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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
__________________
  (Mark One)

 x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
 
Commission File Number: 001-36384
__________________
THE RUBICON PROJECT, INC.
(Exact name of registrant as specified in its charter)
 __________________
Delaware
 
20-8881738
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
12181 Bluff Creek Drive, 4th Floor
Los Angeles, CA 90094
(Address of principal executive offices, including zip code)
 
 
 
Registrant's telephone number, including area code:
 
(310) 207-0272
 
 __________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x Yes   ¨ No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes   ¨ No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ¨
 
Accelerated filer x
 
 
 
Non-accelerated filer ¨ 
(Do not check if a smaller reporting company)
 
Smaller reporting company ¨
 
 
 
Emerging growth company x
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   o Yes x  No
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Class
 
Outstanding as of April 25, 2018
Common Stock, $0.00001 par value
 
50,290,695


Table of Contents

THE RUBICON PROJECT, INC.
QUARTERLY REPORT ON FORM 10-Q
 
TABLE OF CONTENTS
 
 
Page No.
Part I.
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II.
Item 1.
Item 1A.
Item 2.
Item 6.
 

2

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THE RUBICON PROJECT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(unaudited)
 
March 31, 2018
 
December 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
67,516

 
$
76,642

Marketable securities
51,791

 
52,504

Accounts receivable, net
137,534

 
165,890

Prepaid expenses and other current assets
10,421

 
9,620

TOTAL CURRENT ASSETS
267,262

 
304,656

Property and equipment, net
41,334

 
47,393

Internal use software development costs, net
13,840

 
12,734

Other assets, non-current
2,415

 
5,493

Intangible assets, net
12,563

 
13,359

TOTAL ASSETS
$
337,414

 
$
383,635

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
191,239

 
$
214,103

Other current liabilities
2,975

 
3,141

TOTAL CURRENT LIABILITIES
194,214

 
217,244

Other liabilities, non-current
1,546

 
1,780

TOTAL LIABILITIES
195,760

 
219,024

Commitments and contingencies (Note 10)


 


STOCKHOLDERS' EQUITY
 
 
 
Preferred stock, $0.00001 par value, 10,000 shares authorized at March 31, 2018 and December 31, 2017; 0 shares issued and outstanding at March 31, 2018 and December 31, 2017

 

Common stock, $0.00001 par value; 500,000 shares authorized at March 31, 2018 and December 31, 2017; 50,280 and 50,239 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively

 

Additional paid-in capital
423,009

 
418,354

Accumulated other comprehensive income
245

 
41

Accumulated deficit
(281,600)

 
(253,784)

TOTAL STOCKHOLDERS' EQUITY
141,654

 
164,611

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
337,414

 
$
383,635


The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.


3

Table of Contents

THE RUBICON PROJECT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Revenue
$
24,876

 
$
46,015

Expenses:
 
 
 
Cost of revenue
14,783

 
14,688

Sales and marketing
12,257

 
14,628

Technology and development
10,494

 
12,753

General and administrative
12,544

 
15,080

Restructuring and other exit costs
2,466

 
4,338

Total expenses
52,544

 
61,487

Loss from operations
(27,668
)
 
(15,472
)
Other (income) expense:
 
 
 
Interest income, net
(271
)
 
(167
)
Other income
(210
)
 
(212
)
Foreign exchange loss, net
554

 
372

Total other (income) expense, net
73

 
(7
)
Loss before income taxes
(27,741
)
 
(15,465
)
Provision for income taxes
75

 
375

Net loss
$
(27,816
)
 
$
(15,840
)
Net loss per share:
 
 
 
Basic
$
(0.56
)
 
$
(0.33
)
Diluted
$
(0.56
)
 
$
(0.33
)
Weighted-average shares used to compute net loss per share:
 
 
 
Basic
49,692

 
48,332

Diluted
49,692

 
48,332


The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.


 

4

Table of Contents

THE RUBICON PROJECT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(unaudited)
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Net loss
$
(27,816
)
 
$
(15,840
)
Other comprehensive income (loss):
 
 
 
Unrealized loss on investments
(10
)
 
(4
)
Foreign currency translation adjustments
214

 
97

Other comprehensive income
204

 
93

Comprehensive loss
$
(27,612
)
 
$
(15,747
)

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.




5

Table of Contents

 

THE RUBICON PROJECT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(unaudited)
 
Common Stock 
 
Additional
Paid-In
Capital
 
Accumulated  Other
Comprehensive
Income (Loss)
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
Balance at December 31, 2017
50,239

 
$

 
$
418,354

 
$
41

 
$
(253,784
)
 
$
164,611

Exercise of common stock options
9

 

 
6

 

 

 
6

Issuance of common stock related to RSU vesting
51

 

 

 

 

 

Shares withheld related to net share settlement
(19
)
 

 
(40
)
 

 

 
(40
)
Stock-based compensation

 

 
4,689

 

 

 
4,689

Other comprehensive income

 

 

 
204

 

 
204

Net loss

 

 

 

 
(27,816
)
 
(27,816
)
Balance at March 31, 2018
50,280


$


$
423,009


$
245


$
(281,600
)

$
141,654


The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

6

Table of Contents


THE RUBICON PROJECT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
OPERATING ACTIVITIES:
 
 
 
Net loss
$
(27,816
)
 
$
(15,840
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
8,710

 
10,121

Stock-based compensation
4,544

 
6,239

Loss on disposal of property and equipment
120

 
258

Provision for doubtful accounts
96

 
209

Accretion of available for sale securities
(154
)
 
(57
)
Unrealized foreign currency gains, net
227

 
119

Deferred income taxes

 
282

Changes in operating assets and liabilities, net of effect of business acquisitions:
 
 
 
Accounts receivable
28,259

 
58,292

Prepaid expenses and other assets
(170
)
 
(1,449
)
Accounts payable and accrued expenses
(23,158
)
 
(54,794
)
Other liabilities
(422
)
 
(499
)
Net cash provided by (used in) operating activities
(9,764
)
 
2,881

INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(239
)
 
(3,084
)
Capitalized internal use software development costs
(2,573
)
 
(2,285
)
Investments in available-for-sale securities
(19,238
)
 
(14,948
)
Maturities of available-for-sale securities
22,600

 
16,950

Net cash provided by (used in) investing activities
550

 
(3,367
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from exercise of stock options
6

 
368

Taxes paid related to net share settlement
(40
)
 

Net cash provided by (used in) financing activities
(34
)
 
368

EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH
122

 
62

CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(9,126
)
 
(56
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period
76,642

 
149,498

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period
$
67,516

 
$
149,442

SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:
 
 
 
Capitalized assets financed by accounts payable and accrued expenses
$
237

 
$
254

Capitalized stock-based compensation
$
145

 
$
166


The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

7

Table of Contents

THE RUBICON PROJECT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Organization and Summary of Significant Accounting Policies
Company Overview
The Rubicon Project, Inc., or Rubicon Project (the "Company"), was formed on April 20, 2007 in Delaware and began operations in April 2007. The Company is headquartered in Los Angeles, California.
The Company is a global advertising exchange that helps websites and applications thrive by giving them tools and expertise to sell ads easily and safely. In addition, the world’s leading agencies and brands rely on the Company's technology to execute billions of advertising transactions each month.
The Company provides a technology solution to automate the purchase and sale of digital advertising inventory for buyers and sellers. The Company's platform features applications and services for digital advertising sellers, including websites, mobile applications and other digital media properties, to sell their advertising inventory; applications and services for buyers, including advertisers, agencies, agency trading desks, demand side platforms, or DSPs, to buy advertising inventory; and a marketplace over which such transactions are executed. Together, these features power and enhance a comprehensive, transparent, independent advertising marketplace that brings buyers and sellers together and facilitates intelligent decision making and automated transaction execution for the advertising inventory managed on the Company's platform. The Company's clients include many of the world's leading publishers of websites and mobile applications and buyers of digital advertising.
Advertising inventory takes different forms, referred to as advertising units, is purchased and sold through different transactional methodologies, and allows advertising content to be presented to users through different channels. The Company's solution enables buyers and sellers to purchase and sell:
a comprehensive range of advertising units, including display, audio and video;
that are transacted through real-time bidding ("RTB"), which includes (i) direct sale of premium inventory, which the Company refers to as private marketplace ("PMP"), and (ii) open auction bidding, which the Company refers to as open marketplace ("OMP"); and
that are displayed across digital channels, including mobile web, mobile application, and desktop, as well as across various out-of-home channels, such as digital billboards.
Risks and Uncertainties
The Company has been negatively impacted by rapid changes in the ad tech industry including demand by ad tech buyers
for more efficiency and lower costs, changes in bidding technologies, and increased competition. In response to these challenges,
the Company made significant reductions in fees charged to buyers during 2017 and in November 2017 eliminated its buyer fees
altogether. The competitive pressures and reduced take rate resulted in the Company experiencing lower advertising spending on its platform in the first quarter of 2018 as compared to the first quarter of 2017 and also resulted in lower operating results and cash flows in the current quarter. In an effort to bring its costs into better alignment with reduced revenue trends, the Company has undertaken restructuring activities to reduce headcount and related operating costs, and has also reduced its capital expenditures, which may make execution against its strategic business plans more difficult. Unless and until the Company is able to compensate for the fee reductions and reduced gross margins by continuing to increase advertising spending on its platform, or sufficiently reducing costs, it may not be able to grow its business and may continue to operate at a loss, depleting its cash resources and liquidity. If the Company continues to experience significant operating losses in the future, the Company may require additional liquidity to fund its operations. The Company’s current credit facility expires in September 2018. There can be no guarantee that additional financing will be available on commercially reasonable terms, if at all.
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles, or GAAP, for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for the interim period presented have been included. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for any future interim period, the year ending December 31, 2018, or for any future year.
The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP. The accompanying condensed consolidated financial

8

Table of Contents

statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2017 included in its 2017 Annual Report on Form 10-K.
There have been no significant changes in the Company's accounting policies from those disclosed in its audited consolidated financial statements and notes thereto for the year ended December 31, 2017 included in its Annual Report on Form 10-K.
Reclassifications
     Certain prior period amounts have been reclassified to conform to the current period presentation. Specifically, this includes amounts reclassified to conform to the current year presentation in the condensed consolidated statements of cash flows.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported and disclosed financial statements and accompanying footnotes. Actual results could differ materially from these estimates.
Recently Adopted Accounting Pronouncements
On January 1, 2018, the Company adopted the following accounting pronouncements, using a prospective adoption method, which did not have an impact on the Company's condensed consolidated financial statements and did not result in any significant policy changes:
Accounting Standards Update ("ASU") 2017-01—Business Combinations (Topic 805): Clarifying the Definition of a Business; and
ASU 2017-09—Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.
The Company has also adopted ASU 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, although the retrospective adoption method did not have an impact on periods presented. The Company will apply this guidance to applicable future transactions.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups Act, or the JOBS Act, the Company meets the definition of an emerging growth company. The Company has irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842) ("ASU-2016-02"), which requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor, and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the effect this guidance will have on its condensed consolidated financial statements and related disclosures, and anticipates the guidance to result in increases in its assets and liabilities as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and lease liabilities.

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Note 2—Net Income (Loss) Per Share
The following table presents the basic and diluted net loss per share:  
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(in thousands, except per share data)
Basic EPS:
 
 
 
Net loss
$
(27,816
)
 
$
(15,840
)
Weighted-average common shares outstanding
50,248

 
49,446

Weighted-average unvested restricted shares
(556
)
 
(1,114
)
Weighted-average common shares outstanding used to compute net loss per share
49,692

 
48,332

Basic net loss per share
$
(0.56
)
 
$
(0.33
)
Diluted EPS:
 
 
 
Net loss
$
(27,816
)
 
$
(15,840
)
Weighted-average shares used to compute diluted net loss per share
49,692

 
48,332

Diluted net loss per share
$
(0.56
)
 
$
(0.33
)

The following weighted-average shares have been excluded from the calculation of diluted net loss per share attributable to common stockholders for each period presented because they are anti-dilutive:
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(in thousands)
Options to purchase common stock
37

 
186

Unvested restricted stock awards
186

 
224

Unvested restricted stock units
1,369

 
661

ESPP
62

 
58

Total shares excluded from net loss per share
1,654

 
1,129


Note 3—Revenues
On January 1, 2018, the Company adopted Accounting Standards Update 2014-09—Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") using a modified retrospective approach applied to all contracts that generated revenue in the preceding year. The adoption of this guidance did not have an impact on the amount or timing of revenue recognized by the Company.
The Company generates revenue from transactions where it provides a platform for the purchase and sale of advertising inventory. The Company’s advertising automation solution is a marketplace that includes sellers of advertising inventory (providers of websites, mobile applications and other digital media properties, and their representatives) and buyers of advertising inventory (including advertisers, agencies, agency trading desks, demand-side platforms, and ad networks). This solution incorporates proprietary machine-learning algorithms, sophisticated data processing, high-volume storage, detailed analytics capabilities, and a distributed infrastructure. Together, these features form the basis for the Company’s automated advertising solution that brings buyers and sellers together and facilitates intelligent decision-making and automated transaction execution for the advertising inventory managed on the Company's platform. Advertising inventory is created when users access sellers’ content. Sellers provide advertising inventory to the Company’s platform in the form of advertising requests, or ad requests. When the Company receives ad requests from sellers, it sends bid requests to buyers, which enable buyers to bid on sellers’ advertising inventory. Winning bids can create advertising, or paid impressions, for the seller to present to the user.
The total volume of spending between buyers and sellers on the Company’s platform is referred to as advertising spend. The Company keeps a percentage of that advertising spend as a fee, and remits the remainder to the seller. The fee or “take rate” that the Company retains from the gross advertising spend on its platform is recognized as revenue. The fee earned on each transaction is based on the pre-existing agreement between the Company and the seller and the clearing price of the winning bid. The Company recognizes revenue upon fulfillment of its performance obligation to a customer, which occurs at the point in time an ad renders and is counted as a paid impression, subject to an underlying agreement existing with the customer and a fixed or determinable transaction price. Performance obligations for all transactions are satisfied, and the corresponding revenue is recognized, at a distinct point in time, the Company has no arrangements with multiple performance obligations. The Company considers the

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following when determining if a contract exists under which the performance obligations have been satisfied; (i) contract approval by all parties, (ii) identification of each party’s rights regarding the goods or services to be transferred, (iii) specified payment terms, (iv) commercial substance of the contract, and (v) collectability of substantially all of the consideration is probable, although in some cases, payments are handled directly between buyers and sellers or third parties making seller inventory available.
The Company has determined that it does not act as the principal in the purchase and sale of advertising inventory because it does not have control of the advertising inventory and does not set prices agreed upon within the auction marketplace, and therefore reports revenue on a net basis. In periods prior to the second quarter of 2017, the Company reported revenue on a gross basis for revenue associated with its intent marketing solution, as the Company determined that it acted as the principal in the purchase and sale of advertising inventory. The Company ceased offering its intent marketing solution after the first quarter of 2017, after which time, all of the Company’s revenues have been recorded on a net basis. Revenue generated by the Company’s intent marketing solution during the period ended March 31, 2017 was $1.