Business context and reporting period
The filing covers the three and nine months ended September 30, 2018. The filing is by The Rubicon Project, Inc., a digital advertising exchange; this differs from the “MAGNITE, INC.” company name in the request metadata. Rubicon reported revenue on a net basis, retaining a fee on digital advertising transactions.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Revenue | $29.7m | $35.2m | $83.3m | $124.1m |
| Operating loss | $14.3m | $105.8m | $61.1m | $132.5m |
| Net loss | $13.8m | $103.6m | $59.6m | $131.0m |
| Adjusted EBITDA | $(1.4)m | $(2.3)m | $(21.1)m | $1.8m |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(22.6)m | $9.2m |
Q3 gross profit was approximately $15.0m (51% gross margin), compared with $22.2m (63%) a year earlier. Nine-month gross profit was approximately $38.7m (47% margin), versus $82.8m (67%). Q3 net loss per share was $0.27; nine-month loss per share was $1.19.
Advertising spend grew 24% in Q3 to $242.2m and 17% for nine months to $690.9m, while revenue declined 16% and 33%, respectively. Take rate fell to 12.3% in Q3 from 18.1%, and to 12.1% for nine months from 20.9%. Mobile advertising spend increased; nine-month mobile spend rose 40%, while desktop spend was approximately flat.
At September 30, cash and cash equivalents were $82.4m and marketable securities $14.5m, together $96.8m, versus $129.1m at year-end 2017. Current assets were $260.9m and current liabilities $202.2m (current ratio approximately 1.29). The company had no facility borrowings. Its amended SVB revolving facility is up to $40m, with $30m available subject to borrowing-base and covenant conditions; it matures September 2020. Total liabilities were $203.4m, principally seller payables and accrued expenses; the filing reports no outstanding debt.
Material changes versus prior period
- Revenue contracted despite higher transaction spend, chiefly reflecting buyer-fee reductions and elimination of buyer fees effective November 2017, competitive pressure, and lower take rates. The nine-month comparison was also affected by the 2017 exit from intent marketing.
- Q3 operating and net losses improved substantially year over year, largely because Q3 2017 included a $90.3m goodwill impairment. Nine-month adjusted EBITDA moved from positive to negative.
- Operating expenses were reduced through restructuring, but cost of revenue rose as data-center, bandwidth, depreciation, and infrastructure costs supported higher transaction volumes.
- Operating cash flow shifted from $9.2m provided in the first nine months of 2017 to $22.6m used in 2018. Investing activities provided $28.8m in 2018, mainly reflecting security maturities and sales; cash increased $5.7m over the period.
Outlook, management commentary, and risks
Management gave no specific revenue or earnings guidance in this filing. It expected cost of revenue to be higher in 2018 than 2017, while sales and marketing, technology and development, and general and administrative expenses were expected to continue declining. The first-quarter 2018 workforce reduction of approximately 100 employees (19%) was expected to produce about $24m in annualized cash cost savings; management said quarterly operating-expense run-rate targets had been met.
Management’s strategy centers on increasing transaction volume and value, particularly in mobile, video, private marketplaces, and header bidding, while operating as a lower-cost exchange. Header bidding represented approximately 80% of revenue, but its win rate was lower than that of waterfall transactions and required more inventory and processing capacity. Management cautioned that spending growth may not offset reduced fees and margins; continuing losses could deplete liquidity. It believed available cash and investments would fund working capital for at least 12 months, while warning that weaker-than-expected performance could impair liquidity.
Key risks include competition and continued take-rate pressure; dependence on increasing ad spend and improving header-bidding fill rates; higher infrastructure needs; buyer payment terms and working-capital timing; GDPR uncertainty and potential loss of valuable European inventory, as well as the forthcoming California Consumer Privacy Act; and credit-facility covenants and future financing availability. The company reported compliance with its facility covenants at September 30, 2018, including an Adjusted Quick Ratio of 1.2. Guardian News & Media’s claim was settled in October 2018 on confidential terms that the company described as financially immaterial. Other litigation outcomes could not be predicted, though management did not expect known matters to have a material adverse effect.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for The Rubicon Project, Inc., not an entity named Magnite, Inc.
- Track advertising spend, revenue, take rate, and transaction mix together to assess whether volume growth can offset lower fees.
- Monitor operating cash burn, cash and marketable securities, and whether cost savings persist without impairing product and infrastructure investment.
- Review the SVB facility’s borrowing availability, covenant tests, and required Adjusted EBITDA targets as they progress.
- Assess the effects of header-bidding competition, privacy regulation, and any changes in buyer or seller payment terms.
- Consider non-GAAP Adjusted EBITDA alongside GAAP losses and cash flows; it excludes items including stock compensation, depreciation, and working-capital needs.