Business context and reporting period
This is The Rubicon Project, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The filing describes a digital advertising marketplace connecting buyers and sellers; revenue is the fee retained from advertising spend and is reported net. The filing entity is Rubicon Project, while the request identifies Magnite—verify the intended issuer.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $37.9 million | $28.6 million | $70.3 million | $53.5 million |
| Gross profit (approx.) | $22.8 million | $13.6 million | $40.1 million | $23.7 million |
| Operating loss | $8.6 million | $19.2 million | $21.9 million | $46.9 million |
| Net loss | $8.3 million | $18.0 million | $20.8 million | $45.8 million |
| Net loss per share | $0.16 | $0.36 | $0.40 | $0.92 |
| Operating cash flow | Not presented quarterly | $5.5 million | $(21.1) million |
Revenue grew 32% in Q2 and 31% in the first half. Approximate gross margin improved to 60% in Q2 from 47% and to 57% in the first half from 44%. Operating margin was approximately negative 23% in Q2 versus negative 67%; first-half operating margin was negative 31% versus negative 88%.
At June 30, cash and cash equivalents were $86.1 million, with no marketable securities; cash was $80.5 million at December 31, 2018. Current assets were $270.0 million and current liabilities $220.5 million. There were no borrowings under the $40 million revolving credit facility, maturing September 2020. The company reported compliance with its financial covenants, including an Adjusted Quick Ratio of 1.16. Total liabilities were $229.2 million, including $15.3 million of lease liabilities recognized under the newly adopted lease standard.
Material changes versus prior period
- First-half mobile revenue rose 51% year over year; desktop revenue rose 14%. Mobile represented 55% of first-half revenue, compared with 48% a year earlier.
- Operating and net losses narrowed substantially, as revenue growth and lower operating expenses more than offset largely flat cost of revenue. No restructuring costs were recorded in 2019, versus $3.4 million in the first half of 2018.
- Operating cash flow improved to $5.5 million from cash use of $21.1 million, although the company remained loss-making. Cash increased $5.7 million during the first half.
- ASC 842 lease accounting was adopted January 1, 2019; it added right-of-use assets and lease liabilities to the balance sheet. Prior-year periods were not restated.
Outlook, commentary and risks
Management expected 2019 revenue to exceed 2018 revenue and second-half 2019 revenue to exceed first-half revenue. It anticipated higher cost of revenue and somewhat higher technology and development spending, while expecting 2019 sales and marketing expense near 2018 levels and lower general and administrative expense. No specific numerical revenue or earnings guidance was provided in the supplied filing text.
Management said CPM pressure had moderated and begun stabilizing in Q2, while emphasizing that growth depended on higher transaction volume and/or value amid take-rate pressure. Strategic areas included mobile, video, private marketplaces, header bidding and the Demand Manager beta launched in May 2019. Key risks cited include competition and buyer/seller pricing pressure, changing ad technology and desktop-market weakness, privacy regulation, customer concentration and payment-cycle timing, and the need to maintain liquidity and satisfy credit covenants. Management believed existing cash and investment balances would fund working capital for at least 12 months, but cautioned that operating results and working-capital demands could affect liquidity. Approximately $9 million of additional lease liabilities were expected when New York and New Jersey offices commenced, anticipated in Q3 2019.
Routine legal and regulatory matters were disclosed; management did not expect known matters to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors, effective disclosure controls, and no outstanding credit-facility borrowings.
Important facts for investors to verify
- Confirm issuer identity: the supplied filing is for The Rubicon Project, Inc., not a filing bearing the name Magnite, Inc.
- Review revenue growth drivers and whether volume gains can offset lower fees, CPM pressure and shifts in transaction mix.
- Assess cash conversion and working-capital exposure, including buyer collection delays and seller payment demands.
- Monitor credit-facility covenant compliance, renewal or replacement ahead of its September 2020 maturity, and future lease obligations.
- Track execution and adoption of Demand Manager, header bidding, mobile and video offerings, alongside privacy-regulation impacts.