Magnite Inc (MGNI) 2015 Q3 法說會逐字稿

Thank you. Good afternoon, everyone. Welcome to Rubicon Project's 2015 third-quarter earnings conference call. As a reminder, this conference call is being recorded. Joining me today are Frank Addante, CEO, Founder, and Chief Product Architect; Greg Raifman, President; and Todd Tapin, Chief Operating Officer and Chief Financial Officer.

Before we get started, I would like to remind our listeners that our prepared remarks and answers to questions will include expectations, predictions, estimates, and other information that might be considered to be forward-looking statements, including but not limited to guidance we are providing and other non-historical statements related to our anticipated financial performance.

Operating and strategic plans, expectations regarding new initiatives, our relationships and business with buyers and sellers using our platform, feeds and take rate, capital investment and organizational development, our competitive position, and market conditions and trends and growth expectations, including growth in orders, mobile, and video, and in our buyer cloud operations.

Forward-looking statements involve risks, uncertainties, and assumptions, and actual results may differ significantly from the results suggested by forward-looking statements for various reasons, including without limitation, if such risks or uncertainties materialize or assumptions prove to be inaccurate. Further, we may adjust our plans and expectations in response to market conditions or other factors.

Reported results should not be considered an indication of future performance. A discussion of these and other risks, uncertainties, and assumptions is set forth in the Company's annual report on Form 10-K for the year ended December 31, 2014; in our quarterly reports on Form 10-Q, including under the headings Risk Factors and Management Discussion and Analysis of Financial Condition and Result of Operations. We undertake no obligation to update forward-looking statements or relevant risks.

Our commentary will include non-GAAP financial measures. Reconciliation between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release, which we have posted to the Investor Relations website at investor.RubiconProject.com.

At times in response your questions, we may offer incremental metrics to provide greater insights into the dynamics of our business. Please be advised that this additional detail may be one-time in nature and we may or may not provide an update in the future on these metrics.

I encourage you to visit our Investor Relations website to access our press release, periodic SEC reports, a webcast replay of today's call, or to learn more about Rubicon Project. As a final note, I would like to mention that in the Events and Presentation section of our Investor Relations website, we've included a Q3 financial highlights presentation that summarizes our financial and operating results. With that, let me turn the call over to Frank.

Thank you, Erik. Q3 represented a record for Rubicon Project. Our results were led by non-GAAP net revenue increasing 80% year-over-year, and adjusted EBITDA growing at a much faster rate, up more than 160%. In the third quarter, we also achieved the highest quarterly revenue in our Company's history.

Through our innovations and strategic acquisitions over the past 12 months, Rubicon Project has emerged as a leading independent technology platform capable of automating the buying and selling of digital advertising across every type of inventory, including real-time bidding; guaranteed and non-guaranteed orders; across every type of advertising unit, including display, video, and native; and across every channel, including mobile web, mobile apps, and desktop.

Our end-to-end capabilities, data position, and network effects continue to deliver significant value to our customers and are major factors behind our continued growth. Before I turn the call over to Greg and Todd, I'd like to spend a minute addressing that topic of ad blocking, and the opportunity we see for our industry, and more specifically, for Rubicon Project.

While ad blocking has recently become a hot topic, the concept is not new. However, I do believe it creates a terrific opportunity for us to lead the transformation of the consumer's relationship with advertising. The current debate confirms the importance of giving consumers transparency and control of their advertising experience. With that said, it's important to understand why consumers use ad blockers.

Our independent research, surveying more than 2,000 users found that the primary motivation is to block ads that slow down or disrupt the user experience. Importantly, our engineering team is developing solutions to provide publishers and application developers with the tools necessary to streamline and speed up the user experience.

In tandem, we are also continuing to work on initiatives to provide the consumers with more control and transparency over their advertising experience. I'm confident that these steps, coupled with other industry efforts, will reduce the motivation for ad blocking over time, and will provide consumers with a better overall digital experience.

In closing, I would like to thank our more than 700 talented team members for continuing to execute at a high-level that truly demonstrates our strong market and strategic position. I'm proud that during such an exciting period of growth, our team continues to put our strong culture at the center of everything that we do. With that, I will let Greg and Todd walk you through a more detailed analysis of our results.

Thank you, Frank. As Frank outlined, we had another strong quarter in Q3. I'm proud of our team's focus, hard work, and execution that further extended our track record of outperformance since the IPO. Today, I would like to take some time to talk about number of significant advancements we have made in our mobile, seller, and buyer cloud offerings that we believe have strongly positioned Rubicon Project for continued success in the market.

First, let's turn to mobile. Last quarter, we discussed the success we have experienced in building a world-class mobile advertising platform that today stands as one largest mobile exchanges of the world. What has fueled our success in mobile has been a simple and straightforward strategy, to make buying and selling mobile advertising as easy as buying and selling desktop advertising in our marketplace.

In this regard, our results have been impressive to date. In Q3, our mobile managed revenue grew more than 110% year-over-year, more than doubling the 54% mobile industry growth rate in the first half of 2015 according to the IAB. Mobile now accounts for 26% of our managed revenue, up strongly from 22% in the second quarter, and up from just single-digits a couple of years ago.

Given the growth trajectory we are projecting, we are still at the tip of the iceberg of the future potential for our mobile initiative. The future advertising opportunity in mobile is best outlined by Kleiner Perkins' Mary Meeker in her annual report on advertising released earlier this year. Simply put, despite the impressive sector growth to date, while the eyeballs have to mobile, much of the advertising dollars have lagged.

According to Meeker, the net results of this mobile divide is that, in the US alone, more than $25 billion in advertising spend has yet to shift over to mobile. At Rubicon Project, we see the key to unlocking this spend and increasing our share of the overall mobile market as being primarily focused on delivering against three core areas of significant investment that have helped fuel impressive advances in the past quarter. I will touch on each briefly.

First, a key challenge for unlocking mobile spend relates directly to the current poor state of the mobile ad experience. As mobile adoption has grown, many brands have attempted to fit the traditional desktop banner advertising model into a device that fits into our pockets. This approach has often led to sub-optimal results, a less engaging experience for users, and a smaller revenue stream for publishers.

We have worked hard to develop and support better formats and ad experiences in mobile, focusing our engineering and business development investments on the exciting areas of mobile video and mobile native. When you consider that the average user today now spends 40 minutes per day consuming video on mobile devices, you can begin to see the incredible emerging opportunity mobile video presents to both advertisers and to publishers and app developers.

Our technology and business development investments in creating new forms of engaging ad units have already begun to show impressive returns. In Q3, while still early in market, we generated exceptional growth quarter-over-quarter from mobile video formats, including mobile pre-roll, interstitial, inline, expendable, and rewarded. With mobile video, advertisers gain deeper engagement and valuable brand metrics, such as brand recall and purchase intent. Mobile publishers and app developers also enjoy CPMs for mobile video that are several times higher than traditional banner ads.

We have also continued to advance the automation of native advertising. In Q3, we increased the number of DSPs capable of purchasing native ads on our mobile exchange by 50%. Much as with mobile video, native ads are an industry trifecta: better performance for the advertiser, higher CPMs for the publisher, and a much better user experience for the end consumer.

The second key to unlocking additional mobile spend is the reality that mobile advertising is simply much more difficult to buy than traditional desktop advertising. In our experience, managing mobile buyers is several times harder than managing a traditional desktop DSP. The sheer amount of data that mobile can provide, while clearly a positive for buyers, significantly complicates the buying and selling of mobile advertising.

As an example, mobile devices contain enhanced device information, location signals, mobile app identifiers, and associated metadata. Further complicating matters is that this data is different across mobile platforms, such as iOS and Android, and that mobile buyers may interpret the data differently.

Importantly, we have spent considerable time and effort working with our mobile buyers to audit exactly the data they are using to ensure that it is being optimized for increased monetization and that the mobile real-time bidding standards are functioning well. As advertisers and publishers grapple with the challenges of the mobile evolution, we're also seen significant market fragmentation complicating the buying and selling processes in mobile that makes it hard for buyers to secure premium mobile inventory at scale, amongst mobile-only exchanges.

Sophisticated programmatic buyers are expecting to leverage the same tools they have come to know in desktop, but in mobile environments. As a result, we've taken our leadership role in non-guaranteed orders directly into mobile, becoming the standard for mobile private marketplaces. Our leadership position is helping to unite the fragmented marketplace and drove in 96% surge, quarter-over-quarter in mobile orders with CPMS that are significantly higher than standard campaigns.

We were excited to bring new and updated video capabilities to mobile orders in Q3, which is a huge growth area for us as we move into the holidays. I'm also proud to report that our efforts to increase mobile demand and simplify the buying and selling ecosystem led to solid double-digit increases in average spend per mobile buyer in Q3 compared to the second quarter of 2015. As we streamline and simplify the process and create better ad units, buyers are increasingly unlocking additional spend, as sellers experienced greater monetization.

And finally, we hear consistent feedback that buyers are looking to consolidate spend across both desktop and mobile platforms for cross-platform campaigns with a focus on high-quality supply. We're pleased that Rubicon Project was the only platform to be ranked in a top-tier position in both mobile and desktop inventory quality rankings in the third quarter, ranking number two on both measures according to Pixalate's latest Seller Trust Index.

Turning now to our seller cloud offerings, we see many similar trends driving our results and creating new opportunities for growth in the future. As with mobile, we have designed our strategic road map to grow and evolve our seller cloud offerings. Our recent focus has been to deliver against two key strategic objectives: driving monetization for publishers globally and transitioning or mobilizing their inventory for the mobile channel.

Let me talk briefly about each objective. For many of our long-standing traditional sellers of desktop inventory, a key challenge facing their business is the need to both maintain their traditional desktop business, while simultaneously mobilizing their ad inventory for the future. For most of these sellers, we have played an integral role helping to evolve their traditional advertising-driven business models to leverage and benefit from a user shift to mobile.

As they undertake this journey, sellers face many inherent and new challenges: how to best monetize their growing mobile web traffic, how to most effectively leverage the shift to in-app mobile usage, and how to manage yield across platforms. The trusted role Rubicon Project has earned in the ecosystem allows us to build deeply integrated partnerships with the world's most premium publishers, helping to drive their desktop and mobile strategies.

We have benefited tremendously as we help our sellers maintain their desktop businesses, while simultaneously building out their mobile offering. This commitment to monetization and mobilization has enabled our sellers to optimize their growing audiences across all channels, while continuing to grow their CPMs across our platforms.

In addition to providing the technology and expertise for future mobilization, we are also creating new monetization opportunities. As money moves from direct [sold] campaigns, we're working with our publishers to embrace orders, both guaranteed and non-guaranteed, which delivers more than three times the CPMs versus traditional real-time bidding auction initiatives.

Today, we have one of the largest orders platforms in the world, with more than 10,000 deals live in the month of September. Importantly, as more publishers shift to embrace orders, it has enabled significant growth for our business, as well, driving more than 120% growth in managed revenue for orders year-over-year. Let me briefly put our strategic focus of mobilization and monetization into perspective with a recent case study, showcasing the powerful value we bring to publishers today.

Ziff Davis International is a leading digital publisher with well-known properties such as IGN and AskMen. Working with Rubicon Project's real-time bidding and orders technology for both mobile and desktop inventory, Ziff Davis International generated a 440% increase year-over-year in total revenue during July of 2015.

Despite enjoying massive growth in automation and private marketplaces, Ziff Davis International reported, quote, no decline in direct-sold conversations, end quote, since adopting our orders platform. That's a powerful statement supporting our long-standing view that automation makes direct sales efforts far more efficient without cannibalizing revenue.

In addition to orders, we were also excited about a recent [Fast Lane] product innovation. Fast Lane is our second-generation header bidder technology that recently went live in Q3. Fast Lane enables Rubicon Project to sit much higher in the publishers' ad stack, allowing the strength and scale of our buyer demand to compete for many more of a seller's available impressions.

This innovative technology is designed to create much higher demand for impressions, leading to higher CPM prices and increased revenue for our seller clients and greater impression volumes to Rubicon Project. In fact, the positive early results from Fast Lane demonstrate that sellers can achieve CPM increases in excess of 50%.

Finally, I'd like to close by turning to our buyer cloud and sharing with you a number of initiatives that we have put in place to grow demand since integrating our buyer teams this summer. A key focus of our Company strategy today has been to control supply and to control demand. We began nearly a decade ago, with a mission to automate advertising with a clear focus on helping publishers and app developers embrace technology to grow monetization opportunities for their business.

Several years ago, we made the strategic move to leverage the network effects inherent in our business of having the most premium supply in the market to build out a robust buyer business. In Q2 of this year, we acquired Chango and integrated that business into a unified buyer cloud offering many of the tools necessary to control demand.

To accomplish this, we have been focused on three strategic goals. First, in a familiar theme, unlocking mobile demand targeting solutions has been a high priority for buyer cloud. For the past several months, our engineering teams have been working to further advance our mobile capabilities for our buyer cloud offerings, recently developing capabilities such as mobile-in-app and cross-device targeting that are in high demand.

Earlier this month, we launched our comprehensive buyer cloud mobile solution suite that now offer buyers access to mobile web, mobile in-app, and cross-device targeting. When you consider that buyer cloud mobile managed revenue from mobile web demand alone has already grown 50% of May to September of this year, even before we were in market with our app and cross-device technology, you can why we are very bullish on the future demand from these two exciting fast growth segments of the business.

Second, as we have mentioned in prior quarters, we have been working to expand demand for our guaranteed orders platform offering that automates the buying and selling of premium digital advertising on a fully reserved basis. In Q3, we brought on new buyers to guaranteed orders platform, including advertising agencies such as Merkle and Empower Media, and advertising brands like Live Nation.

Our growing ecosystem of buyers and sellers will help drive higher spending on guaranteed orders, as the business continues to scale. We're making an entirely new market in guaranteed orders and expect our near-term progress to be measured as buyers of all kinds become more comfortable integrating automation into their ad campaigns to acquire the most premium inventory.

Third, we continue to leverage our buyer cloud to extracting even greater scale effects. Most notably, the former Chango sales team of more than 50 knowledgeable dealmakers are now in market with our private marketplace guaranteed and non-guaranteed order solutions, leveraging our increased technology and infrastructure on the one hand, and accessing our expanded buyer cloud relationships on the other.

To wrap up, I will comment on a key trend we're seeing in the buyer cloud, as we have begun to proactively test new pricing models in anticipation of future demand for greater transparency from brand advertisers and agencies. As a Company intent on operating a fully transparent marketplace, which is rather unique for our industry, we have always been an advocate of transparency.

We believe more transparent pricing in buyer cloud will give us a competitive advantage, resulting in strong relationships with our customers and driving higher spend in the future. Our intention to offer more transparent pricing will likely result in a greater share of our buyer cloud transactions being recorded as net revenue in the future and we expect will result in lower take rates, but will provide more managed revenue to Rubicon Project.

In summary, I am pleased with our team's strong execution during our third quarter and our record performance as we continue to shape and define the future of the advertising automation market. Rubicon Project is well-positioned for continued success heading into our busiest seasonal period, ahead of the holiday season and into the new year. With that, I will turn it over to Todd for a review of the financials. Here is Todd.

Thank you, Greg. Overall, we've continued to experience tremendous growth led by RTB and mobile. Managed revenue, which is the advertising spending transacted on our platform, for the third quarter of 2015 was $244.4 million compared to $168.2 million in third quarter of 2014, an increase of 45% year-over-year. The increase in managed revenue was primarily driven by an increase in both pricing and bidding activity, led by RTB, which continues to represent the largest portion of our business.

Managed revenue was comprised of 77% RTB, 16% orders, and 7% static. By channel, managed revenue was comprised of 74% desktop and 26% mobile. GAAP revenue was $64.3 million compared to $32.2 million in the same period in 2014, representing a year-over-year increase of 100%, and slightly ahead of expectations.

Non-GAAP net revenue, which is the revenue that we would report if we were to report all of our revenue on a net basis was $57.9 million compared to $32.2 million, an increase of 80% year-over-year, and ahead of expectations. The non-GAAP net revenue associated with the GAAP revenue guidance that we provided last quarter was $53.8 million; therefore, the attainment of $57.9 million this quarter represents a favorable variance of 8% over expectations.

Average CPMs continued to increase and were higher year-over-year. Paid impressions associated with orders and RTB were higher year-over-year, while paid impressions from static transactions were lower year-on-year. The growth in average CPM was primarily due to algorithm efficiency, orders, increased buyer spend, buyer cloud initiatives, and a continued shift from static inventory purchases to RTB.

Take rate, which is non-GAAP net revenue divided by managed revenue, increased to 23.7% in the third quarter of 2015 as compared to 19.1% for the same period in 2014. The increase in take rate year-over-year was primarily due to the higher mix of RTB managed revenue and buyer cloud transactions reported on a gross basis and a lower mix of static managed revenue.

Looking ahead, we expect take rates to decrease as more buyer cloud transactions are expected to be more enterprise-based or be transactions reported on a net basis, which carried lower take rates. We expect orders to increase as a percentage of overall managed revenue mix. We believe that both buyer cloud transactions and orders will increase in the future, thereby providing incremental revenue but at lower take rates than those recently reported.

Operating expenses, including costs of revenue, increased to $69.4 million in the third quarter of 2015 from $37.6 million during the same quarter in 2014. The increase in operating expenses were primarily due to prior acquisitions, which includes an increase in payments to sellers of $6.4 million included in cost of revenue, and an increase in non-cash amortization of acquired intangible assets of $4.8 million, in addition to an overall increase in personnel expenses of approximately $12.7 million, of which $1.6 million consisted of an increase in non-cash stock compensation expense.

In addition, the increase in operating expenses was due to the expansion of our sales efforts and buyer cloud initiatives. Net loss was $3 million in the third quarter of 2015 compared to a net loss of $4.6 million for the same period in 2014. Adjusted EBITDA was $12.6 million in the third quarter of 2015 compared to adjusted EBITDA of $4.8 million in the third quarter of 2014 and well above expectations. The increase in adjusted EBITDA was primarily due to the revenue performance.

GAAP loss per share was $0.07 in the third quarter of 2015 compared to a loss of $0.14 per share during the third quarter of 2014. Non-GAAP earnings per share in the third quarter of 2015 was $0.23 compared to non-GAAP earnings per share of $0.05 in the same period in 2014. For an explanation of the various share counts that affect these computations, please see the table in the earnings release and the explanation of non-GAAP EPS and non-GAAP weighted average shares outstanding.

Capital expenditures, excluding capitalized stock compensation, were $4.5 million for third quarter 2015. We closed Q3 2015 with $108.1 million in liquid assets and no debt. We paid approximately $20.5 million of our payables earlier than normal at the end of the quarter. Thus, on a normalized basis, we generated $7.6 million of free cash flow from what is normally a seasonally low quarter.

Looking ahead, in response to feedback from analysts and investors, we plan to provide revenue guidance on an non-GAAP net revenue basis going forward. We will also provide revenue guidance on a GAAP basis in order to comply with reporting guidelines; however, GAAP revenue consist of transactions for which some are reported gross and some are reported net.

We expect that there will be a higher mix of net versus gross transactions in the future, but predicting the mix of such in any given quarter will be challenging since each transaction must be evaluated on its own characteristics, some of which may not be known at the time we provided guidance. Therefore, we believe that the non-GAAP net revenue guidance may provide a better forecast and representation of future results.

Accordingly, in terms of outlook for Q4 2015, we expect the following. Non-GAAP net revenue to be between $75 million and $80 million, which is consistent with the prior forecasts, understanding that we did not provide non-GAAP net revenue guidance last quarter. GAAP revenue to be between $87.5 million and $98.5 million, which is also consistent with the prior forecast, and with a wider range to accommodate for the fluctuating mix between gross and net revenue reporting.

Adjusted EBITDA to be between $20 million and $21 million, also consistent with the prior forecast. And non-GAAP earnings per share to be between $0.32 and $0.34 based on approximately 51 million forecasted weighted average shares. The outperformance in Q3 and Q4 guidance provided above results in full-year 2015 estimates as follows.

Non-GAAP net revenue to be between $219 million and $224 million. GAAP revenue to be between $242 million and $253 million. Adjusted EBITDA to be between $43 million and $44 million, an increase of 18% compared to the prior guidance. And non-GAAP earnings per share to be between $0.64 and $0.66, based on approximately 47 million forecasted weighted average shares.

As a preliminary view towards 2016, we expect continued growth and provide the following estimates. Non-GAAP net revenue to be between $270 million and $300 million. GAAP revenue to be between $315 million and $355 million. Adjusted EBITDA to be between $45 million and $60 million and non-GAAP EPS to be between $0.65 and $0.78. We intend to narrow the 2016 guidance ranges after we report our Q4 results.

As we have previously noted, we believe that we are in the right position to be a leader in this fast-growing and large opportunity. Accordingly, we plan to continue to invest in discretionary innovation and R&D. Other important areas of investment during the remainder of 2015 and through 2016 include buyer cloud initiatives, orders, international expansion, mobile and video buying and selling.

We would now like to open the line for any questions.

(Operator instructions)

Our first question comes from Kerry Rice of Needham. Please go ahead.

Thanks a lot. Nice solid quarter. My one question, I'll try to limit to that, is maybe around video. Greg, you mentioned mobile video. What about video just as a whole, are we going to see more programmatic or the ability to buy that, more supply, maybe not in Q4, but maybe if you think about 2016? Any comments there?

Thanks, Kerry. First, want to say that we're happy with the results of this quarter, looking at non-GAAP net revenue surpassing expectations by about 8% and adjusted EBITDA surpassing by about 110%. And through the course of our last quarter and previous quarters, we have been developing our video product.

Obviously, we have not provided any allocation with regard to managed revenue, but one thing we have noticed is that the tracking with respect to our development on video has been very close to that with respect to our tracking on mobile and mobile development.

And so with respect to how is our market developing, mobile video has been one area of particular emphasis and has been an area where we have seen some of the strongest growth. That said, we certainly are also developing the product. We have revenue being generated, of course, across the desktop, as well. Greg might want to comment a little further on video.

Kerry, Greg here. Just to reiterate what we've said in prior quarters, we are committed to video for the long term. We look at video as a premium ad format that we think will be sold quite effectively in our orders platform and what I tried to highlight in my rather lengthy notes, or script rather, were that we're seeing a lot of growth in the local environment for video.

So I did emphasize mobile video more so than I did video in general, but we still work with video, like we did in mobile a few quarters (technical difficulty). After the fact that we had built quite a substantial mobile business and we have seen actually growth in video at this point in its trajectory grow faster than what we originally saw in mobile. So any other questions?

No, that's it. Thank you.

Our next question comes from Aaron Kessler of Raymond James. Please go ahead.

Hi guys. Congrats on the quarter. Just on the EBITDA guidance, if you can help us understand maybe the incremental expenses you expect in Q4, given the strong outperformance in Q3, should that be more on that COGS side or maybe increased sales and marketing expenses to get to your EBITDA, which I would think would flow through a little more? Thanks.

Right. Thanks, Aaron. Our EBITDA guidance actually has not changed for Q4 as it was in the prior quarter. We do expect some of the hiring that we did not have in Q3 to catch up in Q4. Clearly the revenue outperformance was one of the leading reasons for our strong EBITDA performance against expectations in Q3, so with regard to Q4, we will have now a full quarter of our acquisitions behind us in Q3, so we will see again a full-quarter impact of that.

A lot of that we will see on the sales and marketing side. As you know, our buyer cloud is focused on selling to buyers on that end, so we think will be one area. G&A will probably not have a tremendous amount of growth. And as we've said before, we will continue to spend on the technology and engineering front commensurate with past performance, as well as with revenue trajectory.

Great. Thank you.

Our next question comes from Heath Terry of Goldman Sachs. Please go ahead.

Hi. Thanks. It's Deb on. Frank, appreciate your perspective on ad blocking You mentioned you're rolling out tools to help publishers speed up page flow times and improve user experience. Wondering if you could help us give a sense of timing for when publishers will be able to implement these tools, and also just a little bit more clarity on what these tools are?

Sure, absolutely. As I mentioned before, ad blocking is not a new concept, but we do believe that this opens up a tremendous opportunity to really focus on accelerating the consumer's experience. And this is something that the Company has been thinking about really from its inception.

So in the early days, we were focused on making sure the consumers were protected from advertisements like malware or spyware. Over time, we've also provided tools and capabilities and data capabilities to improve the consumer's experience by connecting them with advertising more relevant to them.

What we're really talking about here is how do we make the consumer an active participant in this marketplace, where sellers and buyers have traditionally existed. Ultimately, if you think about it, the sellers are developing content and applications to attract consumers. And you've got the buyers, the advertisers, the agencies, who are ultimately trying to place advertising on content websites and applications that they feel are attracting the kinds of consumers that they are looking for.

Our place in this is that we have now connected the buyers and sellers and the consumers into a real-time marketplace where the data, the controls, all of those things exist, to really decide and control on an impression-by-impression basis who sees what, who sells what, who buys what. Those are really the types of technology and tools that we're working on.

We're not prepared at this point to make any product announcement, and along with that, timing announcements as well, but I can tell you that these are things that have been top of mind for us here well in advance of ad blocking even becoming an issue. So while I won't give you specific dates, I could tell you that it is in the near future that you will see something, and just as we have led with -- in the past, we have led the industry with other automation capabilities, we intend to lead the industry with consumer solutions, as well.

That's helpful. Thanks, Frank.

Our next question comes from Jason Helfstein from Oppenheimer. Please go ahead.

Two questions. It seems right now investors are looking for size and scale, which there is a belief that, that reduces risks of an individual client loss or take rate pressure. Can you talk -- would there be merits for you buying or merging with one or two of the other larger players out there focused on the supply side? And then secondly, Todd, can you just repeat what you said about the accounts payable timing and why the reported number was not -- did not follow the normal [track of X]?

Should they Jason. First of all, on size and scale, the first [account] we'd have is we have built and believe we had built in accordance to a strategy that we think is successful, which is a comprehensive and complete advertising automation solution. When we do that, we should be able to continue as an independent in growing that size and scale.

Because when we are providing the ability to monetize any type of inventory across any type of ad unit across any type of channel for a direct connection to both buyers and sellers, then we should be able to provide the right type of critical mass and hence grow scale from that. We believe it's a very strong competitive position and we think our results have demonstrated that.

So to answer the first question: is it essential? We would say absolutely not. With respect to looking at the landscape, one of the things that you would look at in anyone who is participating similar types of solutions is what is the redundancy, and therefore, what is either the synergies or dis-synergies. Often times, what you might find is that there are areas where the publishing component or even the buying component does not lend itself well to either of those two factors, then you really start to think that maybe from, an accretion dilution standpoint, it's not really warranted.

In addition to that, the other thing that we would certainly look at is what is our competitive position then and are we in a better position to continue to execute on an independent basis? That's really the way that we would evaluate those sort of opportunities, and naturally, a component of that is valuation.

With respect to your accounts payable question, yes, we were a little off-cycle at this particular quarter. We are about a week early, so we paid about $20.5 million early. Had we held that and paid it on a more normal cycle, then what you would have seen is cash on hand jumping from about $108 million to $128 million and you would see a free cash flow generation of about $7.6 million.

Thank you.

Our next question comes from Rohit Kulkarni of RBC. Please go ahead.

Thank you and thank you for the 2016 guidance, as well. Todd, one question on that. Margins imply 60, 70, 80, 90 basis points decline year-over-year. Any particular investments or incremental spend [approximately] that you would call out? And I know, just one quick question to, Todd and Greg, AppNexus reported that their transactions fell 65% -- that is a pretty big number -- because of fraud in their inventory. Any particular reaction to that from your side? Thanks.

Sure. Thanks. With regard to 2016 guidance, we are looking at about 20% on 2015, which is up about 15% in 2014. So continued growth on that front, and if you look at the absolute dollar basis, you are looking at an increase of about $10 million, and if you go from about $43 million or so guided this year to about $53 million or so guided next year.

So we're right now focused on growing the absolute number. There is certainly the potential for us to continue to find the cost efficiencies that we have found in 2015, and if we are able to do that and carry that over into 2016, then there might be margin expansion. At the same time, obviously, you've seen the revenue guidance. It's at a wider range right now and we will look to narrow those ranges when we provided our Q4 earnings results.

Hi, Rohit. It's Frank here. On your other question about AppNexus, look -- AppNexus is obviously not a public company and we're not inside their business, but I could tell you that our focus has been on providing a well-lit clean environment. As we've shown you in the past, we've taken extremely proactive steps in building technology to ensure the safety for both buyers, sellers, and the consumers, and it's something that's always been a strength of ours, and an area that we believe that we take a leadership position in, in the industry and will continue to do so.

And following up on that, Frank, one thing we should point out, which I mentioned in the script was that Rubicon Project was just rated as the top tier for quality in both desktop and mobile by Pixalate. So this is an issue that we've been talking about on virtually every earnings call and so we're quite please where we are with respect to our inventory quality.

Okay. Great. Thanks. I'll [see you guys]. Good quarter.

Our next question comes from Jason Kreyer of Craig-Hallum. Please go ahead.

Thanks, guys. Just wanted to go back to the ad blocking topic and see if you could just talk about if there's any changes in the business or anything noticeable since the iOS 9 release, which allowed ad blocking in browser on iOS devices?

Sure. First, the numbers speak for themselves. As Todd mentioned, [you had] an 8% net revenue beat. Our mobile business has grown twice as fast as the rest of the industry. So from an economic standpoint, you had little to no effect on the business. What it does do is it does provide us a tremendous opportunity to take some of these solution that we've been contemplating to market faster because it is something that is making the consumer choice something that is top-of-mind now.

Certainly in the media, it's something that the publishers and application developers are thinking about, something that advertisers are thinking about. Any time there is any volatility of disruption in a market, it opens up people's minds to be more accepting of solutions that are brought to the market. So from that standpoint, we're excited about it because you're going to pave the way for us to bring some of these new consumer solutions to market.

Okay. Is there any way you can provide the net revenue only number that you provided last quarter?

The net revenue-only guidance. Is that what you're asking for?

The net revenue-only transactions number?

We don't break that out. As you know, we have consolidated the Chango acquisition to our buyer cloud. We now have buyer cloud as an integrated part of operations, and as we have historically, we don't break out seller versus buyer economics.

Okay, thanks.

Our next question comes from Todd Van Fleet of First Analysis. Please go ahead.

Hey, guys. I think this was the first time since coming public that you have not handily beat on the top line, so I was wondering what your thoughts were specifically on that issue, in light of your comments on the 8% net revenue beat, which I'm going to have to assume came through mainly on the publisher side of the business? Thanks.

Actually, we would respectfully disagree. Albeit we did not provide our net revenue guidance last time we provided guidance, but what we are telling you, had we done that, we would've seen a surpassing of expectations by 8%. And if you were to look back historically, all of our measurements have been on exactly the same thing, which has been on net revenue.

You would see that our delta to revenue has been pretty consistently somewhere in that 7% to 15% range. So actually we would view this quarter as being very, very consistent with our ability to beat expectations, almost identically as we have many other quarters, with considerable surpassing of expectations on the bottom line, and as I said, somewhere in the 5% to 15% surpassing expectations on the top line.

The GAAP revenue number versus net revenue number, remember, can shift, just based on how you recognize revenue, whether it be gross or net. So I wouldn't read anything into the performance with respect to those two things, and hence the reason why we're moving towards providing net revenue guidance going forward. We'll also provide GAAP because guidelines requires us to.

But we think that the much better measure of our business will be continuing to measure it on a net revenue basis. So it would answer directly the question, yes, we're seeing continued strong performance.

So Todd, just expand on that then, if you beat on a net revenue basis, does it hold that the estimates on what would have been add back to get to gross, you somehow undershot that, or I'm just trying to understand that dynamic a little bit better?

I wouldn't call it an undershot or overshot, it just might just be the difference in where our revenue was recorded in gross versus net. The other thing you can look at is you can certainly see that the lever is in the model because with that 8% in surpassing of expectations in the top line, it obviously is a major contributor to the 110% beat on the adjusted EBITDA line.

Thanks.

Our next question comes from Brett Huff of Stephens Inc. Please go ahead.

Thanks and congrats on a nice quarter. This is Jim Rutherford in for Brett. Just a quick question on the competitive landscape. I was hoping to get an update there, particularly on the orders product. Just given the opportunity that you are seeing, are you seeing any competitors start to move into that product more so? I know Google at one point had launched a product and didn't seem to do super well in the market, but was curious if you see any more activity from that competitor or from others? Thanks.

From a competitive standpoint, we continue to see great growth in our orders product. We've talked about this over the last several quarters about how we are investing heavily in our direct order automation as part of the future. It unlocks a lot of spend for video, it unlocks spend for mobile, so you need to look at it in a context of, in some ways, a cross-platform strategy.

To date, we have not seen any of our fellow colleagues in the industry with the kind of cross-platform approach to orders that we have. I mentioned in my script that the kind of growth that we have seen over the last year, year-over-year for orders, and for quarter-over-quarter, so from that standpoint, we're pretty pleased with what we're seeing in the industry.

I'll add to that, is that the orders product is an area of the market where we did lead and pioneer. Again, orders didn't exist until we developed that technology. As you might recall, we acquired two companies to advance that, so we have grown this both organically and inorganically. We did that because we wanted to make sure that we were way ahead of the market and that we were also priming the market for when it was ready to take non-auction type inventory and bring that into an automated orders environment.

We've been building up our customer base, specifically for this, from the early days of the Company. We took the hard route. There was a lot of easy revenue for us to go after in the early days, by going after less name brands, publishers, or application developers, but instead we chose to focus on the most important and leading brands of the world, and deeply integrate them into our products.

And these are the customers, the sellers, that the largest advertisers and agencies want to interact with, are already interacting with via manual orders, so it becomes a much more natural transition. You asked about Google, specifically. Google was a follower to our product in the orders business and their product is still on a closed alpha from what we understand.

And we also understand that it appears to be significantly behind our guaranteed orders product. So we think this is an area where we have both a technical advantage, a strategic customer position advantage, and I would also say a business model advantage, as well. Part of the thing with orders is that you are providing an enormous amount of transparency into what the actual order is, who the advertisers, who the buyers are.

We don't have any conflicts there because we don't have our own properties. We don't have our own applications that we're trying to go and sell advertising to the advertisers and to the agencies. So we think that consumers will also appreciate the fact that we don't have that conflict in our business model, as well.

Just a follow-up data point for you, (technical difficulty) see 120% growth in orders managed revenue year-over-year and 96% growth quarter-over-quarter for mobile orders. So that speaks to the growth and the velocity of our orders business.

Great. Thank you so much.

This concludes our question-and-answer session. I would like to turn the conference back over to Management for closing remarks.

Thank you all for joining us on the call today. We look forward to seeing many of you at investor conferences in the coming weeks.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.