equal to the highest of the Prime Rate in effect on such day, the Federal Funds
Effective Rate in effect on such day plus 0.50%, and the Adjusted Term SOFR, as
defined in the Senior Secured Agreement, for a one-month tenor in effect on such
day plus 1.00% ("ABR"); plus the Applicable Margin, as defined in the Senior
Secured Agreement. The Applicable Margin can vary between 1.00% and 1.50% based
on the leverage ratio of the Company.

In addition, the Senior Secured Agreement has a commitment fee in relation to
the non-use of available funds ranging from 0.25% to 0.35% per annum based on
the leverage ratio of the Company.

Our borrowings under the revolving credit facility at December 31, 2021
consist of ABR loans.

All obligations under the senior guarantee agreement are secured by a first lien on substantially all of the assets of the company.


We are subject to customary representations, warranties, and covenants. The
Senior Secured Agreement requires that the Company meet certain financial and
non-financial covenants which include, but are not limited to, (i) delivering
audited consolidated financial statements to the lender within 90 days after
year-end commencing with the fiscal year ending December 31, 2022 financial
statements, (ii) delivering unaudited quarterly consolidated financial
statements within 45 days after each fiscal quarter, commencing with the
quarterly period ending on March 31, 2022 and (iii) maintaining certain leverage
ratios and liquidity coverage ratios. As of December 31, 2021, we were in full
compliance with the terms of the Senior Secured Agreement.

As of December 31, 2021, we had one letter of credit for approximately $1.0
million and the remainder of $39.0 million was drawn on the revolving credit
facility. The total amount drawn as of December 31, 2021 was repaid in January
2022.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

                                                        Year ended December 31,
                                                          2021             2020
(amounts in US Dollars)                                      (in thousands)

Net cash (used in) provided by operating activities ($6,313) $17,366
Net cash used in investing activities

                 $     (2,299 )     $  

(2,270 ) Net cash provided by (used in) financing activities $91,938 ($5,420)



Operating Activities

Net cash used in operating activities for the year ended December 31, 2021 has been
$6.3 million compared to the net cash provided by the operating activities of $17.4 million in the year ended December 31, 2020. The increase in the use of operating cash by $23.7 million was mainly due to the following:

Increase in cash expenditures paid for business combinations and expenditures related to the preparation of public companies for $12.7 million.

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Increase in cash paid related to media inventory of $13.5 million.

Increase in cash paid for personnel expenses mainly due to the increase in the workforce of $11.7 million.

Increase in cash paid for income taxes by $10.8 million.

Increase in cash paid for management fees of $5.2 million following the business combination.

Payment of lease termination fees $4.2 million in the year ended December 31, 2021.

Timing differences of certain payments and collections. DPO decreased 12.5% to
49 days for the year ended December 31, 2021 from 56 days for the year ended
December 31, 2020 and DSO decreased 7.4% to 88 days for the year ended December
31, 2021from 95 days for the year ended December 31, 2020.

Offsetting increases in operating cash included the following:

Money collected for revenue increased $39.0 million.

Typical Payment Terms


The Company's standard payment terms range from 30 to 60 days. For the periods
presented, the Company's DSO has exceeded the standard payment terms of
customers, because like many companies in our industry, we often experience slow
payment by advertising agencies, such that advertising agencies typically
collect payment from their customers before remitting payment to us. The Company
evaluates the creditworthiness of customers on a regular basis.

Accounts receivable are recorded at the invoiced amount, are unsecured, and do
not bear interest. The allowance for doubtful accounts is based on the best
estimate of the amount of probable credit losses in existing accounts
receivable. The Company individually reviews all balances that exceed 90 days
from the invoice date and assesses for provisions for doubtful accounts based on
an assessment of the balance that will not be collected. Factors considered
include the aging of the receivable, historical write off experience, the
creditworthiness of each agency customer, and general economic conditions.
Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is remote.

We expect to continue to generate strong positive cash flow as we expand our operations.

Investing activities


Net cash used in investing activities during the year ended December 31, 2021
was $2.3 million, primarily consisting of capitalized software development costs
of $2.1 million

Net cash used in investing activities during the year ended December 31, 2020
was $2.3 million, primarily consisting of capitalized software development costs
of $2.2 million.

We plan to continue to capitalize software and purchase property, plant and equipment as we expand our business.

Fundraising activities


Net cash provided by financing activities during the year ended December 31,
2021 was $91.9 million, consisting primarily of proceeds from the Reverse
Recapitalization, net of costs of $77.7 million. We also drew $39.0 million from
our revolving credit facility and received proceeds from the SAFE notes of $1.7
million. Offsetting this financing cash inflow were re-payments of our term loan
of $26.2 million and the payment of $0.3 million for financing costs.

Net cash used in financing activities during the year ended December 31, 2020
was $5.4 million, consisting of payment of term loan and revolver debt of $6.8
million, proceeds from SAFE notes of $1.3 million and cash received for
exercised options of $0.1 million.


Significant Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with
we generally accepted accounting principles (“GAAP”). The preparation of financial statements requires our management to make judgments, estimates and

                                       53
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assumptions that impact the reported amount of revenue and expenses, assets and
liabilities and the disclosure of contingent assets and liabilities. We consider
an accounting judgment, estimate or assumption to be critical when (1) the
estimate or assumption is complex in nature or requires a high degree of
judgment and (2) the use of different judgments, estimates and assumptions could
have a material impact on our Consolidated Financial Statements. Our significant
accounting policies are described in Note 2 - Summary of Significant Accounting
Policies, of the Consolidated Financial Statements included elsewhere in this
Report. Our critical accounting policies are described below.

Revenue recognition

The Company has adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method, the January 1, 2019.


Under ASC 606, revenue is recognized when a customer obtains control of promised
goods or services in an amount that reflects the consideration the Company
expects to receive in exchange for those goods or services. The Company measures
revenue based on the consideration specified in the customer arrangement, and
revenue is recognized when the performance obligations in the customer
arrangement are satisfied. A performance obligation is a promise in a contract
to transfer a distinct service or product to the customer. The transaction price
of a contract is allocated to each distinct performance obligation and
recognized as revenue when or as the customer receives the benefit of the
performance obligation.

In determining the appropriate amount of revenue to be recognized as we fulfill
our obligations under our agreements, the Company performs the following steps
(i) identification of contracts with customers; (ii) identification of
performance obligations; (iii) determination of the transaction price; (iv)
allocation of the transaction price to performance obligations; and (v)
recognition of revenue when or as the Company satisfies each performance
obligation.

Typical payment terms are between net 30 and net 60 days.

Share-based compensation


Equity-based compensation expense related to employee equity-based awards is
measured based on the grant-date fair value of the stock-based awards and is
recognized over the requisite service period of the awards. Following the
Business Combination, the fair value of our Common Stock is now determined based
on the quoted market price.

Prior to completion of the Business Combination, as Legacy AdTheorent's units
were not listed on a public marketplace, the calculation of the fair value of
its units was subject to a greater degree of estimation in determining the basis
for unit-based awards that were issued. Given the absence of a public market,
Legacy AdTheorent was required to estimate the fair value of the units at the
time of each grant. Legacy AdTheorent considered objective and subjective
factors in determining the estimated fair value and utilized third party
valuation experts to determine the grant date unit price using the Black-Scholes
option-pricing model. Under the Black-Scholes model, Legacy AdTheorent
determined the value of its units based on interpolating from the valuations in
its most recent external equity financing rounds and, when applicable, an
expected valuation for an initial public offering of its shares, subject to
discounts for the probability and timing of an exit event and lack of
marketability, among other factors.

Determining the fair value of stock-based awards at the grant date requires
judgment. Our use of the Black-Scholes option-pricing model and Monte-Carlo
lattice model requires the input of subjective assumptions such as the expected
term of the option, the expected volatility of the price of our Common Stock,
risk-free interest rates, the expected dividend yield of our Common Stock, and
the fair value of our Common Stock. The assumptions used in our valuation models
represent management's best estimates. These estimates involve inherent
uncertainties and the application of management's judgment. If factors change
and different assumptions are used, our stock-based compensation expense could
be materially different in the future.

Software development costs


We capitalize certain costs associated with creating and enhancing internally
developed software. The development costs associated with certain solutions
offered exclusively through software as a service model are accounted for in
accordance with ASC Topic 350-40, Internal-Use Software ("ASC 350-40"). Under
ASC 350-40 qualifying software costs developed for internal use are capitalized
when application development begins, it is probable that the project will be
completed, and the software will be used as intended. Capitalized costs include
(1) payroll and payroll-related costs for

                                       54
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employees who are directly associated with, and devote time to, a qualifying
project and (2) certain external direct costs for third-parties who are directly
associated with, and devote time to, a qualifying project. Costs incurred during
the preliminary project stage of development as well as maintenance costs are
expensed as incurred. The Company capitalizes direct costs related to
application development activities that are probable to result in additional
functionality. Capitalized costs are amortized on a straight-line basis over 2
years, which best represents the pattern of the software's useful life. The
Company tests for impairment whenever events or changes in circumstances that
could impact recoverability occur.

Business combinations


We account for business acquisitions in accordance with ASC Topic 805, Business
Combinations. We measure the cost of an acquisition as the aggregate of the
acquisition date fair values of the assets transferred and liabilities assumed
and equity instruments issued. Transaction costs directly attributable to the
acquisition are expensed as incurred. We record goodwill for the excess of (i)
the total costs of acquisition, fair value of any non-controlling interests and
acquisition date fair value of any previously held equity interest in the
acquired business over (ii) the fair value of the identifiable net assets of the
acquired business.

The acquisition method of accounting requires us to exercise judgment and make
estimates and assumptions based on available information regarding the fair
values of the elements of a business combination as of the date of acquisition,
including the fair values of identifiable intangible assets, deferred tax asset
valuation allowances, liabilities related to uncertain tax positions and
contingencies. We must also refine these estimates over a one-year measurement
period, to reflect any new information obtained about facts and circumstances
that existed as of the acquisition date that, if known, would have affected the
measurement of the amounts recognized as of that date. If we are required to
retroactively adjust provisional amounts that we have recorded for the fair
value of assets and liabilities in connection with an acquisition, these
adjustments could materially impact our results of operations and financial
position. Estimates and assumptions that we must make in estimating the fair
value of future acquired technology, user lists and other identifiable
intangible assets include future cash flows that we expect to generate from the
acquired assets. If the subsequent actual results and updated projections of the
underlying business activity change compared with the assumptions and
projections used to develop these values, we could record impairment charges. In
addition, we have estimated the economic lives of certain acquired assets and
these lives are used to calculate depreciation and amortization expenses. If our
estimates of the economic lives change, depreciation or amortization expenses
could be accelerated or slowed, which could materially impact our results of
operations.

Goodwill

The Company tests goodwill for impairment on an annual basis as of October 31
and at other times if a significant event or change in circumstances indicates
that it is more likely than not that the fair value of these assets has been
reduced below their carrying value. We use judgment in assessing whether assets
may have become impaired between annual impairment assessments. Indicators such
as unexpected adverse economic factors, unanticipated technological changes or
competitive activities, loss of key personnel and acts by governments and
courts, may signal that an asset has become impaired.

In testing goodwill for impairment, we have the option to begin with a
qualitative assessment to determine whether it is more likely than not that the
fair value of a reporting unit containing goodwill is less than its carrying
value. This qualitative assessment may include, but is not limited to, reviewing
factors such as macroeconomic conditions, industry and market considerations,
cost factors, entity-specific financial performance and other events, including
changes in our management, strategy and primary user base.

If we determine that it is more likely than not that the fair value of a
reporting unit is less than its carrying value, we then perform a quantitative
goodwill impairment test. The estimated fair value of the reporting unit is
established using an income approach based on a discounted cash flow model that
includes significant assumptions about the future operating results and cash
flows of the reporting unit, including judgments about appropriate discount
rates, long-term growth rates, relevant comparable company earnings multiples
and the amount and timing of expected future cash flows, and also applies a
market approach which compares the reporting unit to comparable companies in our
industry. Depending upon the results of that measurement, the recorded goodwill
may be written down, and impairment expense is recorded in the Consolidated
Statements of Operations when the carrying amount of the reporting unit exceeds
the fair value of the reporting unit.

Based on a qualitative assessment performed as of October 31, 2021 and a
quantitative test performed as of December 31, 2020, we determined it was more
likely than not that the fair value of the reporting unit exceeded its carrying
value,

                                       55
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resulting in no impairment in either year. As of December 31, 2021, the goodwill
recorded was not at-risk for future impairment. We will continue to monitor our
goodwill for possible future impairment.

Long-lived assets


We assess the recoverability of our long-lived assets when events or changes in
circumstances indicate their carrying value may not be recoverable. Such events
or changes in circumstances may include: a significant adverse change in the
extent or manner in which a long-lived asset is being used, significant adverse
change in legal factors or in the business climate that could affect the value
of a long-lived asset, an accumulation of costs significantly in excess of the
amount originally expected for the acquisition or development of a long-lived
asset, current or future operating or cash flow losses that demonstrate
continuing losses associated with the use of a long-lived asset, or a current
expectation that, more likely than not, a long-lived asset will be sold or
otherwise disposed of significantly before the end of its previously estimated
useful life. We perform impairment testing at the asset group level that
represents the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities. We assess
recoverability of a long-lived asset by determining whether the carrying value
of the asset group can be recovered through projected undiscounted cash flows
over their remaining lives. If the carrying value of the asset group exceeds the
forecasted undiscounted cash flows, an impairment loss is recognized, measured
as the amount by which the carrying amount exceeds estimated fair value. An
impairment loss is charged to operations in the period in which management
determines such impairment. There were no impairments recorded for the years
ended December 31, 2021 and 2020.

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