Rubico Inc (RUBI) 2015 Q1 法說會逐字稿

Welcome to the first quarter 2015 Rubicon Project earnings conference call. During the call all participants will be in a listen-only mode. After the presentation we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded, and will be available for replay from the Investor Relations section of Rubicon Project's website following this call. I will now turn the call over to Erik Randerson, Vice President of Investor Relations for Rubicon Project. Sir, you may begin.

Thank you. Good afternoon everyone. And welcome to Rubicon Project's 2015 first 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 Tappin, 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 businesses with buyers and sellers using our platform, fees and take rate, capital investment and organizational development, market conditions, and trends and growth expectations, and our competitive position.

Forward-looking statements also include information regarding the size and growth of the intent marketing business, continued growth in Chango's business, acceleration in the development of our buy side business as a result of the transaction, development of our orders business in Chango's are targeting CPC and CPA capabilities, our ability to leverage our platform to take advantage of Chango's business model, including pricing and products, accretion resulting from the transaction, and the final purchase price and dilution resulting from the transaction. 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 such risks or uncertainties materialize, or assumptions prove to be inaccurate. The Chango acquisition is subject to integration and other risks, and Chango's business is based on short term insertion orders, and clients may reduce or terminate their spending with Chango on short notice and without penalty. In addition, Chango's business is subject to many of the same risks, uncertainties, and assumptions that affect our business. And risks applicable to us that will affect Chango as part of Rubicon Project. 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 as set forth in the Company's Annual Report on Form 10-K for the year ended December 31st 2014, and our quarterly reports on Form 10,-Q including under the headings Risk Factors and management discussion and analysis of financial conditions and results of operations. We undertake no obligation to update forward-looking statements or relevant risks. Our commentary will include non-GAAP financial measures, reconciliations between GAAP and non-GAAP metrics for our reported metrics 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 to 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 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. With that, let me turn the call over to Frank.

Thank you Erik. Good afternoon everyone. We had another strong quarter highlighted by three key themes. First, exceptional financial results. Second, exciting progress on innovations that position us to capture future growth. And third, expansion of our market opportunities through the acquisition of Chango. First quarter revenue increased 62% year-over-year, our highest growth rate as a public company. We also delivered positive adjusted EBITDA. I'm especially proud of our team for delivering this level of growth, in what is the industry's seasonally slowest quarter. We achieved these impressive results while continuing to invest in our large market opportunity, demonstrating our success in being aggressive with innovation, while being fiscally prudent. Rubicon Project operates in a nearly $300 billion and growing market. We believe that continuing to invest in innovation, technology, and people at this early stage in our growth cycle, will unlock future value for our shareholders, considering the massive opportunities that lie ahead of us.

Last quarter I talked about our Research & Development initiatives and a new innovation center called The Garage. We recently announced that two products from The Garage have launched into Private Beta. DSP Builder is an important offering that reinforces our strategy to enable the creation and growth of new DSPs. Entrepreneurs, developers, and companies can use this product to rapidly build and deploy new DSPs. Our hope is to inspire entrepreneurs and developers to innovate new solutions to accelerate the automation of advertising. Examples of what we would hope to see borne from DSP Builder, might be a DSP for television, or wearables advertising, with a creation of new DSPs in the Chinese market where advertising is still sold on a page-by-page basis. Or even a DSP for advertising on household appliances in the Internet of Things. The opportunity is limitless.

Experience has proven that enabling the increase in the number of buyer participants in the advertising market accelerates industry growth. We also launched our second generation high frequency cloud in Private Beta. Leveraging the strength of our massive cloud infrastructure, which processes 5 trillion bid requests per month. An internal test process bids three times faster than the leading web-based cloud solution. With the launch of our second generation high frequency cloud, companies outside of The Rubicon Project can now build and run their own high performance applications using our purpose built cloud. While existing clouds have been built to run websites, our high frequency cloud was built specifically for high performance low NC applications. The applications that could benefit from the computing power of our high frequency cloud includes realtime bidding applications, big data applications, or the creation of new exchanges, within advertising or beyond. Another recent product innovation is our Guaranteed Direct Orders product, which is gaining real traction. We've already signed some large 7-figure commitments from Guaranteed Direct Orders from buyers, which in turn has attracted significant interest from sellers eager to fulfill this new source of buyer demand. This is another example of the network effects that are fueled by Rubicon Project's platform. As a reminder, Guaranteed Direct Orders automates the buying and selling of premium inventory on a fully reserved basis, similar to how TV advertising sponsor is sold in advance on a guaranteed basis. This is how our largest media customers such as News Corp, Comcast, and Turner are used to doing business with most of their clients. Lastly with the acquisition of Chango, we saw an opportunity to further expand our addressable market, particularly in direct orders. The acquisition provides compelling benefits to Rubicon Project. We estimate that Chango brings access to $35 billion of additional intent marketing spend to The Rubicon Project marketplace. This increase in our market opportunity includes access to search budgets that we can now bring into premium advertising. Chango also accelerates our buyer technology road map in a hiring plans by more than a year. We announced the Chango acquisition the same week as our one-year anniversary of the IPO. It was an exciting time to accelerate this milestone by ringing the bell at the New York Stock Exchanges, along with several important customers and many of our team members that have contributed to our success.

In the past two years as a newly public company, we've acquired three companies, nearly doubled our workforce, expanded into several new international markets, launched important new innovations that offer great promise for our future, and continued to deliver strong financial results each and every quarter. I'm proud that during such an exciting period of growth and positive advances for our Company, our team continued to execute at very high level, while also continuing to prioritize and scale our culture.

With that, I will let Greg and Todd walk you will through a more detailed analysis of our results.

Thank you Frank, and thank you all for joining us on the call this afternoon. As Frank referenced in his remarks, it's been a busy two months since our last earnings call, particularly leading up to announcement on March 31st of our definitive agreement to acquire Chango, which we closed in late April. I'm proud of our team's exceptional efforts, focus and strong execution throughout this busy period, that led to another great quarter. I'll focus my remarks on our many operational highlights that position us for the improved growth outlook for 2015 that Todd will discuss.

From a top line perspective, I'm proud to report that our business is firing on all cylinders. To begin with, due to the exceptional efforts of our seller cloud new business development team, we signed a record number of new premium sellers in Q1, and we continue to separate our premium marketplace from our competition. We also continued to expand internationally, and significantly advanced our orders platform among buyers and sellers. Last but certainly not least, the acquisition of Chango unlocks exciting growth opportunities that we are positioned to leverage immediately out of the gate in Q2. These highlights align with the core pillars of our business that we focus on day-in and day-out, and that I have shared with you on each and every prior earnings call. First, providing premium sellers with innovative and scalable solutions, to help maximize revenue from their advertising inventory. Second, providing buyers with the capabilities needed to efficiently access our marketplace, to reach and engage consumers on any device and at any time. Third, enhancing our cross platform solutions for all buyers and sellers, and fourth, continuing to drive international growth.

Now let me touch on each of these briefly, starting with our seller efforts. In Q1, the seller cloud focused a good portion of its efforts on signing new deals for our guaranteed orders offering, that automates the buying and selling of premium digital advertising on a fully reserved basis. The team delivered outstanding results against this objective. During the quarter, we contracted with nearly 50 sellers to make their premium inventory available for sale through our guaranteed orders platform. Onboarding sellers to guaranteed orders requires a deep integration process that connects Rubicon Project directly into the seller's ad server, adding further stickiness to our customer relationships. While these integration efforts will take time to scale, early results demonstrate our future growth potential as we have already signed multiple 6 and 7-figure deals in just the first few months. In its newly published market research, IDC expects that guaranteed orders market will reach $41 billion worldwide by 2019. As we have previously cited, E-marketer expects this market to reach $8 billion in the US alone by 2016.

I would like to share a recent case study that further demonstrates how we are deepening our integrations with sellers to deliver even greater value. Legacy.com ranks among the 50 most visited domains in the US, attracting 35 million visitors each month. Legacy.com recently adopted our innovative seller cloud technology, that enables buyers of all types to compete for publisher inventory, ensuring that every ad impression is efficiently allocated to the source of highest demand. Whether the demand is coming from static bidding, on TV auctions, or orders. This provides a major advance in efficiency compared to the traditional industry practice of maintaining separate types of inventory, that limit buyer demand to a specific inventory type.

By taking advantage of Rubicon Project's advanced unified auction technology, Legacy.com was able to increase demand by encouraging more competition among buyers. The proof is in the results. Three months after implementing our technology to serve as a central aggregator in matching its supply and demand sources, Legacy.com achieved a 90% increase in real CPMs. A very strong result driven by a healthy increase in CPMs site-wide, combined with a significant increase in Legacy.com's fill rate. Deploying our technology also resulted in a significant reduction in manual efforts that has allowed Legacy.com's sales team to spend more time on strategic and value-added tasks. This is just one example, yet it powerfully demonstrates the compelling performance of our full stack solution. Turning now to our buyer initiatives. Our goal in Q1 was to create closer alignment with buyers. As a result, we set up a new sales structure organized around customer segments and product lines. Today our primary account manager and focus is on DSPs for RTB business, and on agencies and advertisers for our orders business. Successful execution of our go-to-market strategy helped to again outpace industry growth in Q1. Our agency team has done an outstanding job generating increased demand, which is particularly evident in the exceptional revenue growth in our orders business. Recently announced that DigitasLBi is standardizing its automated guaranteed buying efforts on our guaranteed orders platform, and the immediate result of this partnership has been to drive considerable buying interests from DigitasLBi's clients, that include some of the world's largest brands.

DigitasLBi's Chief Strategy and Media Officer, Baba Shetty, summed up our relationship best this past week when he stated that quote, Rubicon Project brings exceptional efficiencies to the buying process, providing buyers with the access and reach needed to connect with consumers in premium environments. He added that quote, advertisers need access to behavioral signals to identify and reach their next customer. Rubicon Project brings sophisticated technology that helps deliver media effectiveness, end quote. Now that we have major advertising agencies such as Amnet Group, a division of Dentsu Aegis Media, and DigitasLBi committed to our guaranteed orders platform, we have also generated interest from new sellers that are attracted by the increased buying power that these leading agencies bring to our marketplace.

This is another example of the positive impact network effects can have on our business and financial results. Clearly our integrations with the most premium sellers have strengthened our relationships with buyers, and resulted in increased spend, which in turn has helped bring us more sellers and greater scale efficiencies to our marketplace. We also have a new team focused on engaging with advertisers directly, typically in partnership with agencies. This effort has been very successful in generating buyer interest and orders. Engaging with advertisers directly leads to even greater spending opportunities with the agency, and in our marketplace. As these discussions can bring to bear new business opportunities, and further highlight the strong capabilities of our technology. One clear driver of increased buyer demand in our marketplace is the unparalleled quality of our well-lit inventory available from premium publishers and applications. Mike Peralta, the CEO of AudienceScience, a global enterprise advertising management system, that serves some of the world's most prominent brand advertisers, recently shared that Rubicon provides quote, exactly the caliber of premium and high performing inventory its brand buyers are seeking, end quote. AudienceScience grew its spending in our market place by more than 1,000% year-over-year in Q1. Shifting now to our cross platform efforts, I would like to share highlights of our continuing progress in reaching audiences across the ad formats. Our goal in Q1 was to continue to drive an increase in mobile supply in our marketplace. We executed very well against this initiative, particularly in further expanding our reach into mobile app inventory, that now represents the majority of our mobile supply. We now touch more than 17,000 mobile apps per month. And we recently announced another important win that further increases our mobile audience. On the heels of powering the InMobi Mobile Exchange last year, Rubicon Project will now also power XADS leading location-based mobile private market places, providing access to 300 million unique mobile consumers on XADS's platform. This deal also represents an important step forward in driving further growth in mobile orders. Our success in rapidly expanding our mobile supply has help us on board more than 170 buyers of mobile inventory in our marketplace to date. This further demonstrates our growing scale in mobile, and our ability to make a market. Considering our significant advancements in adding mobile supply to our marketplace during the past several quarters, and because buyer demand does not always increase in lock step with growth and supply, commencing in Q2 and for the foreseeable future, we are focusing our Mobile team to further increase the sell-through for these and other buyers of Mobile inventory. We also see a particularly exciting opportunity to drive increased spend in mobile native ads. In Q1, Rubicon Project played a leadership role in advancing the industry's goal of creating a standard for realtime bidding on Mobile native ads. We co-authored the IAB's new Open RTB 2.3 specification for native ads, which will create more revenue opportunities at scale for Mobile publishers and app developers, and more engaging content for consumers.

Lastly, I would like to update you on the continued success in bringing automation to advertising markets internationally. A major international headline in Q1 was Rubicon Project's selection by five of the world's most influential and innovative publishers to power the Pangea Alliance. Launched earlier this month, the cooperative is a new digital advertising alliance among The Guardian, CNN International, The Financial Times, Thomson Reuters, and The Economist, that enable buyers to access a premium global audience of scale.

This important win represents the sixth publisher cooperative powered by our technology. Collectively, these premium media owners reach more than 110 unique user around the world. By collaborating and combining their inventory and first party data assets together under a single offering accessible via Rubicon Project's technology infrastructure for orders, these premium sellers maximize their reach and create advanced targeting capabilities for buyers. Another major international win during Q1 was Mercado Libre, the largest e-commerce company in Latin America, that is deploying our seller cloud capabilities. Mercado Libre ranks in the world's Top 50 websites based on page views, and has more unique users than any other retail platform in the major Latin American companies in which it operates. And finally, in connection with the recent onboarding of e-planning, Latin America's leading ad serving solution, over 40 of its more than 250 seller clients are now live in our marketplace.

Before I turn the call over to Todd, I would like to make a few comments on the Chango acquisition. First and foremost, the response to our news has been very positive among Rubicon Project and Chango customers. In my discussions with customers, it is clear that they are excited about the benefits that Chango provides. Chango brings access to an additional $35 billion in intent marketing spend to our premium marketplace. Chango expands our offerings to include retargeting, key words, and contextual targeting, and broadens our pricing models, to facilitate transactions on a cost per click, or CPC, and cost per action, or CPA basis in the future. The Chango acquisition accelerates the adoption of direct order automation, by significantly expanding buyer integrations into our marketplace, and helps to fuel the marketplace network effects that help drive our growth, further strengthening our value proposition for buyers and sellers. Finally Chango's technology will accelerate our buyer technology road map and hiring plans by more than one year.

As we've continued to refine our integration plans in recent weeks, one thing has become increasingly clear. Chango is a great organization with a great culture that is executed extremely well. Although we have much work to do in the coming months, it's clear we have acquired a great team with an outstanding track record, and we look forward to not only continuing the strong results both companies have been delivering independently today, but realizing the greater potential we will be able to achieve working together in the coming months and years. And with that, I will turn it over to Todd for a review of the financials. Here is Todd.

Thank you Greg. Overall we have continued to experience tremendous growth, once again led by RTB and order solutions, while continuing to invest in the business to drive future growth. Managed revenue, which is the advertising spend transacted to our platform in a given period, is an important operating metric for both internal and external evaluation purposes, because many companies in our industry record revenue on a gross basis, managed revenue provides a comparison to others in our industry.

Managed revenue for the first quarter of 2015 was $197.2 million, compared to $129.6 million in the first quarter of 2014. An increase of 52% year-over-year. The increase in managed revenue was primarily driven by an increase in both pricing and bidding activity, led by RTB which represents the largest portion of our business at approximately 75% of overall managed revenue. Followed by orders, which continues to grow and represents 15% of overall managed revenue for the first quarter of 2015. Average CPMs continued to increase and was higher year-over-year, while paid impressions were lower year-over-year. The growth in average CPM was primarily due to the algorithm efficiency, increased buyer spend, orders growing as a percentage of our managed revenue, and a continued shift from static inventory to purchases to RTB. The decrease in paid impressions was mainly a result of continuing shift from static bidding to RTB.

Accordingly RTB paid impressions grew year-on-year. Revenue which we report on a net basis consists of fees from buyers and sellers transacting on our platform. Revenue in the first quarter of 2015 was $37.2 million, compared to $23 million during the same period in 2014. Representing a year-over-year increase of 62%, and above the midpoint of our guidance of $34.5 million. Take rate is our fees as a percentage of managed revenue. The take rate increased to 18.9% in the first quarter of 2015, as compared to 17.8% for the same period in 2014. The increase in take rate year-over-year is primarily due to a higher mix of RTB managed revenue compared to static. We expect orders to increase as a percentage of overall managed revenue mix through 2015.

Orders have an average CPM in excess of 3X RTBs and lower fees, therefore if orders comprise a larger parse of our revenue mix, revenue per transaction would increase, and overall take rate would decrease, and as expected take rate was down sequentially from Q4 2014 to Q1 2015. Operating expenses including costs of revenue increased to $44.3 million in the first quarter of 2015, from $29.5 million during the same quarter in 2014. The increase in operating expenses was primarily due to the expansion of our sales efforts and Buyer Cloud initiatives, as well as non-cash stock compensation which was $5.5 million in Q1 2015. Net loss was $5 million in the first quarter 2015, compared to a net loss of $6.1 million during the same period in 2014. This decrease in net loss included an increase of $3 million in non-cash stock compensation costs.

Adjusted EBITDA was $4.2 million in the first quarter of 2015, compared to an adjusted EBITDA loss of $1.6 million in the first quarter of 2014, and well above the midpoint of our guidance of a loss of $2 million. The favorable variance in adjusted EBITDA was primarily due to the revenue performance previously noted, as well as slower hiring than originally planned. GAAP loss per share was $0.14 in the first quarter of 2015, compared to a loss of $0.59 per share during the first quarter of 2014. Non-GAAP earnings per share in the first quarter of 2015 was $0.02, compared to a non-GAAP loss per share of $0.15 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 including capitalized stock compensation were $3 million for the first quarter of 2015.

We closed Q1 2015 with $120 million cash, and less than $1 million in debt. As a result of the closing of the Chango acquisition, we would like to provide the following full year 2014 estimates of Chango's financial results. Please note that the audit of the financial information, as well as the determination of the net versus gross revenue reporting for Chango is not yet complete. We have sought guidance from the SEC on a revenue reporting matter which is still in process. Therefore, the following information should be viewed as unaudited estimates only. Chango's fiscal year 2014 revenue which for now is presented as being reported on a net basis was approximately $23.9 million. Cost of revenue and operating expenses were approximately $24.6 million. The net loss was approximately $1 million, and adjusted EBITDA loss was approximately $0.3 million.

In terms of outlook for Q2 2015, which will include contributions from Chango for the remaining two months of the quarter, based upon an assumption that Chango's revenue will be reported on a net basis, we expect the following. Revenue to between $41.5 million and $42.5 million. Adjusted EBITDA loss to be between $4.5 million and $3.5 million, and non-GAAP loss per share to be between $0.21 and $0.19, based on approximately 39 million forecasted weighted average shares. The forecasted adjusted EBITDA loss for Q2 is primarily due to the anticipated catch-up in hiring, following delayed first quarter hiring, as well as integration related costs associated with the Chango acquisition. For the full year 2015 which will include contributions from Chango for the remaining 8 months, based on the assumption that Chango's revenue will be reported on a net basis, we are raising our expectations to revenue between $203 million and $206 million, which respects approximately 66% year-over-year growth from the midpoint of this range. Adjusted EBITDA to be between $24 million and $27 million, and non-GAAP earnings per share to be between $0.22 and $0.25, based on approximately $46 million forecasted weighted average shares. Our improved outlook for the year includes an increase in revenue from the Rubicon Project on a standalone basis, from a prior range of $175 million to $178 million, versus a revised range of $179 million to $181 million. Which is an increase in the full year of 2014 to 2015 growth rate from 41% to 44%, based on the midpoint of these ranges. The revenue contribution from Chango for the 8 months ending December 31, 2015, assuming net revenue reporting is expected to be between $24 million and $25 million, which is a growth rate of approximately 46% over the same period of 2014, based on the midpoint of the range. Please note that we intend to fully integrate the products and technology, and we do not intend to separate revenue from Chango operations in the future.

As we previously projected, we believe the Chango acquisition will be accretive quickly. Accordingly the non-GAAP EPS midpoint of the range increased compared to the guidance previously provided, reflecting the accretive nature of the deal in Q4 of this year, as the non-GAAP net income offset the issuance of shares. Moreover we believe the estimated increase in growth rate year-over-year on a pro forma basis, illustrates the financial strength and value of the Chango acquisition. As we have previously noted, we believe that we're in the right position to be leader in this fast growing and large, almost $300 billion market opportunity. Accordingly, we plan to continue to invest in discretionary innovation and R&D. Other important areas of investment during 2015 included international expansion, mobile, video, buyer cloud initiatives, orders, and our newer capabilities gained through the Chango acquisition, retargeting and key word buying and selling. We would now like to open the line for any questions.

(Operator Instructions). Your first question comes from the line of Kerry Rice from Needham. Your line is open.

Thanks a lot. Great quarter, guys. Maybe a first question just on the dip and take rate. Just more of a clarification as the sequential decline versus year-over-year. Was that more related to orders, or is that seasonal as well?So we should expect kind of a dip every Q1 just seasonality-wise or it's just orders. If you can help us with that? And then is there anything that, you mentioned mobile. Can you highlight anything from your partnership with Apple and the IOS, how that's progressing, if at all? And then the final question is, you obviously have a great partnership with DigitasLBi. Has any other agency standardized on the guaranteed orders platform that you recently rolled out?Thank you.

Thanks, Kerry. With regard to the take rate question, the orders business as we mentioned grew to 15% of our overall managed revenue in the first quarter, compared to 13% in Q4. So that sequential increase was the primary factor of driving the take rates lower, which is expected, and as we have talked about before, with orders having a much higher revenue per transaction yielding significantly higher CPMs, the overall revenue is an absolute dollar than rises. There's a little bit of seasonality that impacts that, but certainly the majority is really due to the growth in orders. Greg, do you want to take it?

Happy to, Todd. Let me start with the orders question and we can come back to mobile and IN. First of all, we really are very, very pleased with the direction things are going in orders, and we see that as a main driver for continued upside for the rest of the year. We have discussed from time-to-time starting back last year, our relationships with, our growing relationships with the agency holding companies, as well as their trading desks. We announced back in September initially that we were working with Digitas, and we announced again a further partnership with Digitas in March of this year, to talk about their expanded use of our technologies, not just our standard buyer cloud technologies, but now the orders technology as well. So we've been very pleased with that direction. We've also as I mentioned in the script, we've also been working with other large holding companies.

I mentioned Amnet, which is a division of Aegis Densu, one of the top five holding companies in the world. They're also standardizing on a number of our products and orders, guaranteed and non-guaranteed. We really are seeing immediate traction from the moves we made in both the guaranteed orders and non-guaranteed orders. We've been in non-guaranteed orders now for about three years startling with our connect product, and moved decisively to take a leadership role in the guaranteed orders business last year, when we added to our iSocket and Shiny Ads to our 49 BC technology, and the transition has gone very smoothly. We're seeing immediate traction there with, as I mentioned approximately 50 sellers onboarding. We expect to see multiples of that over the next quarter or two, so we expect to the see much more growth in orders for the rest of this year.

As I turned to mobile, we are also pleased with the progress we're making. We did announce working with Apple late last year. We continue to work with them about onboarding the relationship. We're working of course at Apple speed, as you can imagine most partners do work at Apple speed. And in addition, we continue to make progress with inMobi, as well as new partners that we have added, including XAD, we just announced recently, and I mentioned in my remarks. Good progress both in mobile as well as in orders. I hope that helps.

That helps a lot. Thank you.

Your next question comes from the line of Jed Kelly from Oppenheimer. Your line is open.

Actually it's Jason Helfstein, hey guys. We're clearly seeing a different trends as you guys are getting bigger, your growth is accelerating, as opposed to what's generally been the trend at Ad Tech, as companies are getting bigger their growth is decelerating. I think you highlighted part of it which is, if you can get higher CPMs, that's driving that trend, but just talk about where you think the money is coming from? Are you gaining shares among DSPs from DSPs?Are more publishers coming on the platform? Just help us understand kind of what's driving the accelerating growth? Thanks.

So that's a very good question. Let me start by saying that I think one of the benefits we're starting to see it what we've talked about over the course of the last year, and that is the network effects of having the most premium buyers and sellers working in our marketplace. I don't want to go back over orders again, but that's an example of where we're able to attract more spend from buyers, because we have such a great marketplace of sellers. And when we introduce new products to the marketplace like we did with guaranteed orders recently, you're seeing buyers want to jump onboard, because they can use that technology to access the premium sellers at scale. And I think we're going to see that as it grows gradually in mobile too, as we see more trend towards native, which allows the sellers and buyers of mobile to reach scale in a way in a way you've seen with Google and Facebook. And so in large part, we're seeing a lot of good benefits from the fact that we are becoming the place where buyers and sellers want to connect on a routine basis. So with that, let me turn it over to Todd, and he'll talk to you in more detail about CPMs.

Yes, Jason. We're definitely seeing that increase in CPMs, but I think I would characterize make four components of areas of acceleration for us. One is expansion of product lines, and we've spoken quite a bit on orders along that front. Certainly the expansion of realtime bidding. It continues to allow us to gain more and more inventory share. But I think also some of our buyer initiatives are starting to show real promise, and naturally with the Chango acquisition, we're confident that we can really accelerate that now. The other thing is also international expansion. We continue do a lot overseas, and we're now getting meaningful markets coming out of some of the new markets, such as Japan.

Thank you.

Jason, I'll add on to this as well. I think that is good illustration of the dual network effects that our business benefits from. Both the typical marketplace network effects that you see where more buyers attract more sellers, and vice versa, as well as the buy product from each of those transactions, which is data. As we process transactions through our platforms, our algorithms get smarter. When our algorithms get smarter, they're delivering higher revenue for our seller customers. It's delivering higher ROI for our buyer customers, which gets them to either contribute more inventory to sell in an automated way, or to buy more through our platform. So I think we're seeing growth across the board. We're seeing growth from DSPs, a large portion of our efforts in the past, as well as the current initiative that we have now, which has been to enable the growth of more and more DSPs, so while investors might find that confusing, or journalists might find that confusing, more DSPs in our market is good for business for us. So before we launched realtime bidding on the market there was zero DSPs. Now there are hundreds, and recently as I mentioned, we launched a product called DSP Builder, which is trying to enable the creation of more and more DSPs, in international markets as an example. It's a large $300 billion market. I think 10% of the market has now become automated, and we look at that as huge growth opportunities, and we want to bring more players into the market to be able to bring more spend into our marketplace. We're seeing growth across publishers as Greg mentioned. As the data gets smarter, it's able to increase rates. There's market growth. Again as our business model is to charge a percent of the transactions, as the DSPs grow, as the publishers and application developers grow, so do we. I think our international growth is also a good indicator here for us as well. A significant portion of our revenue comes from outside of the US, and these are growth markets for us. And then also as Greg mentioned, just product expansion. We've launched into mobile. That's going well for us. We put our video product out there, and then our guaranteed orders product and non-guaranteed orders products, so I think we're seeing growth across the board, but it is the benefit of these network effects and a quarter of our business that's really feeling this.

Thank you.

Your next question comes from the line of Sameet Sinha from B. Riley. Your line is open.

Yes, thank you very much. I have a couple questions. First, Todd, you spoke about video as a growth opportunity. A couple of quarters back you had mentioned, or Frank had mentioned, that is a business that you wait and watch on that one. So if you can talk about what sort of growth you're seeing? Is there any improvement in the quality of the inventory that you can now get? Second question regarding the interplay between impressions and ECPMs. You've obviously been cleaning out your inventory making it better lit. When can we expect impressions to probably start to gain at what point in each quarter, if you can pinpoint that, it would be helpful? And last question your take rate guidance obviously was about coming down steadily as direct orders increases. Now with the inclusion of Chango in the mix, any updates, how should we be thinking about modeling that's going forward? Thank you.

Okay. Let me start. It is Greg. Let me start with a quick discussion on video ,and I'll turn it over to Todd to answer your second two questions. We talked last year about the fact that we were committed to video. We're committed to video because just like every ad unit, we're committed to every ad unit being sold in our marketplace. We've said from day one we envision a world where all forms of advertising will be bought and sold in our marketplace. Video will be one, and we also anticipate at some point traditional media will be sold in our marketplace.

So what we also clarified was that at that point in time, we were seeing video quality not to be at the level that we were comfortable with, and we didn't expect to see other than measured growth over the next couple of years. And we still feel the same way about it. We haven't really changed our thinking about that. We continue to on-board new buyers of video. We continue to on-board new sellers of video as well. But we do it in a more measured way, because we want to keep the high standards that we feel are important for our buyers and sellers. So not a lot has changed for us with respect to what we see in terms of quality. But at the same time, we do expect that video will continue to grow as a larger part of our marketplace over time.

With regard to your impression question, I think what's important to focus on is the economic component of impressions, as opposed to the volume number, because what we're really seeing is a migration from static, which is high volume/low CPM to RTB, which is middle volume and higher CPM. The addition of orders is also lower volume, but very high CPM. But there's no cannibalization between RTB and orders. So I can that really what we're looking at from a business standpoint is one, mix shift, and the other is really the growth of various new products and product lines. When we look at the overall impressions for RTB by itself, RTB impressions do continue to grow. So I think that's really the more important component. And that just simply means that it's growing for two reasons. One because of that mix shift from static, but also just because of growth in the business, as we are able to go under more and more inventory, we're able to facilitate more and more paid impressions with the matching of buyers and sellers. So I think that's really the important aspect and I think that the arrows from our standpoint economically are all up, as opposed to anything that you might consider down. So I think everything there is what we would refer to as very favorable.

With respect to take rate, thank you for asking a very good question. Yes, we do think that with Chango, we do think that take rates could see some more upward momentum. So as we think about it going forward, while orders would certainly have an impact of bringing take rate down, but overall absolute revenue up, as we did see sequentially Q4 to Q1 as very much expected, we also do think that with Chango and some of the initiatives there, that we also will see take rates probably rise a bit with that. So overall on a blended basis, probably maybe up a little bit from where we are in Q1. But there are definitely offsetting factors.

Sameet, I'm go to go add on to that as well. I think our strategy here is playing out exactly as we expected. So when we entered this business knowing that we were going to trade our marketplace business, we studied other marketplace businesses. So if you look at stock trading, if you look at retail, even businesses like e-Bay, the first stocks to be sold in an electronic automated way were the low cap stocks, not the big premium blue chip stocks. The first things to be traded on e-Bay was essentially an automated garage sale. And today there's a car sold on e-Bay every single minute, and airplanes are even sold. So when we crafted our strategy initially, not only did we study those markets, but we sort of looked at how our business would play out. So initially our focus was trying to build up scale on one side of the marketplace, and we chose the sell side of the market place, so we were very driven to really focus on impressions, as well as the audience, the uniques that we were reaching.

Once we reached scale there, our business has kind of grown in three parts. Part one for us was to reach scale on the sell side. Because that creates gravity for the buyers, then we focused on the buy side which was trying to leverage those integrations with those buyers, to be able to create more access and liquidity for the sellers, and then once we reached scale on the buy side, then it's about fueling those network effects. So our focus now is less on trying to drive impressions, but more on trying to drive revenue per transaction. So many we would much rather take a lower take rate on a much higher CPM, than a higher take rate on a very, very low CPM, because our revenues per transaction is higher.

And that's exactly how our businesses evolved. Initially we were focused on remnants, similar to the low cap stocks or the garage sale e-Bay type of trading, and now we're really focused on trying to get the most premium impressions into the platform, because those have a higher revenue per transaction. And then further, our product set has evolved as well, where initially with the lower priced inventory, that was all focused on the auction, and because this is a realtime environment, our platform has to essentially hold that impression to be able to auction it in realtime. With the orders business, we have technologies like our exchange API or our ad server API, where we can go and provision those impressions on demand as those orders come in, instead of having to hold it in the platform, and make it available in an auction environment, so it's kind of changed and shifted the dynamics of our focus on trying to get more and more impressions.

Great. Thank you.

Your next question comes from the line of Rohit Kulkarni from RBC Capital Markets. Your line is open.

Great, thank you. I have a bunch of questions. First one, are you providing any color on what percent of revenues are coming from buyers versus sellers, and how that is trending, given that it does seem from the outside that there's an increased focus on building tools for buyers, which are DSPs, agency dealing, and even advertisers for example? And I have a couple of follow-ups.

Sure, thanks. First of all, I think it's really important to recognize that when you're running a marketplace, you really need to provide the right products, services and technology to both buyers and sellers. So I don't know that it really is appropriate to point to one over the other. They're both important. Clearly our buyer initiatives are bringing more demand into our marketplace, but at the same time, we do continue to expand premium inventory. So one has to have the other. So I think that really we're seeing a continued growth on both sides. And therefore I think the volume, as well as the rates that we're referring to for RTB in particular are both growing.

Okay, great. And then secondly, there seems to be kind of an increased market trend towards kind of publisher collectives, there have been a lot of media reports around publishers getting to the, banding together using your technology, and some other available knowledges. How are you thinking about positioning Rubicon in that sense?And do you think that opens up a large market opportunity, as we have seen industry reports saying these publisher coalitions could account for as much as 30%, 40%, 50% of kind of non-Yahoo non-Facebook display ad inventory?

Hi, Rohit. It's Frank here. So our strategy as a technology company has been to provide technology to the overall market, and that's our overall marketplace, as well as to provide infrastructure and technologies, for others to be able to create their own exchanges. This has been something that we've been doing for years. We've done this for News Corporation. You've seen some recently in the press, and Greg can go through some of those in detail. But I think this highlights and details our strength as a technology company, as being able to supply technology to the overall market, but also supplying technology to groups of sellers, for them to create their own private marketplaces, their own private label exchanges, and this is very much a part of our past strategy, but also we look at this as a great growth opportunity for us in the future.

So let me add a couple quick points on that. We have been working with groups of publishers that act as coops for quite some time. In fact we announced earlier this year, the Pangea Alliance in Europe, and that was our sixth coop that we've been working with internationally. And we have seen considerable growth from that because of the fact that when you look at it from the standpoint of 110 million unique users worldwide, it becomes a very, very large publisher or app to manage. And so it's been very successful to date among publishers and apps, and it's been very successful for us, so we anticipate more growth in the that area. And we've seen quite a bit of success from our relationships, with coops like La Place in France.

One other point to add to what Frank said is, this kind of dovetails with our overall strategy about powering all types of relationships into our marketplace. I mean when you think about our exchange API, which is meant to power third parties and publishers and their networks, it's been very helpful to us, as in the case of inMobi to work now with over 17,000 mobile apps, that our mobile partners will bring into our network, that if we had to do it on our own would have taken a lot more time. A combination of working with publishers individually, and yet at the same time either in collectives or as part of networks, we've been doing that all over the world for quite a few years now. We maybe just have been announcing it a little bit more on a case by case basis, whether it's in La Tam, Europe, or here in the United States.

This is again another example our network effects. If you have a number of sellers, publishers or application developers that are already on our platform, because they've already done the integration work, they've done the installation, the set-up, et cetera, it's a very small step for them to be able to say, hey, let's go partner with each other, and then create more of these collectives or coops. So I think having a lot of customers on our platform, puts us in a great position for us to be able to do this, and again, I think it just illustrates the power of the network effects that exist in our marketplace business.

To work with them directly or as a group.

Right.

Okay. Just one last kind of big picture industry question. A number of internet players, Allnote, Softnet and display advertising driven by soft pricing, as a result of problematic as line solution, DL, Bling, Yahoo, and all of these in the last three or four weeks. On the other hand, you are reporting accelerating metrics across the board. Can you kind of using Rubicon as a problematic advertising proxy, can you help us reconcile as to what, why this may be the case as in publisher specific issues, or are there any other broader underlying trends that we may be missing?

Yes, I can't speak to other people's business, but I can tell you that I think the trends in automated advertising are positive. I think we're certainly seeing growth in the automated portion of the market. If you look at the larger dynamics here, I think there's money that is shifting from manual spend into automated spend in a very rapid way. So I think those that don't have strong automation or programmatic capabilities, I think they run the risk of losing to competitors who do, or to solutions that are automated. I think second is the larger dynamic, which is if you looked at the buying habits in the past, so if you are a major sports advertiser, as an example, you're used to buying from companies like Fox Sports, and CBS Sports, and ESPN, et cetera, right?In TV, they've been doing this for many, many years, and they have strong relationships there. If you translate that to buying in digital, for an advertiser to add one publisher to a buy, it might be 40 hours of time for each individual publisher. So if you take that and say, hey, I'm going to buy across 20 publishers, that's a lot of manual effort, cost and time for them to be able to go do that. Or instead they can go to a large portal, and buy the sports section of that portal. Well, that's what they've done before automation came into the market, because it was more efficient for them to buy that, even if it may not necessarily be as ideal for them. So I think now it's shifted because now you can add 5 or 10 or 20 or 30 different publishers to a buy, simply by checking a check box in an automated world, instead of going through all of that manual effort. I think that's the larger dynamic that's happening in the market, and of course, we're benefiting from that because we're enabling the portion of the market that is automated.

Thank you.

Your next question comes from line of Justin Patterson of Raymond James. Your line is open.

Great, thanks. This is Justin for Aaron. So just looking at the guidance for the year with respect to EBITDA, if we assume the midpoint of your guidance, and just put that against 1Q here, it looks like EBITDA is pretty concentrated on the back half of the year. How should we be thinking about that just from the Chango dynamics here?Should this be relatively spread out, or should be more like a 4Q seasonality impact coming in here?

Thanks, Justin. As seasonality is usually concentrated in the fourth quarter with respect to the advertising sector. We've typically seen something similar, so our revenue in the past has been between 30% and 35% for the year in Q4. So we would expect that to be pretty similar, as a result of that naturally you would have more earnings in Q4. In Q4 2014 we were actually are even net income positive as a result of that, so that is a natural dynamic. That said, I think that we'll probably be looking to in the black for the other two quarters as well. So I think that we will be looking there as we continue to update our guidance. But certainly Q4 is the majority.

Got it. So essentially it follows the same seasonality as the core business. So with respect to the full year revenue outlook then, on the organic side, it looks like you've got a slight raise above just the magnitude of the upside this quarter, and a lot of this call is focused on just momentum across product lines, moving internationally. Can you talk about why the fairly prudent outlook here?It seems like everything has been accelerating, and that you've got a nice tailwind behind you? Thanks.

Yes, that's true. I think right now one quarter of results is usually a little early to go too far ahead of ourselves with regard to an entire year. So you're right. And we may very well see ourselves in the position of finding that to be conservative, but it's just early in the year.

Okay, great, thank you.

And your next question comes from the line of Brett Hough of Stephens Incorporated. Your line is open.

Hey, thanks, this is Jim [Rutherford] in for Brett. A couple of questions. First, could you give an update on the competitive environment in relation to PubMatic, AppNexus, Google, et cetera, and how much of your growth is share taking from them, and then how much is just growth from the untapped market?And the second question is on your orders business, what do you think is a great limiting step in the orders growth?It sounds like there's a lot of interest on both sides, but what's the hurdle to overcome convincing those buyers and sellers to adopt the platform? Thanks.

Sure. This is Frank. I'm take the first question on the competitive environment. So first, this is a large and growing market, so there's a lot of green fields out there in the market, and we're very much focused on trying to capture that green field first. When it comes to the exchange business, there are really two large exchanges. It's us and it's Google. So we offer similar components to the technology stack, but different approaches, where Google has sort of built their technology first for their themselves, and then they offer it to others. Whereas we have built our technology specifically for our customers, and for the premium part of the market.

I mentioned our network effects before. I think our business model is different from a lot of ad tech companies, who are our customers, like the DSPs as an example. Where we are the exchange, and that exchange has benefits from these dual network effects. So I think we're seeing growth, come from that where the more sellers that we bring on the platform, it attracting more buyers, and then more buyers attract more sellers. And typically those marketplace businesses are difficult to disrupt or displace, because they do benefit from this network effects. So to answer your question directly, our growth I think is first coming from the green fields that exists in the market. Second is from growing our existing customer base, where we're trying to convince them to bring more and more of their inventory, and more and more of their spend into an automated environment. We already have over 50% of the Top 100 websites on our platform already. And our growth is also coming from these adjacent markets as well, so international growth, video, which is all part of that green field, as well as growing from our existing customer base.

Okay. And James, I'll take the same question. It's Greg. You ask about what would be rate limiting for the orders outlook. I think it's about balancing the opportunity we have in front of us, which has been reported to be as large as $41 billion worldwide by 2019 by IDC. I mean just the largest part in fact of the advertising market opportunity, and balancing that huge opportunity with same time the fact that automation takes time, and it takes time for people to change their behavior, their buying behavior, and we used Legacy.com as an example of a well-known company that took a little bit of time to really think through the process, and to ultimately adopt our unified auction technology, and the results were fantastic. But at the same time they had been working like many other participants in our ecosystem with more traditional advertising techniques, that they've used for years upon years. That would apply to the orders business as well, with agencies and direct advertisers. So we don't really see this as a limiting opportunity. Just a matter of taking time over the next several quarters.

Yes, I think the educational issues is a big one. I think we as an industry like to confuse the customers. I mean even just the word programmatic. I don't like using the world programmatic. I think you'll rarely hear me talking about the word programmatic, I have always used the word automation, because I think it's more applicable. So programmatic is a word that makes more sense in the auction environment, where you're deciding in realtime what you're going to go bid on something. In the direct orders automation market, programmatic I think is a word that misleads the buyers into thinking that machines are basically just going to go do the job for them. I think we've got to educate the market on the fact that A, there is a solution that automates direct orders. I think there's demand for it, and I think we're seeing that with the growth that we're seeing in our orders business. I think we just need to educate them that it's available, which we're doing. And then I think second, we need to educate them on the difference between buying in an auction environment and buying in a direct orders environment, where a large portion of the spend is, and we're doing that education as well.

That was our last question. At this time, I will turn the call back over to management for closing comments.

Thank you all for participating in the call today. Look forward to seeing many of you at investor conferences in the coming weeks. Good bye.

This concludes today's conference call. You may now disconnect.