Business context and reporting period
This is The Rubicon Project, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2017. The filing describes its digital-advertising marketplace and automation platform. The request identifies Magnite, Inc.; that name does not match the registrant named in this filing.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $46.0 million | $69.2 million |
| Advertising spend | $191.5 million | $248.5 million |
| Non-GAAP net revenue | $45.4 million | $63.6 million |
| Take rate | 23.7% | 25.6% |
| Gross margin, based on revenue less cost of revenue | 68% | 76% |
| Operating loss | $(15.5) million | $(1.9) million |
| Net income (loss) | $(15.8) million | $2.3 million |
| Adjusted EBITDA | $1.1 million | $15.5 million |
| Cash from operations | $2.9 million | $10.7 million |
Operating margin was approximately negative 34%, versus negative 3% a year earlier. Cash and cash equivalents were $149.4 million and marketable securities were $38.6 million at quarter-end, totaling approximately $188.0 million. Current assets were $333.1 million and current liabilities $162.0 million. The company had no borrowings under its credit facility; $40.0 million was available, with a further $30.0 million potentially available at the lender’s discretion. Stockholders’ equity was $290.5 million. No debt balance was reported.
Cash declined $0.1 million during the quarter. Investing activities used $3.4 million, including $3.1 million for property and equipment and $2.3 million for internal-use software, partly offset by securities maturities. The company reported $25.0 million of future operating lease obligations.
Material changes versus the prior comparable period
- Revenue fell 34%, advertising spend fell 23%, and take rate declined from 25.6% to 23.7%. Management attributed the declines mainly to weaker desktop advertising, competitive pressure and header bidding, lower fees and mix shifts, and the wind-down of intent marketing services.
- Desktop advertising spend fell 29% and mobile spend fell 8%; desktop remained 65% of advertising spend. Revenue and advertising spend figures are company-reported measures; advertising spend is not GAAP revenue.
- Net results moved from $2.3 million of income to a $15.8 million loss. The 2017 quarter included $4.3 million of restructuring and exit costs; total expenses were 134% of revenue, versus 103% a year earlier.
- Sales and marketing and general and administrative expenses declined 31% and 27%, respectively, while technology and development expense rose 2%. Cash from operations decreased from $10.7 million to $2.9 million.
Outlook, commentary, risks, and unusual items
- The company stated it was not providing formal guidance. It expected 2017 revenue to decrease versus 2016 and cash balances to decline over the remainder of the year, while stating that available liquidity should cover at least the next 12 months.
- Management cited mobile, video, Orders, and its FastLane header-bidding product as strategic growth priorities. It cautioned that lower fees and a greater mix of lower-fee Orders could reduce take rate, and that spend growth may not offset fee reductions.
- Q1 actions included ceasing intent marketing, closing the Toronto office, and a management restructuring involving seven senior leaders. The company recorded $4.3 million in related costs and estimated annualized savings of about $9.0 million in employee-related costs plus $4.0 million in other intent-marketing costs.
- A decline in the share price brought public market capitalization near or slightly below net asset carrying value, triggering a quantitative goodwill assessment. Management reported no goodwill impairment at March 31, 2017.
- Guardian News & Media filed a UK claim alleging underpayment related to buyer fees. Damages were unspecified; the company disputes the allegations and said it did not expect a material financial effect from the claim, but noted similar claims or business-practice changes could have material adverse effects.
- The company maintained a full valuation allowance against domestic and certain international deferred tax assets. The IRS began examining the 2015 tax year. Management reported disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Confirm that this Rubicon Project filing—not a filing under the requested Magnite name—is the intended company and period.
- Review the causes and persistence of declining revenue, advertising spend, desktop and mobile activity, and take rate; distinguish GAAP revenue from the company’s non-GAAP measures.
- Assess whether projected 2017 revenue declines, lower take rates, cash use, and announced cost savings develop as management expects.
- Monitor the Guardian litigation and any related customer claims or changes to fee practices.
- Evaluate the assumptions behind the goodwill assessment, the continuing adequacy of liquidity, and the effect of lease commitments and future investment needs.