Document
RUBICON PROJECT, INC.10-QSeptember 30, 2018false2018Q3Accelerated 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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 September 30, 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 every Interactive Data File required to be submitted 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 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  x
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 November 1, 2018 
Common Stock, $0.00001 par value
50,751,765 




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 5. 
Item 6.

2


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)
September 30, 2018 December 31, 2017 
ASSETS
Current assets:
Cash and cash equivalents $82,354 $76,642 
Marketable securities 14,486 52,504 
Accounts receivable, net 155,328 165,890 
Prepaid expenses and other current assets 8,781 9,620 
TOTAL CURRENT ASSETS 260,949 304,656 
Property and equipment, net
33,884 47,393 
Internal use software development costs, net
14,432 12,734 
Other assets, non-current
879 5,493 
Intangible assets, net
10,971 13,359 
TOTAL ASSETS
$321,115 $383,635 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: 
Accounts payable and accrued expenses $199,385 $214,103 
Other current liabilities 2,806 3,141 
TOTAL CURRENT LIABILITIES 202,191 217,244 
Other liabilities, non-current
1,172 1,780 
TOTAL LIABILITIES
203,363 219,024 
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY
Preferred stock, $0.00001 par value, 10,000 shares authorized at September 30, 2018 and December 31, 2017; 0 shares issued and outstanding at September 30, 2018 and December 31, 2017
  
Common stock, $0.00001 par value; 500,000 shares authorized at September 30, 2018 and December 31, 2017; 50,751 and 50,239 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
1  
Additional paid-in capital
431,294 418,354 
Accumulated other comprehensive income (loss) (167)41 
Accumulated deficit
(313,376)(253,784)
TOTAL STOCKHOLDERS' EQUITY
117,752 164,611 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$321,115 $383,635 

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

3


THE RUBICON PROJECT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended 
September 30, 2018September 30, 2017September 30, 2018September 30, 2017
Revenue
$29,729 $35,211 $83,253 $124,148 
Expenses:
Cost of revenue 14,687 12,985 44,514 41,371 
Sales and marketing 10,654 12,503 34,046 39,660 
Technology and development 9,299 11,580 29,038 36,377 
General and administrative 9,355 13,644 33,340 43,079 
Restructuring and other exit costs   3,440 5,959 
Impairment of goodwill  90,251  90,251 
Total expenses
43,995 140,963 144,378 256,697 
Loss from operations (14,266)(105,752)(61,125)(132,549)
Other (income) expense:
Interest income, net (232)(269)(777)(664)
Other income (206)(123)(626)(502)
Foreign exchange (gain) loss, net (120)242 (363)1,093 
Total other income, net (558)(150)(1,766)(73)
Loss before income taxes (13,708)(105,602)(59,359)(132,476)
Provision (benefit) for income taxes 84 (2,031)233 (1,510)
Net loss $(13,792)$(103,571)$(59,592)$(130,966)
Net loss per share: 
Basic and Diluted $(0.27)$(2.11)$(1.19)$(2.69)
Weighted average shares used to compute net loss per share: 
Basic and Diluted 50,513 49,055 50,095 48,726 

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


 
4


THE RUBICON PROJECT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(unaudited)
Three Months Ended Nine Months Ended 
September 30, 2018September 30, 2017September 30, 2018September 30, 2017
Net loss $(13,792)$(103,571)$(59,592)$(130,966)
Other comprehensive income (loss):
Unrealized gain on investments 9 3 15 3 
Foreign currency translation adjustments (99)87 (223)357 
Other comprehensive income (loss) (90)90 (208)360 
Comprehensive loss $(13,882)$(103,481)$(59,800)$(130,606)

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



5


 

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
December 31, 201750,239 $ $418,354 $41 $(253,784)$164,611 
Exercise of common stock options 50 — 45 — — 45 
Restricted stock awards, net (156)— — — 
Issuance of common stock related to employee stock purchase plan 89 — 143 — — 143 
Issuance of common stock related to RSU vesting 830 1 — — — 1 
Shares withheld related to net share settlement (301)(658)— — (658)
Stock-based compensation — — 13,410 — — 13,410 
Other comprehensive loss — — — (208)— (208)
Net loss — — — — (59,592)(59,592)
September 30, 201850,751 $1 $431,294 $(167)$(313,376)$117,752 

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

6


THE RUBICON PROJECT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended 
September 30, 2018September 30, 2017
OPERATING ACTIVITIES: 
Net loss $(59,592)$(130,966)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: 
Depreciation and amortization 26,355 27,154 
Stock-based compensation 13,016 16,188 
Impairment of goodwill  90,251 
Loss on disposal of property and equipment 149 269 
Provision for doubtful accounts 217 482 
Accretion of available for sale securities (374)(163)
Unrealized foreign currency (gains) losses, net (206)372 
Deferred income taxes  (1,453)
Changes in operating assets and liabilities, net of effect of business acquisitions: 
Accounts receivable 10,318 58,876 
Prepaid expenses and other assets 2,919 (1,315)
Accounts payable and accrued expenses (14,415)(49,972)
Other liabilities (939)(510)
Net cash provided by (used in) operating activities (22,552)9,213 
INVESTING ACTIVITIES: 
Purchases of property and equipment (5,474)(14,554)
Capitalized internal use software development costs (6,569)(6,127)
Acquisitions, net of cash acquired  (38,610)
Investments in available-for-sale securities (23,991)(66,419)
Maturities of available-for-sale securities 55,650 67,650 
Sales of available-for-sale securities 9,228  
Net cash provided by (used in) investing activities 28,844 (58,060)
FINANCING ACTIVITIES: 
Proceeds from exercise of stock options 45 391 
Proceeds from issuance of common stock under employee stock purchase plan 143 444 
Taxes paid related to net share settlement (658)(2,067)
Net cash used in financing activities (470)(1,232)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH (110)186 
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 5,712 (49,893)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period 76,642 149,498 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period $82,354 $99,605 
SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION: 
Cash paid for income taxes $272 $348 
Cash paid for interest $46 $46 
Capitalized assets financed by accounts payable and accrued expenses $3 $2,065 
Capitalized stock-based compensation $394 $338 

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
7


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 tens of 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, and their representatives, to sell their digital advertising inventory; applications and services for buyers, including advertisers, agencies, agency trading desks, demand side platforms, or DSPs, to buy digital 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 digital 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 inventory.
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 consumers 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 lower revenue and cash flows in the first three quarters of 2018 compared to the prior year. In an effort to bring its costs into better alignment with reduced take rates, the Company undertook restructuring activities to reduce headcount and related operating costs, and also reduced its capital expenditures. Unless and until the Company is able to compensate for the fee reductions and reduced gross margins by continuing to increase advertising spend 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.
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 nine months ended September 30, 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 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.
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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.
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.
Adoption of ASU 2018-07
The Company adopted ASU 2018-07—Stock Compensation (Topic 718) ("ASU 2018-07"), which expands the scope of Accounting Standards Codification Topic 718, Compensation—Stock Compensation to include share-based payments granted to non-employees in exchange for goods or services, as of July 1, 2018. As of the adoption date, the fair value of existing unvested awards held by non-employees was determined based on the adoption date fair value, which will be recognized over the remaining service period. Prospectively, the fair value of awards granted to non-employees will be determined as of the grant date and recognized over the service period, using the same treatment as awards granted to employees. In addition, for employees that transition into a non-employee contractor relationship with the Company subsequent to the adoption date, their existing awards will continue to be recognized at the original grant date fair value. There was no impact to the Company's consolidated financial statements resulting from the adoption of ASU 2018-07.
Other 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 Financial Accounting Standards Board ("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, with early adoption permitted. ASU 2016-02 required a modified retrospective adoption approach, however subsequent guidance (discussed below) provides an additional option for adoption approach. The Company plans to adopt ASU 2016-02 as of January 1, 2019 using a prospective adoption method in accordance with ASU 2018-11—Leases (Topic 842): Targeted Improvements ("ASU 2018-11"). The Company is currently evaluating the effect this guidance will have on its 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.
In July 2018, the FASB issued ASU 2018-11, which updates some of the implementation requirements under Accounting Standards Codification Topic 842 on leases. ASU 2018-11 provides for an additional adoption approach that was not previously included in ASU 2016-02 that allows for a prospective application. This guidance eliminates the requirement to present prior year comparative lease disclosures once ASU 2016-02 is adopted, and must be adopted concurrently with ASU 2016-02. The Company plans to apply the adoption method made available by ASU 2018-11.
In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), to streamline the disclosure requirements of ASC Topic 820Fair Value Measurement. ASU 2018 removes certain disclosure requirements, including the valuation process for Level 3 fair
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value measurements, and adds certain quantitative disclosures around Level 3 fair value measurements. This ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. The provisions of ASU 2018-13 are required to be adopted retrospectively, with the exception of disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 measurements, which can be adopted prospectively. The Company is currently evaluating the effect this guidance will have on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). ASU 2018-15 was issued to clarify the requirements of ASC 350-40Intangibles—Goodwill and Other—Internal-Use Software ("ASC 350-40"). The ASU clarifies that implementation, setup and other upfront costs related to cloud hosting agreements should be accounted for under ASC 350-40. This ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. ASU 2018-15 can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect this guidance will have on its consolidated financial statements.

Note 2—Net Income (Loss) Per Share
The following table presents the basic and diluted net loss per share:  
Three Months Ended Nine Months Ended 
September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 
(in thousands, except per share data) 
Basic and Diluted EPS: 
Net loss $(13,792)$(103,571)$(59,592)$(130,966)
Weighted-average common shares outstanding 50,750 49,800 50,482 49,638 
Weighted-average unvested restricted stock awards (237)(745)(387)(912)
Weighted-average common shares outstanding used to compute net loss per share 50,513 49,055 50,095 48,726 
Basic and diluted net loss per share $(0.27)$(2.11)$(1.19)$(2.69)
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 Nine Months Ended 
September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 
(in thousands)
(in thousands) 
Options to purchase common stock 162 187 72 154 
Unvested restricted stock awards 208 130 232 240 
Unvested restricted stock units 2,324 238 1,709 495 
ESPP
94 44 64 49 
Total shares excluded from net loss per share 2,788 599 2,077 938 

Note 3—Revenue
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 digital advertising inventory. The Company’s advertising automation solution is a marketplace for sellers of digital advertising inventory (providers of websites, mobile applications and other digital media properties, and their representatives) and buyers of digital advertising inventory (including advertisers, agencies, agency trading desks, and demand-side platforms). This solution incorporates proprietary machine-learning algorithms, sophisticated data processing, high-volume storage, detailed analytics capabilities, and a
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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 digital advertising inventory managed on the Company's platform. Digital advertising inventory is created when consumers access sellers’ content. Sellers provide digital 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’ digital advertising inventory. Winning bids can create advertising, or paid impressions, for the seller to present to the consumer.
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 when an ad renders. The Company does not have arrangements with multiple performance obligations. The Company considers the 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.
The Company has determined that it does not act as the principal in the purchase and sale of digital advertising inventory because it does not have control of the digital 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 digital 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 in 2017 prior to its cessation was $1.3 million, which is included in total revenue for the nine months ended September 30, 2017.
Payment terms are specified in agreements between the Company and the buyers and sellers on its exchange platform. The Company generally bills buyers at the end of each month for the full purchase price of impressions filled in that month. The Company recognizes volume discounts as a reduction of revenue as they are incurred. Specific payment terms may vary by agreement, but are generally seventy-five days or less. The Company's accounts receivable are recorded at the amount of gross billings to buyers, net of allowances for the amounts the company is responsible to collect. The Company's accounts payable related to amounts due to sellers are recorded at the net amount payable to sellers (see Note 5). Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.
The following table presents our revenue by channel for the three and nine months ended September 30, 2018 and 2017:
Three Months Ended Nine Months Ended 
September 30, 2018September 30, 2017September 30, 2018September 30, 2017
(in thousands, except percentages)
Channel:
Desktop $12,481 42 %$16,881 48 %$40,453 49 %$68,956 56 %
Mobile 17,248 58  18,330 52  42,800 51  55,192 44  
Total
$29,729 100 %$35,211 100 %$83,253 100 %$124,148 100 %
The following table presents our revenue disaggregated by geographic location, based on the location of the Company's sellers:
Three Months Ended Nine Months Ended 
September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 
(in thousands) (in thousands) 
United States $19,731 $22,689 $54,201 $78,350 
International 9,998 12,522 29,052 45,798 
Total $29,729 $35,211 $83,253 $124,148 

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Note 4—Fair Value Measurements
Recurring Fair Value Measurements 
Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs are based on market data obtained from independent sources. The fair value hierarchy is based on the following three levels of inputs, of which the first two are considered observable and the last one is considered unobservable:
• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
• Level 3 – Unobservable inputs.
The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at September 30, 2018:
Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 
Significant Other
Observable Inputs
(Level 2) 
Significant
Unobservable Inputs 
(Level 3) 
(in thousands)
Cash equivalents
$19,078 $19,078 $ $ 
Corporate debt securities
$1,999 $ $1,999 $ 
U.S. Treasury, government and agency debt securities
$12,487 $12,487 $ $ 
The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2017:
Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 
Significant Other
Observable Inputs
(Level 2) 
Significant
Unobservable Inputs 
(Level 3) 
(in thousands)
Cash equivalents
$1,807 $210 $1,597 $ 
Corporate debt securities
$25,098 $ $25,098 $ 
U.S. Treasury, government and agency debt securities
$29,901 $29,901 $ $ 
At September 30, 2018 and December 31, 2017, cash equivalents of $19.1 million and $1.8 million, respectively, consisted of money market funds and commercial paper, with original maturities of three months or less. The carrying amounts of cash equivalents are classified as Level 1 or Level 2 depending on whether or not their fair values are based on quoted market prices for identical securities that are traded in an active market. The commercial paper included in cash equivalents at December 31, 2017 is classified as Level 2 since its fair value is not based on quoted market prices for identical securities that are traded in an active market, but rather is derived from similar securities. Corporate debt securities (which are included in marketable securities on the balance sheet) with fair values derived from similar securities rather than based on quoted market prices for identical securities, are classified as Level 2 as well. The fair values of the Company's U.S. treasury, government and agency debt securities are based on quoted market prices and classified as Level 1, and are included within marketable securities.
Non-Recurring Fair Value Measurements
Impairment of Goodwill 
During the third quarter of 2017, the Company identified potential indications of impairment, which triggered a quantitative goodwill impairment assessment. The Company compared the fair value of its net assets, calculated using three valuation methodologies (one income approach and two market approaches), to the carrying value of the net assets. The fair value of the Company's net assets falls within Level 3 of the fair value hierarchy, as it was determined using unobservable inputs and relied on assumptions and estimates made by the Company's management. The valuation process is described below:
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Income Approach. The Company first estimated the fair value of its net assets based on an income approach using the 2017 remaining year forecast, projections for growth from that base, and a terminal growth rate. The cash flows were discounted using the Company's estimated weighted average cost of capital rate of 16.2%. The value of net operating losses and the excess working capital were then added to the discounted cash flows to arrive at the income approach fair value of the Company's net assets.
Market Approach. The market approach used to determine the fair value of the Company's net assets was based upon a review of private and public company control transactions involving comparable companies. The Company performed two analyses under the market approach—a control premium analysis and a similar transaction analysis. In each of these analyses, the Company identified merger or acquisition transactions that were completed over the past three years involving targets that operate within the “Advertising” or “Internet Software and Services” industries and where the buyer was a strategic buyer. In the control premium analysis, the Company calculated a control premium paid in each of these transactions. After analyzing the comparable transactions, the Company applied a control premium of 15% to its adjusted public equity value to derive the fair value of its net assets. An additional method under the market approach, the similar transactions method, was utilized to determine the fair value of the Company's net assets under a strategic buyer purchase scenario. In this analysis, target companies were compared to the Company and multiples paid in transactions, specifically EBITDA, were analyzed and applied to the Company's adjusted EBITDA for the twelve months ended September 30, 2017. Based on the results of this analysis, an adjusted EBITDA multiple of 2.0x was applied to calculate the fair value of the Company's net assets. In determining the comparability of publicly-traded companies, several factors were analyzed, including products and solutions, markets, growth patterns, relative size, earnings trends and other financial characteristics.  
The Company compared the fair value of its net assets using the three methodologies (one income approach and two market approaches) described above, to the carrying value and determined that its goodwill was fully impaired. The Company recorded an impairment of $90.3 million in the third quarter of 2017 to adjust its goodwill balance to its fair value of zero.
Note 5—Other Balance Sheet Amounts
Investments in marketable securities as of September 30, 2018 consisted of the following:
Amortized
Cost 
Gross
Unrealized
Gains 
Gross
Unrealized
Losses 
Fair
Value 
(in thousands)
Available-for-sale—short-term:
U.S. Treasury, government and agency debt securities
$12,501 $ $(14)$12,487 
Corporate debt securities
1,999   1,999 
Total
$14,500 $ $(14)$14,486 
Investments in marketable securities as of December 31, 2017 consisted of the following:
Amortized
Cost 
Gross
Unrealized
Gains 
Gross
Unrealized
Losses 
Fair
Value 
(in thousands)
Available-for-sale—short-term:
U.S. Treasury, government and agency debt securities
$27,426 $ $(20)$27,406 
Corporate debt securities
25,098   25,098 
Total
$52,524 $ $(20)$52,504 
Available-for-sale—long-term:
U.S. Treasury, government and agency debt securities
$2,504 $ $(9)$2,495 
The Company's available-for-sale securities had a weighted remaining contractual maturity of 0.2 years as of September 30, 2018. For the nine months ended September 30, 2018, the Company sold $9.2 million of available-for-sale investments, on which the realized gains were de minimis and there were no unrealized holding gains (losses) reclassified out of accumulated other comprehensive loss into the condensed consolidated statements of operations.
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Accounts payable and accrued expenses included the following:
September 30, 2018 December 31, 2017 
(in thousands)
Accounts payable—seller $188,659 $203,694 
Accounts payable—trade 5,081 3,764 
Accrued employee-related payables 5,645 6,645 
Total $199,385 $214,103 
As of December 31, 2016, the Company had $0.1 million of restricted cash, which is included in the beginning balance of cash, cash equivalents and restricted cash in the condensed consolidated statement of cash flows for the nine months ended September 30, 2017. Subsequent to that date, the Company has had no restricted cash. 
Note 6—Goodwill and Intangible Assets
The Company’s intangible assets as of September 30, 2018 and December 31, 2017 included the following:
September 30, 2018 December 31, 2017 
(in thousands)
Amortizable intangible assets:
Developed technology $16,878 $16,878 
Non-compete agreements 690 690 
Trademarks 20 20 
Total identifiable intangible assets, gross 17,588 17,588 
Accumulated amortization—intangible assets: 
Developed technology (6,182)(4,062)
Non-compete agreements (419)(161)
Trademarks (16)(6)
Total accumulated amortization—intangible assets (6,617)(4,229)
Total identifiable intangible assets, net $10,971 $13,359 
Amortization of intangible assets for the three months ended September 30, 2018 and 2017 were $0.8 million and $1.2 million, respectively, and $2.4 million and $3.5 million for the nine months ended September 30, 2018 and 2017, respectively. The estimated remaining amortization expense associated with the Company's intangible assets was as follows as of September 30, 2018:
Fiscal Year 
Amount
(in thousands)
2018$797 
20193,010 
20202,826 
20212,826 
20221,512 
Thereafter  
Total
$10,971 
The Company recorded a goodwill impairment charge of $90.3 million during the third quarter of 2017, refer to Note 4 for additional details regarding the related valuation assessment process.
Note 7—Business Combinations
2017 Acquisition—nToggle, Inc.
On July 14, 2017, the Company completed the merger of nToggle, Inc. ("nToggle") with Caviar Acquisition Corp., a wholly owned subsidiary of the Company, with nToggle surviving as a wholly owned subsidiary of Rubicon Project. nToggle was a Boston, Massachusetts based programmatic advertising company with traffic-shaping technology. The primary reason for the acquisition
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was to acquire technology, know-how and personnel that will enable the Company to offer services that make it easier and more cost-effective for buyers to find the inventory they seek among the billions of bid requests they receive. At closing, the Company paid net cash consideration of $38.6 million, which represents total purchase consideration of $40.6 million less acquired cash and cash equivalents of $2.0 million, to the stockholders, warrantholders, and holders of vested in-the-money options of nToggle. In addition, the Company assumed 432,482 outstanding unvested in-the-money options and 77,499 shares of restricted stock held by continuing employees, and issued an aggregate of 174,117 restricted stock units to the continuing employees under the Company's 2014 Inducement Grant Equity Incentive Plan. The financial results of nToggle have been included in our consolidated financial statements since the date of the acquisition.
The major classes of assets and liabilities to which the Company allocated the purchase price were as follows as of the acquisition date: 
Amount 
(in thousands) 
Cash and cash equivalents $1,953 
Accounts receivable 256 
Prepaid and other assets 18 
Fixed assets 763 
Other non-current assets 82 
Intangible assets 14,840 
Goodwill 24,546 
Total assets acquired 42,458 
Accounts payable and accrued expenses 78 
Deferred revenue 91 
Deferred tax liability, net 1,719 
Total liabilities assumed 1,888 
Total net assets acquired $40,570 
The Company recognized approximately $0.3 million of acquisition-related costs during the nine months ended September 30, 2017 that are included within general and administrative expenses in the Company’s condensed consolidated statements of operations. As part of the acquisition of nToggle, the Company acquired nToggle's net operating losses of approximately $9.3 million. In addition, the Company recorded deferred tax liabilities related to acquired intangibles of $5.5 million net of deferred tax assets of $3.8 million primarily related to net operating loss carryforwards.
The following table summarizes the components of the acquired intangible assets and estimated useful lives (in thousands, except for estimated useful life):
September 30, 2017Estimated Useful Life 
Developed technology $14,130 5 years
Non-compete agreements 690 2 years
Trademark & trade name 20 1.5 years
Total intangible assets acquired $14,840 
The intangible assets are amortized on a straight-line basis, which approximates the pattern in which the economic benefits are consumed, over their estimated useful lives. Amortization of developed technology is included in cost of revenues, the amortization related to non-compete agreements is included in technology and development, and amortization related to trademark and trade name is included in general and administrative.
Goodwill resulting from the acquisition was primarily attributable to acquired workforce, an increase in development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation. Refer to Note 4 for a description of the methods used to compute the charge for the impairment of consolidated goodwill of $90.3 million recorded in the third quarter of 2017. The acquired intangibles and goodwill resulting from the nToggle acquisition are not amortizable for tax purposes.
Unaudited Pro Forma Information - nToggle Acquisition
The following table provides unaudited condensed pro forma information to give effect to the nToggle acquisition as if it had occurred on January 1, 2017. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed. The pro forma results do not include any anticipated cost
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synergies or other effects of the integration of nToggle. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the date indicated, nor are they indicative of the actual or future operating results of the combined company.
Three Months Ended Nine Months Ended 
September 30, 2017September 30, 2017
Pro forma revenues $35,270 $125,083 
Pro forma net loss $(103,895)$(134,665)
nToggle's technology was fully integrated into the Company's platform, and its pre-acquisition product is not offered on a stand-alone basis. As a result, the determination of nToggle's post-acquisition revenue and operating results on a stand-alone basis was impracticable. 

Note 8—Stock-Based Compensation
The Company’s equity incentive plans provide for the grant of equity awards, including non-statutory or incentive stock options, restricted stock awards ("RSAs"), and restricted stock units ("RSUs"), to the Company's employees, officers, directors, and consultants. The Company's board of directors administers the plans. Outstanding options vest based upon continued service at varying rates, but generally over four years from issuance with 25% vesting after one year of service and the remainder vesting monthly thereafter. RSAs and RSUs vest at varying rates, typically approximately 25% vesting after approximately one year of service and the remainder vesting semi-annually thereafter. The RSUs granted in the first nine months of 2018 included 2,800,000 RSUs that vest 50% on each of the first and second anniversaries of the grant date. Options, RSAs, and RSUs granted under the plans accelerate under certain circumstances for certain participants upon a change in control, as defined in the governing plan. An aggregate of 6,148,378 shares remained available for future grants at September 30, 2018 under the plans.
Stock Options
A summary of stock option activity for the nine months ended September 30, 2018 is as follows:
Shares Under Option Weighted- Average Exercise Price Weighted- Average Contractual Life Aggregate Intrinsic Value 
(in thousands) (in thousands) 
Outstanding at December 31, 20174,363 $8.75 
Granted 706 $2.09 
Exercised (50)$0.91 
Expired (1,239)$10.15 
Forfeited (49)$4.54 
Outstanding at September 30, 20183,731 $7.18 7.0 years$1,469 
Exercisable at September 30, 20182,198 $9.49 5.8 years$467 
The total intrinsic values of options exercised during the nine months ended September 30, 2018 was $0.1 million. At September 30, 2018, the Company had unrecognized employee stock-based compensation expense relating to nonvested stock options of approximately $3.8 million, which is expected to be recognized over a weighted-average period of 2.5 years. The weighted-average grant date fair value per share of stock options granted during the nine months ended September 30, 2018 was $1.10. Total fair value of options vested during the nine months ended September 30, 2018 was $2.7 million.
The Company estimates the fair value of stock options that contain service and/or performance conditions using the Black-Scholes option pricing model. The weighted-average input assumptions used by the Company were as follows:
Three Months Ended Nine Months Ended 
September 30, 2018September 30, 2017September 30, 2018September 30, 2017
Expected term (in years) 5.45.35.75.8
Risk-free interest rate 2.75 %1.88 %2.53 %2.03 %
Expected volatility 55 %62 %57 %57 %
Dividend yield  % % % %
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Restricted Stock Awards 
A summary of RSA activity for the nine months ended September 30, 2018 is as follows:
Number of Shares Weighted-Average Grant Date Fair Value 
(in thousands) 
Nonvested shares of restricted stock awards outstanding at December 31, 2017 558 $12.60 
Granted  $ 
Canceled (156)$13.82 
Vested (176)$11.81 
Nonvested shares of restricted stock awards outstanding at September 30, 2018 226 $12.37 
The aggregate fair value of RSAs with service conditions that vested during the nine months ended September 30, 2018 was $0.5 million. At September 30, 2018, the Company had unrecognized stock-based compensation expense for RSAs with service conditions of $1.1 million, which is expected to be recognized over a weighted-average period of 1.2 years.
Restricted Stock Units
A summary of RSU activity for the nine months ended September 30, 2018 is as follows:
Number of Shares 
Weighted-Average Grant Date Fair Value
(in thousands) 
Nonvested restricted stock units outstanding at December 31, 2017 3,609 $7.55 
Granted 4,904 $2.27 
Canceled (948)$5.27 
Vested (830)$8.02 
Nonvested restricted stock units outstanding at September 30, 2018 6,735 $3.97 
The weighted-average grant date fair value per share of RSUs granted during the nine months ended September 30, 2018 was $2.27. The aggregate fair value of RSUs that vested during nine months ended September 30, 2018 was $1.8 million. At September 30, 2018, the intrinsic value of nonvested RSUs was $24.2 million. At September 30, 2018, the Company had unrecognized stock-based compensation expense relating to nonvested RSUs of approximately $20.1 million, which is expected to be recognized over a weighted-average period of 2.3 years.
Employee Stock Purchase Plan
In November 2013, the Company adopted the Company's 2014 Employee Stock Purchase Plan ("ESPP"). The ESPP is designed to enable eligible employees to periodically purchase shares of the Company's common stock at a discount through payroll deductions of up to 10% of their eligible compensation, subject to any plan limitations. At the end of each six-month offering period, employees are able to purchase shares at a price per share equal to 85% of the lower of the fair market value of the Company's common stock on the first trading day of the offering period or on the last trading day of the offering period. Offering periods generally commence and end in May and November of each year.
As of September 30, 2018, the Company has reserved 1,692,373 shares of its common stock for issuance under the ESPP.
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Stock-Based Compensation Expense
Total stock-based compensation expense recorded in the condensed consolidated statements of operations was as follows:  
Three Months Ended Nine Months Ended 
September 30, 2018September 30, 2017September 30, 2018September 30, 2017
(in thousands)
(in thousands)
Cost of revenue $72 $115 $256 $295 
Sales and marketing 1,187 1,115 3,530 3,524 
Technology and development 691 1,122 2,163 3,178 
General and administrative 1,910 2,294 6,669 7,631 
Restructuring and other exit costs   398 1,560 
Total stock-based compensation expense $3,860 $4,646 $13,016 $16,188 

Note 9—Restructuring and Other Exit Costs
As part of its on-going efforts to control costs and create efficiencies, the Company underwent restructuring events throughout 2017 and in the first quarter of 2018. The objective of these restructuring activities was to streamline operations, prioritize resources for growth initiatives and increase profitability.
In January 2017, the Company announced that it would cease providing intent marketing services and would close its Toronto, Canada office as a result. For the nine months ended September 30, 2017, the Company recognized expenses of $6.0 million as restructuring and other exit costs related to the cessation of our intent marketing solution, including the closure of the Toronto office, as well as the realignment of the management team to a more cost efficient structure (collectively, the "2017 Restructuring Events"). A majority of the costs incurred in the nine months ended September 30, 2017 were severance and one-time termination benefit costs, of which $1.6 million related to non-cash stock-based compensation, the remainder of which related to facility closure costs. There were no restructuring and other exit costs incurred during the three months ended September 30, 2017.
In the first quarter of 2018, the Company announced its restructuring plan to reduce headcount to bring the Company's general and administrative operations into better alignment with the current size of the business and de-layer certain functions, and to reduce its investment in unprofitable projects (the "2018 Restructuring Events"). During the nine months ended September 30, 2018, the Company incurred restructuring and other exit costs of $3.4 million for severance and one-time termination benefits. There were no restructuring and other exit costs incurred during the three months ended September 30, 2018.
The following table summarizes restructuring and other exit cost activity for the 2018 Restructuring Events (in thousands):
Accrued restructuring and other exit costs at December 31, 2017
$ 
Restructuring and other exit costs
3,440 
Cash paid for restructuring and other exit costs
(2,884)
Non-cash stock-based compensation for restructuring and other exit costs (398)
Accrued restructuring and other exit costs at September 30, 2018 $158 
Accrued restructuring costs related to the 2017 Restructuring Events were $0.1 million at December 31, 2017 and were paid in the first half of 2018. Accrued restructuring costs are included within other liabilities on the Company's condensed consolidated balance sheets. 
Note 10—Income Taxes
In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income. The Company's annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes, foreign taxes, nondeductible stock option expenses, and changes in the Company's valuation allowance.
The Company recorded income tax expenses of $0.1 million and $0.2 million for the three and nine months ended September 30, 2018, respectively, and recorded income tax benefits of $2.0 million and $1.5 million for the three and nine months ended September 30, 2017, respectively. The tax provision for the three and nine months ended September 30, 2018 is primarily the result of the domestic valuation allowance and the tax liability associated with the foreign subsidiaries.
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including the following: a federal corporate rate reduction from 34% to 21%; limitations on the deductibility of executive compensation and research and development (“R&D”) expenditures; immediate
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expensing of qualified property; the creation of new minimum taxes such as the base erosion anti-abuse tax (“BEAT”) and Global Intangible Low Taxed Income (“GILTI”) tax; and the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system, which will result in a one time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”).
The Tax Act imposes a Transition Tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, the Company determined, among other things, the amount of post-1986 E&P of the relevant subsidiaries. The Company recorded a provisional Transition Tax of $0.6 million, which reduced its U.S. net deferred tax assets for the year ended December 31, 2017. For the nine months ended September 30, 2018, there was no change to the provisional Transaction Tax recorded in the prior period.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company has recognized the actual impact of the revaluation of deferred tax balances and the provisional impact related to the one-time Transition Tax. The Company included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may materially differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions that have been made, additional regulatory guidance that may be issued, and actions that may be taken as a result of the Tax Act. The Company expects to complete its analysis within the measurement period in accordance with SAB 118.
In addition, it is unclear how many U.S. states will incorporate the federal law changes, or portions thereof, into their tax codes and foreign governments may enact tax laws in response to the Tax Act that could result in further changes to global taxation and materially affect the Company's financial position and results of operations.
Finally, the Tax Act imposes a new BEAT, essentially a 10% minimum tax (5% for tax years beginning after December 31, 2017, increasing to 10% for years beginning after December 31, 2018) calculated on a base equal to taxpayer’s income determined without tax benefits arising from base erosion payments. BEAT does not apply to corporations whose annual gross receipts for the three-taxable-year period ending with the preceding taxable year are less than $500 million. BEAT does not apply to the Company for the year ending December 31, 2018. Also, the Tax Act requires certain GILTI income earned by controlled foreign corporations (“CFCs”) to be included in the gross income of the CFCs’ U.S. shareholder (for tax years beginning after December 31, 2017). For the nine months ended September 30, 2018, the Company has included a provisional GILTI inclusion of $1.2 million for purposes of Accounting Standards Codification Topic 740. GAAP allows the Company to either (i) treat taxes due on future U.S. inclusions in taxable income related to BEAT and GILTI as current-period expense when incurred (the “period cost method”); or (ii) factor such amounts into the measurement of deferred taxes (the “deferred method”). The Company elected the period cost method.
Due to uncertainty as to the realization of benefits from the Company's domestic and certain international deferred tax assets, including net operating loss carryforwards and research and development tax credits, the Company has a full valuation allowance reserved against such assets. The Company intends to continue to maintain a full valuation allowance on the deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.
There were no material changes to the Company's unrecognized tax benefits in the nine months ended September 30, 2018, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year. Because of the Company's history of tax losses, all years remain open to tax audit. During the first quarter of 2017, the Internal Revenue Service commenced an examination of the 2015 tax year. During the second quarter of 2018, the Company received a Letter 590 from the IRS indicating that they had completed the examination and found no income tax related adjustments.
Note 11—Commitments and Contingencies
Operating Leases
The Company has commitments under non-cancelable operating leases for facilities, certain equipment, and its managed data center facilities. Total rental expenses were $3.2 million and $3.1 million for the three months ended September 30, 2018 and 2017, respectively, and $9.7 million and $9.4 million for the nine months ended September 30, 2018 and 2017, respectively. Additionally, expenses for cloud-based services related to data centers were $1.6 million and $0.8 million for the three months ended September 30, 2018 and 2017, respectively, and $5.0 million and $3.6 million for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, expected future commitments related to operating leases were $