Business context and reporting period
The supplied filing is The Rubicon Project, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. This differs from the request metadata naming Magnite, Inc.; the filing itself identifies the registrant as Rubicon Project and its stock symbol as RUBI. The company operated a digital advertising marketplace, recognizing its transaction fee as revenue on a net basis.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $37.6 | $29.7 | $107.9 | $83.3 |
| Operating loss | $(6.7) | $(14.3) | $(28.6) | $(61.1) |
| Net loss | $(6.2) | $(13.8) | $(27.0) | $(59.6) |
| Net loss per share | $(0.12) | $(0.27) | $(0.52) | $(1.19) |
| Operating cash flow | Not separately provided | $9.8 | $(22.6) |
- Revenue grew 27% year over year in Q3 and 30% in the first nine months. Management attributed growth to increased platform advertising spend and take-rate increases, most of which occurred in 2018.
- Operating margin was approximately negative 18% in Q3 2019 versus negative 48% a year earlier; for the nine-month periods, approximately negative 26% versus negative 73%. Gross margin, calculated as revenue less cost of revenue, was approximately 63% and 59%, respectively, compared with 51% and 47% in 2018.
- Q3 expenses totaled $44.3 million, slightly above the prior-year $44.0 million despite higher revenue. Nine-month expenses declined to $136.5 million from $144.4 million, including no 2019 restructuring charge versus $3.4 million in 2018.
- Nine-month operating cash flow improved by $32.4 million year over year. The company still reported a $27.0 million net loss; noncash adjustments contributed $38.1 million to operating cash flow, while working-capital changes reduced it by $1.3 million.
Balance sheet, debt and liquidity
- At September 30, 2019, cash and cash equivalents were $85.1 million, with no marketable securities, compared with cash of $80.5 million and marketable securities of $7.5 million at year-end 2018. Current assets were $263.2 million and current liabilities $214.5 million.
- Total liabilities were $231.2 million and stockholders’ equity $104.1 million. The balance sheet included $23.5 million of lease liabilities after adoption of ASC 842; these are lease obligations, not borrowings under the revolving credit facility.
- The company had no amount outstanding on its secured revolving facility of up to $40 million, which matures September 26, 2020. It reported compliance with its financial covenants, including an Adjusted Quick Ratio of 1.15. Facility availability remained subject to borrowing-base and covenant conditions.
- Management stated existing cash and investment balances were expected to meet working-capital needs for at least 12 months from issuance of the statements. It cautioned that buyer collection delays, seller payment demands, buyer insolvencies and the ability to renew or replace the credit facility could pressure liquidity.
Material changes and outlook
- Mobile revenue accounted for 58% of Q3 revenue and grew 41% year over year for the first nine months; desktop revenue grew 18% over that period. Desktop remained 44% of nine-month revenue. Header bidding represented more than 80% of revenue, according to management.
- Management expected Q4 2019 revenue to increase in line with normal seasonality, but forecast year-over-year percentage growth below the growth rates achieved in the first nine months. It expected Q4 growth to be driven mainly by advertising-spend growth, with take rates roughly equivalent to Q4 2018.
- Management expected 2019 cost of revenue to be lower than 2018, sales and marketing to decline slightly and remain flat through year-end, technology and development expense to increase, and general and administrative expense to decline. These are expectations, not formal numeric guidance.
- On October 21, 2019, after quarter-end, the company acquired RTK.io for $11 million in cash to expand its Demand Manager/header-bidding offering. Purchase accounting was expected to be completed by December 31, 2019.
Risks, contingencies and unusual items
- Management described persistent pressure on fees and take rates, competition and industry commoditization, desktop-market deceleration, and the need to grow transaction volume or value to offset lower fees. A less favorable mix, including more lower-fee PMP transactions, could constrain revenue growth.
- Privacy regulation, including the California Consumer Privacy Act and forthcoming international requirements, may require significant compliance resources and could adversely affect the business. The filing also cites buyer concentration and credit risk, fraud, changing advertising technology, and dependence on attracting and retaining buyers and sellers.
- The company continued to incur operating and net losses and warned that ongoing losses could deplete cash and potentially require additional liquidity. The facility’s September 2020 maturity and covenant requirements are relevant financing risks.
- Routine legal and regulatory matters were disclosed; management did not expect their resolution, individually or in aggregate, to have a material adverse effect based on information available at September 30, 2019. No material change to previously disclosed risk factors was reported.
- ASC 842 lease accounting was adopted January 1, 2019; the company recognized lease liabilities and right-of-use assets. No restructuring costs were incurred in the 2019 periods presented. Disclosure controls were judged effective at a reasonable-assurance level.
Important facts for investors to verify
- Confirm the issuer identity: this source is a Rubicon Project 10-Q, not a filing presented under the Magnite name in the request metadata.
- Track whether advertising-spend growth can sustain revenue as take-rate increases moderate and desktop growth remains challenged.
- Assess the persistence and cash impact of operating losses, including working-capital swings and the composition of operating cash flow.
- Monitor covenant compliance, borrowing availability and renewal or replacement of the credit facility before its September 2020 maturity.
- Review the final accounting and integration outcomes for the $11 million RTK.io acquisition and the developing Demand Manager business.