Rubico Inc (RUBI) 2015 Q2 法說會逐字稿

Welcome to the second-quarter 2015 Rubicon Project earnings conference call.

(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 the 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 2015 second-quarter earnings conference call. As a reminder, this conference call is be 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 market 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, fees 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 if 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 are set forth in the Company's annual report on Form 10K for the year ended December 31, 2014, in our quarterly reports on form 10-Q, included under the headings Risk Factors and Management Discussion Analysis of Financial Condition 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 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 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 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 one final note, I'd like to mention that in the events and presentation section of our investor relations website, we've included a Q2 financial highlights presentation that summarizes our financial and operating results. In addition, the same section of our IR website also includes supplemental materials that provide further explanation on some additional metrics disclosure that Todd Tappin will cover in his remarks today to assist analysts and investors in evaluating our revenue comparisons. With that, let me turn the call over to Frank.

Thank you, Eric. We had another strong quarter highlighted by three key themes: first, outstanding financial results that exceeded our forecast; second, exciting product innovations in mobile and orders that position us to capture future growth; and third, accelerated buyer cloud growth driven by the Chango acquisition and integration, which exceeded our expectations. Second-quarter revenue increased 88% year over year and adjusted EBITDA grew at an even faster rate, up more than 150%.

Our results include contributions from Chango for approximately two months. We achieved these impressive results while continuing to invest in our large market opportunity, demonstrating our success at being aggressive with innovation while being fiscally prudent. Innovation highlights from the second quarter include launching support for mobile native and video ad units on a mobile exchange and launching our seller cloud self-serve product for guaranteed orders. These innovations further improve our growth outlook and the large market opportunities of both mobile and orders where they are already enjoying revenue growth rates in the triple digits.

Our newer offerings are being recognized for their innovation. Just last week, the second generation high-frequency cloud product I mentioned on last quarter's investor call won the Business Intelligence Group's Stratus Award in the category of hybrid cloud provider. Stratus Awards recognize companies innovating in the cloud with truly differentiated technologies.

After the Chango acquisition closed in late April, our expanded buyer cloud business didn't miss a beat and delivered revenue ahead of our expectations for the quarter. I applaud our team's focus and execution while undertaking important organizational changes to maximize our future growth potential.

As our business scaled, we also continue to benefit from network effects. Our impressive growth in the most premium sellers globally helps to explain the momentum in our buyer business, particularly in orders. Our integrations with the most premium sellers strengthen our relationships with buyers and resulted in increased spend in our marketplace.

Shifting gears to the future, investors often ask me, what are some of the key areas I'm focused on to lead Rubicon Project's future innovation? It's from our position of market leadership that we're focusing some of our engineering resources on a key challenge and opportunity facing the digital advertising industry. The opportunity before us to fundamentally change the consumer's relationship with advertising as we know it. Considering that there are three participants in the advertising marketplace: the buyer, the seller, and the consumer. Although our technology platform has advanced industry growth by leading the automation of buying and selling of advertising, the advertisers' relationship with consumers is not nearly as strong as it could be.

Rubicon Project has the opportunity to further leverage automation to reinvent advertising, bringing the consumer to the center of our focus. Our goal is to redefine the relationship between advertisers and consumers across all devices and all [avenues]. We are particularly focused on mobile, and eventually video, which offer a compelling opportunity to connect with consumers at the moment of greatest impact with relevant messages. I see a tremendous opportunity to fully embrace automation to drive the next evolution of consumers' advertising experience. It's early, and this exciting initiative will take time. So you'll hear from me talking more about this in the next coming months.

In summary, I'm proud that our team has continued to execute at a consistently high level during an exciting period of growth while preserving our strong culture of values. While Q2 was our sixth consecutive quarter of delivering strong financial results since the IPO, I believe we're just getting started. With that, I will let Greg and Todd walk you through a more detailed analysis of our results.

Thank you, Frank. As Frank just outlined, we had another strong quarter in Q2 and I'm proud of our team's efforts, focus and strong execution that led to our impressive results. Before I turn to our performance in the quarter, I would like to share a few key trends that will have a significant impact on the growth of our industry.

First, as the IAB announced last week in its annual programmatic revenue report, the landscape for advertising automation is growing rapidly. Total US revenue related to the automation of advertising surpassed $10 billion in 2014, comprising more than 20% of the total US Internet advertising market last year. Perhaps more significantly, programmatic revenue made up approximately one-half of all US display-related advertising in 2014. In short, automation is driving the growth of the global advertising marketplace.

Second, the IAB is also forecasting strong future growth in new areas of the automated advertising space, mainly guaranteed orders, an area Rubicon Project has invested in aggressively, resulting in our current position of market leadership. In addition, IDC expect the overall orders market to grow to $52 billion worldwide by 2019, representing a CAGR of 61%.

Third, all signs point to continued surging growth in the mobile marketplace during the next several years. According to IDC, worldwide programmatic ad spending in mobile is expected to grow at a CAGR of 95% through 2018. Importantly, our investments have also established us in a position of leadership as an independent provider of mobile automation technology. We anticipated these trends and invested in both developing innovative technology organically, as well as acquiring leading technology capabilities to further support our growth objectives and position us for long-term success.

I will now turn my comments to our performance in the second quarter. Given the trends we're seeing in the business, I will focus my remarks on four key growth drivers: our rapidly growing mobile business, our orders business, our unified buyer cloud, including Chango, and our seller cloud business, which continues to achieve strong results.

First let me turn to our mobile business. Our investors have frequently asked us about mobile, and until recently, we have not focused much discussion on this part of our business. Those of you who have followed our Company know that we prefer to focus on delivering results in the marketplace before touting our future objectives. Therefore, we were thrilled to take the wraps off our mobile story last month as we highlighted our booming business that is outpacing the growth of the industry.

Since early 2013, our mobile business has grown at a triple-digit growth rate across mobile operating systems such as iOS and Android, and across both in-app and mobile web inventory. Approximately two years ago when we began making significant investments in mobile, it represented just 3% of our total managed revenue. In the second quarter of 2015, mobile was 22% of managed revenue, up from 20% in Q1. Considering our growth trajectory, we expect to generate more than $200 million in mobile managed revenue this year. Against this impressive growth curve, we believe Rubicon Project is now the world's largest independent advertising automation solution for buying and selling inventory on mobile.

One growth driver in Q2 was the onboarding of our new relationship with xAd, the global location marketplace. Rubicon Project is now powering xAd's leading location-based mobile private marketplaces. The Company enables nearly 1 million advertisers to reach 300 million unique devices each month. The Head of Platform for xAd, Dan Hight, had this to say about our capabilities, quote, we have a great partner in Rubicon Project. Their orders platform allows xAd to make location advertising easy and accessible to programmatic buyers globally at scale. Our customers, both brands and agencies, have seen measurable performance using our location private marketplace based on the real places people visit every day such as grocery stores, restaurants and fast food, end quote.

In the second quarter we also launched support for mobile native ad formats on our exchange. This important milestone represents the first time an independent mobile exchange is positioned to automate the buying and selling of mobile native ads at scale. Additionally, significant adoption of our mobile capabilities by our large installed base has been a key driver of our success. More than 70% of our seller clients in the US comScore 1000 use Rubicon Project's cross-platform capabilities to monetize their inventory across both desktop display and mobile ad units.

Our proven cross-platform capabilities extend across all ad units and inventory types. In fact, we believe Rubicon Project is the only independent company today that can automate the entire advertising ecosystem for buyers and sellers, including all inventory types such as guaranteed and nonguaranteed orders, RTB and static, and across all ad units such as display, video and native, and across all channels such as mobile web, apps and desktop.

In addition to being asked about mobile, we are often asked about video, an ad unit that offers exciting future growth potential, and particularly on mobile devices since mobile video is the fastest growing segment of video advertising. With video, a key industry challenge has been the very limited supply of quality inventory available throughout exchanges. Importantly, our investments combined with industry trends position us to capture a much greater share of the video opportunity in the coming years.

We believe the future of video advertising will be conducted through the orders environment in both the mobile and desktop channels. Consequently, our investments in orders and mobile position us to benefit significantly from expected future growth of video inventory to become available in our fast growing orders and mobile business.

Next, I would like to talk to you about orders. Orders also continues to be a fast-growing source of managed revenue, including in mobile where our orders growth is especially strong. Since mobile app developers typically do not have a direct sales force, mobile offers exciting potential for order automation as app developers embrace our technology to monetize their premium audiences. We expect continued strong growth in mobile orders in future quarters.

We also continue to have success scaling our new guaranteed offering that automates the buying and selling of digital advertising on a fully reserved basis. In Q2, once again, we significantly expanded our seller base on the guaranteed orders platform and made excellent progress working with our agency and holding company partners and brands directly to drive increased buyer spend. These efforts drove orders to 17% of our total managed revenue in Q2, up sequentially from 15% last quarter. We were exceptionally well-positioned for success in orders, as our early technology innovations offer the most apprehensive orders automation platform available, including guaranteed and nonguaranteed orders in an integrated solution.

Now, let's talk about our newly integrated buyer cloud business, which includes Chango. First and foremost, I've been thoroughly impressed by the efforts of our unified buyer cloud team, including our new team members from the Chango acquisition. The combined team's expertise in buyer capabilities and deep knowledge of intent marketing are every bit as strong as we had hoped.

After the acquisition closed in late April, we began implementing our strategic integration plan to align our pre-existing buyer cloud business with our newly acquired Chango team. Now I'm pleased to report that we completed the integration of Chango into our buyer cloud in Q2, nearly six months ahead of schedule. The earlier than planned integration is already delivering real tangible benefits on both the top and bottom line. In fact, the combined buyer cloud business exceeded our revenue expectations for the second quarter as our team remained focused on executing throughout the integration period during Q2. Accordingly, 90 days into the acquisition we couldn't be happier with our Chango integration and combined buyer cloud performance.

The unified buyer team is already realizing synergies selling our expanded capabilities to our now much broader set of agency and brand advertiser relationships. Our buyer capabilities are beginning to resonate with leading brand advertisers that have broad programmatic expertise in-house. As we begin the second half of the year, we remain committed to invest for growth in our buyer business, and especially in the areas of orders and mobile.

Last but not least, we continue to execute very well in our seller cloud business. Turning to our seller business globally, we meaningfully grew our seller relationships, particularly in guaranteed orders, where we continue to focus our efforts. Recent wins for our new guaranteed orders offering include eBay, Daily Mail, The Economist, The Guardian, and Media Co., Trinity Mirror, and Viacom. Of note, currently 2 of our largest 10 seller clients are mobile app platforms, further demonstrating our cross-platform capabilities and increased business momentum in mobile specifically.

I'm also pleased to report that during Q2 we launched an exciting new seller product that builds upon the Shiny Ads technology we acquired and successfully integrated last fall. Seller clouds self-serve is a guaranteed orders offering that provides significant ROI by allowing sellers to generate incremental revenue from advertisers at almost zero incremental cost or effort for the seller.

Weather.com is a great example of a seller cloud client that has built a considerable business from the offering. The VP of Local for weather.com, Ryan Davis, recently said, quote, Rubicon Project's self-serve is incredibly scalable for us. It's become an very important part of our business, and a very fast-growing one with infinite potential. There's no way we could do what we're doing without it, end quote.

Now, I will wrap up with a few comments on our commitment to inventory quality for the benefits of all buyers and sellers in our marketplace. As we announced earlier this year, I joined the board of the TAG, the Trustworthy Accountability Group, a first of its kind industry coalition leading the efforts to counter ad supported piracy, malware and other critical challenges in the digital communication supply chain. Just last week we announced that Rubicon Project is joining a collaborative effort with Google, Facebook, Yahoo and other leaders in a global initiative designed to combat illegitimate advertising traffic originating from data centers. These efforts underscore a long-standing commitment to ensure the development of a safe, high-quality, well-lit advertising marketplace.

In summary, I am pleased with our teams' execution during the second quarter. At the midway point in 2015 we've already accomplished to great deal, and we continue to work hard to position the Company for the tremendous opportunity ahead. With that, I will turn it over to Todd for a review of the financials. Here's Todd.

Thank you, Greg. Overall, we've continued to experience tremendous growth, once again led by our RTB and order solutions, as well as significant contributions from our buyer cloud initiatives, which accelerated with our acquisition of Chango that closed last quarter. Managed revenue, which is the advertising spend transacted through our platform in a given period, is an important operating metric for both internal and external evaluation purposes because it provides a measure of our revenue including all our revenue on a gross basis.

Following our acquisition of Chango, efforts on our buyer cloud initiative and integration of Chango in our buyer cloud operations, we now report revenue on a gross basis for transactions whereby we manage advertising campaigns on behalf of buyers by acting as the primary obligor in the purchase of ad inventory, exercising discretion establishing prices and selecting and purchasing inventory from the seller. In general, there's no change to the previous revenue reported treatment for transactions in which buyers and sellers of advertising use our solution to execute or facilitate their purchase and sale of advertising, which will continue to be reported net.

Managed revenue for the second quarter of 2015 was $227.2 million compared to $153.5 million in the second quarter of 2014, an increase of 48% 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 75% RTB, 17% for orders and 8% for static. By channel, managed revenue was comprised of 78% desktop and 22% mobile.

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

Revenue on a GAAP basis inclusive of those transactions reported gross and those reported net in the second quarter 2015 was $53 million compared to $28.3 million in the same period in 2014, representing a year-over-year increase of 88%. Prior to the acquisition of Chango, we reported all revenue on a net basis. As a result of the acquisition, beginning in Q2 2015 a portion of our revenue is reported on a gross basis in accordance with GAAP. Revenue was reported gross for those arrangements for which the Company manages advertising campaigns on behalf of buyers by acting as the primary obligor in the purchase of ad inventory, exercising discretion in establishing prices and selecting and purchasing inventory from the seller.

Revenue is reported net for transactions in which buyers and sellers of advertising use the Company's solution to execute or facilitate their purchase and sale of advertising. We have fully consolidated and integrated the sales, product and engineering functions and technology of our previous buyer (technical difficulties) operations, thereby making distinctions associated with the Chango entity impractical.

In order to provide investors with a comprehensive comparative, we are providing managed revenue, which (technical difficulties) our reporting of all revenue on a gross basis, GAAP revenue (technical difficulties) all transactions were reported on a net basis. As previously mentioned, on a GAAP basis (technical difficulties) from $28.3 million in Q2 2014 to $53 million in Q2 (technical difficulties) representing an 88% increase.

Had all transactions been reported net (technical difficulties), the revenue would have been $48.5 million, representing a year on (technical difficulties) of 72% and an outperformance to the midpoints of the guidance range of $42 million (technical difficulties) 16%. Had our original second quarter guidance been provided under the new revenue recognition reporting, the midpoint of the revenue guidance for Q2 2015 would have been $46.5 million and our Q2 results of $53 million represent an attainment of 14% over those projections.

In addition to managed revenue, GAAP revenue and net revenue, and as supplemental information for this quarter to assess a comparison of a close approximation for ongoing operations only, we are providing revenue for those transactions reported on a net basis only, meaning not all transactions, but just those that are reported net. The midpoint of the previous guidance wold have been $40 million. And the actual results were approximately $42.7 million for Q2 2015, thereby representing attainment of 7% over those projections and a year-over-year increase of 51%. These statistics are also provided on a Q2 2015 financial highlights presentation provided on our website. These results illustrate the continued growth of ongoing operations, as well as demonstrating the financial strength of the Chango acquisition.

Take rate, which is managed revenue after any payments to seller, or non-GAAP net revenue divided by managed revenue, increased to 21.4% in the second quarter 2015 as compared to 18.4% 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 compared to static and higher take rates from buyer cloud transactions which include Chango.

We expect orders to increase at a percentage of overall managed revenue through 2015. Orders have an average CPM in excess of 3 times RTB and lower fees. Therefore, as orders comprise a larger part of our managed revenue mix, revenue per transaction would increase and overall take rate would decrease. But in the near-term, we expect this decrease to be offset by the higher take rate associated with buyer cloud transactions.

Operating expenses, including costs of revenue, increased to $64.5 million in the second quarter of 2015 from $35.4 million during the same quarter in 2014. The increase in operating expenses were primarily due to the Chango acquisition, which contributed approximately $18.6 million in expenses and includes non-cash amortization of acquired intangible assets of $4.3 million for approximately two months of consolidated results. In addition, the increase in operating expenses includes costs of revenue was due to the expansion of our sales efforts and buyer cloud initiatives. Despite these cost increases, operating expenses were lower than anticipated as a result of overall cost efficiencies and the magnitude of planned hiring becoming unnecessary. Accordingly, while we continue to hire personnel in support of our key initiatives, we have reduced the forecasted total headcount for the full year.

Net loss was $11.9 million in the second quarter of 2015 compared to a net loss of $9.4 million for the same period in 2014. The increase in net loss of $2.6 million included an increase of $5.2 million in amortization of acquired intangible assets associated both our acquisition of Chango in April 2015 and iSocket during Q4 2014.

Adjusted EBITDA was $6.7 million in the second quarter 2015 compared to an adjusted EBITDA of $2.7 million in the second quarter of 2014, and well above the midpoint of our guidance loss of $4 million. The favorable variance in adjusted EBITDA was primarily due to the revenue performance and cost efficiencies previously noted, as well as lower than expected acquisition-related costs, and secondarily slower than anticipated hiring.

GAAP loss per share was $0.30 in the second quarter 2015 compared to a loss of $0.29 per share during the second quarter of 2014. Non-GAAP earnings per share in the second quarter of 2015 was $0.06 compared to breakeven non-GAAP earnings per share 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 $5.7 million for the second quarter 2015. We closed Q2 2015 with $117.3 million in liquid assets and no debt.

In terms of outlook for Q3 2015, we expect the following. GAAP revenue to be between $63 million and $65 million. Adjusted EBITDA to be between $5.5 million $6.5 million. And non-GAAP earnings per share to be between $0.03 and $0.04 based on approximately 48.4 million forecasted weighted average shares. In terms of outlook for Q4 2015, we expect the following. GAAP revenue to be between $92.5 million and $94.5 million. Adjusted EBITDA to be between $20 million and $21 million. And non-GAAP earnings per share to be between $0.32 and $0.34 based on approximately 50.7 million forecasted weighted average shares.

This results in an increase in full-year 2015 estimates as follows. GAAP revenue between $246 million and $250 million, which is an increase over the previously provided guidance on the same revenue recognition basis. Adjusted EBITDA to be between $36 million and $38 million, which is an increase over the previously provided guidance of $11.5 million, or 45% for the midpoint of these ranges and a nearly 80% increase from the initial 2015 guidance provided in February. Non-GAAP earnings per share to be between $0.45 and $0.48 based on approximately 46.4 million forecasted weighted average shares.

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 2015 include buyer cloud initiatives, orders, international expansion, mobile, video [for] targeting and keyword buying and selling. We would now like to open the line for any questions.

(Operator Instructions)

Jason Helfstein with Oppenheimer. Your line is open.

A few questions. So if we assume a 50% take rate for Chango, it does appear that core managed revenue slowed about 8 to 10 points against an easier comp. Are there any factors that you would call out?

And we know that you're trying to maximize net revenue and gross profit. So (technical difficulties). Second, the guidance implies a pretty dramatic acceleration in the fourth quarter organic revenue. Can you just talk about what's driving that? Is it mobile, (technical difficulties) native, is it direct orders? Lastly, how much of the investment sales in marketing is being driven by the buildout of direct orders versus other initiatives? Thanks.

Jason, I'm sorry. We're having technical difficulty on this side. And we could not hear your questions. I think your first question, though, and I will try to address it as they work (technical difficulties) back there, too. I think if we heard your question correctly, the first question was (technical difficulties) 50% take rate with Chango, what does that mean with respect to overall take rate, is that correct?

Can you hear me better now?

Unfortunately, no.

Basically if we assume a 50% take rate for Chango, it (technical difficulties) managed revenue decelerated by 8 to 10 percentage points (technical difficulties) comp. And so while we know that ultimately you're trying to manage to net revenue and (technical difficulties) profit as opposed to managed revenue, I'm just curious if there any (technical difficulties) you would call out for a slowdown. That was the first question.

We're going to pause for about five minutes to correct difficulties.

(Technical difficulties)

Ladies and gentlemen, this is the operator. Today's conference is scheduled to resume momentarily.

(Technical difficulties)

Hi, Jason. I think we've got it fixed finally. Sorry about that. Can you repeat your question?

The first one. If we assume a 50% take rate for Chango, it appears (technical difficulties) from first quarter by 8 to 10 percentage points. I know you guys manage (technical difficulties) to net revenue (technical difficulties) gross profit, but are there any factors you would call out for the deceleration in managed revenue? That's question one.

Actually, I don't (technical difficulties) that's true. If you look at our managed revenue in last year to this year, you're still looking at some pretty significant growth. Managed revenue jumped from $154 million. If you take out what would be the buyer cloud initiatives and you look at just that for which was ongoing operations, again that's to be estimated because of combined operations, you would still be in about the $215 million range versus the $227 million reported. So, I think you are still looking at some pretty significant year-on-year growth.

Okay. The guidance implies a pretty aggressive fourth quarter ramp for organic growth. Can you talk about what's driving that? Is that buyer cloud? Is that mobile? Just some color there.

Sure. Good question. Thanks. First off, you saw some tremendous contribution from our buyer cloud initiatives here in the second quarter. And we only had two of three months of Chango integration for this period. So as we go into Q3 and naturally we'll have a full quarter affect, the fourth quarter is a seasonally high period. So the combination of those things, we do believe that we'll see some definitely increased contributions from our buyer cloud initiatives.

You are also correct that we are, as you heard from the numbers and from both Frank and Greg's comments, as well as mine, we've also seen great traction both mobile and orders. So, between buyer cloud orders and mobile, all three of those, yes, we are definitely looking at some strong growth in Q4.

Then lastly on the cost side, how much of the investment in sales and marketing is being driven by the buildout of direct orders versus other initiatives?

Most of the direct orders component and that from the buyer cloud are both from sales personnel and sales efforts for the demand side. So as we've started the beginning of the year and talked about our buyer cloud initiatives, we were starting from a relatively scratch position and when it came to being able to address the orders business, whose customers are specifically brands and agencies, and with very little capability in the beginning of the year, now to a large capability through our acquisition and through other efforts, that is where we're seeing a lot of the investment.

Thank you.

Your next question comes from the line of Kerry Rice with Needham. Your line is open.

Thanks for all the information related to revenue. As I think about that, and maybe you've already answered the question of Jason's, but I think about the take rate has historically been around 18%, 19%, jumped up to 21%. Is that related to the addition of Chango? And how do we think about that take rate coming -- going forward?

I know with orders we've typically thought about that feeling a little pressure and ticking down. Any highlights there? Mobile, growth in mobile maybe particularly for Q2. Can you talk a little bit (technical difficulties) versus the web and native, and maybe (technical difficulties) Apple is also progressing? Thanks.

(Technical difficulties) first question and then Greg will take the second. With regard to take rate, the 21.4% (technical difficulties) had in this quarter, if you were to look at the impact that (technical difficulties) might've had on that, it would be roughly in the neighborhood of 1.5% to 2%. (Technical difficulties) again, they are approximations because we've combined operations, but that will give you a better sense. That (technical difficulties) ballpark of about 19.7% on a comparative basis for ongoing operations. So a little bit of an increase, but again most of that increase is, as we've seen in the past, the result of increased mix of RTB.

As we look forward, your characterization I think is pretty accurate. We'll have a couple of countervaling forces. One is (technical difficulties) but a higher revenue per transaction, we will see some dollar increase in revenue but (technical difficulties) on take rates. Counter to that will be the buyer cloud initiatives. And as we mentioned, we've only had two of three months of Chango operations in Q2. So we'll have a full quarter effect of that in Q3 and going forward. And that will have the impact that we just outlined with respect to the take rate for Q2. So, that will push it up a bit.

But once we have that really on a more relative basis, then it will become more of the same sort of play with regard to mix. So as buyer cloud mix, or as RTB mix, has a higher impact then we'd seen take rates rise. If orders mix has a higher impact, then we might see take rates decline. So over the near term, I think we would think about take rates as being relatively constant as those various factors balance one another out.

Maybe one quick follow-up before the mobile question. Is there anything else in the buyers cloud besides Chango?

When we consolidated operations prior to including Chango, we did have our own initiatives. And so yes, we had our own transactions. As you know, we were building out the demand side. And so we did have some of our own transactions, but they were relatively small. I can also tell you that of the Q2 non-GAAP net revenue for those that are net transactions only, again those by which we would try to characterize as ongoing operations to provide investors with a comparative, the portion that would be contributed net from buyer cloud in those was very, very small. You're looking at probably less than 1%.

Okay. Thanks.

Jason, this is Greg.

Let me give you a quick update on Q2 mobile, and let me speak just for a minute in general and then I will come back to your specific questions. As you know, we announced a couple of weeks ago some pretty exciting news with respect to our mobile business. It's now over 20%, 22% of our total business and up substantially over the last two years.

And I think it's a good template for what we're doing in not only in mobile but in other areas like video and mobile, and orders, because what are doing is we're building the exchange marketplace kind of brick by brick. And what we do typically is we add supply and then we come back in and add demand. So initially we created a lot of supply and then we came back, add more focus on mobile demand, and that's progressing very nicely.

We're seeing a couple of other nice initiatives this past quarter that it's worth mentioning is we're now moving forward with our initiatives for mobile video, which we launched in Q2. We're seeing inventory ramp from our partners, some of our bigger partners that we mentioned in transactions in the last couple of quarters. And that's all kind of to be expected because It takes a little bit of time to build those marketplaces. Q2 was a function of bringing of native online, which We're pretty excited about this, as everyone else is in the industry. Bringing mobile video online.

And to come back to your questions more specifically, inventory revenue is -- has been growing substantially in both mobile web and app. We've, as you know, we've partnered with a number of really impressive organizations like Imobia, xAd, (technical difficulties) and we're now starting to move from the initial integration phases to more (technical difficulties) phases. So we're pleased, frankly, very pleased as the numbers show about where we are. And we do expect that to carry on through the rest of the year.

With respect to Apple, it's still very early times in that partnership. And as it has been has been with other relationships it does take time. Let's not forget we signed our deal with Imobia over a year ago and it's been an very important process for us to work with companies like Imobia and xAd and others, and use those proof points as we move forward with other great partners such as Apple and the like. I hope that helps.

This is Frank here.

I wanted to add on to that, that I think mobile is a good example of the illustrations of the network effects that exists in our business as well as the marketplace effects. So similar to our ramp-up with real-time bidding when we introduced that into the market, and then similar with orders, once we're able to go into our existing customer base, both buyers and sellers who are already integrated into the platform where we have existing relationships. Things (technical difficulties) mobile, video, orders they become added-on features rather than entirely separate businesses for us. So we're able to leverage those, that customer base.

And because of the marketplace dynamics in our business, first we get the customers signed up to use these additional features. Once (technical difficulties) do that, that inventory becomes available in the platform. Once that inventory is available in the platform, then it attracts the buyers because now they have access to the inventory and then they start buying. So we've seen this same sort of ramp happen with new additional features that we've introduced into our platform. I think the same thing is happening with mobile.

Your next question comes from the line of Debra Schwartz with Goldman Sachs. Your line is open.

I have two questions. First on video. It sounds like we're talking about of a little bit of an inflection in video where one of the issues previously had been too much low-quality inventory flowing through the platform. And now it seems that with the orders product that easing some friction. Just kind of curious as you starting to see orders work for video, particularly mobile, what's the type of inventory that you're seeing flow through, and can we think about it as sort of the highest class of premium video inventory?

Second, the housekeeping question for you, Todd. Wondering if it's possible to give us a sense of what full-year revenue guidance would be on a non-GAAP net revenue basis? Thanks.

I'll start first. This is Greg. We'll talk about video for a minute. I think your question was right on. That is, we have been very strategic about our entrance and growth in the video market. Our focus has been primarily on building technology and expertise to that part of the video market that we feel will be growing strongly over time, not necessarily just what is particularly substantial at this moment in time.

So we look at the world perhaps a little bit differently than other folks. And we haven't talked about it in great -- other than to say that the quality of video inventory in ad exchanges hasn't been what we liked (technical difficulties) years. But what we are seeing is, as you pointed out, a substantial (technical difficulties) real growth in spend in video on mobile (technical difficulties) little bit different marketplace than what we've seen in the past on desktop.

We probably have all seen the (technical difficulties) from IDC and IAB and others where the video ad (technical difficulties) three times faster in mobile that it is in desktop. And as you know, (technical difficulties) very large player in the past in the desktop world for video. But we (technical difficulties) we're going with both video and orders, we're well-positioned.

We look video as a premium ad unit. And all premium ad units will largely be bought and sold in a environment that is different from perhaps the indirect space. So where things are going is moving more and more toward buying premium ad units in an order or direct order automation environment. And we expect video to be among the more significant ad units bought in that environment. That's our strategy going forward.

I will turn it over to Frank first and then back to Todd.

We never meant to suggest that we had low-quality video inventory on our platform. Our comments in the past were really just illustrating our commitment to building and sustaining a high-quality marketplace. We think that it's easy to make money off of low-quality inventory in advertising in the short term, but that's never been the business that we've been in, nor is it the business that we want to be in. We've always focused on quality. Video is the same. I think that the video market's evolved a little differently than the display and the mobile markets.

Initially in display there was a lot of unsold inventory that was in search of demand. And in mobile, with the rapid growth in mobile we saw that similar trend. In video it's been the opposite, where there's a lot of demand for video but the quality supply hasn't been made available into the -- just into automated marketplaces in general. I think a large part of the reason for that is that the publishers of the high-quality inventory, initially as they were bringing their video into their website and mobile applications, they were giving it away along with her television spots.

And they were using that to attract more TV dollars. And now that there's significant scale there, they're starting to recognize that they are leaving money on the table by doing that, And I think it's just now that they're realizing that they can make significant revenue off of this in the automated marketplaces. So I think we're seeing that happen now. And we've been waiting for that to happen because we already have those existing relationships, rather than trying to accelerated a video business artificially by going after lower volume inventory. That's all we were trying to say with our previous comments.

And Deb, with regard to your question with regard to revenue guidance, we certainly talked about providing revenue on a net basis from a guidance standpoint. And after a lot of analysis on that topic, we really looked at what was an objective measure. And we came to the conclusion that the GAAP Is really an objective measure. We've gone through quite a bit of analysis with a number of accounting firms on that topic.

We've sought guidance from the SEC on that topic. And it is a uniformly understood measurement, and therefore we saw that that was really the most appropriate. We've always guided on GAAP. It wasn't the revenue recognition principal that drove that decision in the past. It was the fact that it was, in fact, GAAP.

In addition to that, we do observe that there are lots of investors to which we do not always have direct communication. And while we recognize that there are a handful of investors that might appreciate us to give guidance on a net basis, there are also a handful of investors that only look at GAAP and look at filings and that sort of thing. We have also seen in the past where we've been ranked as in terms of size and stature with regard to other companies, sometimes in our existing sector based on GAAP revenue, which has unfortunately put us lower than we believe we should be placed. So there are a number of different reasons.

The financial press looks at GAAP, and others look at GAAP. We decided that because there are a myriad of different constituents, all having different measures and interests, that the most objective way to do it would be GAAP. Lastly, we looked at all the information that we've been providing, and you can see from this quarter we've greatly expanded the amount of disclosures.

We provided revenue on a managed revenue basis. That as which everything would be gross. We've provided on a GAAP basis. We provided it on a net revenue basis. Should all transactions be reported net. And we've even taken it to a point of saying, what if just those transactions are reported net? What would revenue be from a net basis there? And we provided that.

We've also provided some color on take rate. We've provide directional guidance with regard to take rate. We believe with this myriad of information, and is our hope that then analysts, investors who would like to be able to forecast the net basis have adequate information from which to do that.

Great. Thank you.

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

Thank you very much.

My focus is going to be on free (technical difficulties) cash flow in the first half of the year. How should we think about the free cash flow trends in the second half? And how specifically you think about that particular metric? Second question, I'm going to open it up to all. Obviously, you're seeing all the products coming together. They exchange building up.

Especially as it comes to a direct orders market; how long do you think you'll get paid at these levels for bringing quality buyers and sellers (technical difficulties)? Is there a point where you might see some pressure, and also that pressure you need to continue to add products and services, which is a good thing, (technical difficulties) Chango, but what other things could you add to this marketplace to justify your pricing? Thank you.

First question with regard to free cash flow. With our Increase in adjusted EBITDA guidance, a considerable increase in that guidance, obviously the opportunity to increase that free cash flow increases. At the same time, the top-line growth also continues to increase. When we have a number of initiatives, and most of which actively tracking considerably well, the buyer cloud, orders and mobile all tracking well, we also want to make sure that we're prudently not under investing

In the past, our philosophy has been that we do want to be adjusted EBITDA profitable and we want to continue to grow that bottom line. At the same time, (technical difficulties) want to under invest for the larger growth opportunity that's not only before us but I think has been illustrated from not only this quarter's results, but results historically for ourselves.

So in doing so, we've looked at managing cash on a relative breakeven basis with the difference going to CapEx and discretionary R&D, in some cases discretionary marketing. I think we'll continue (technical difficulties) particular philosophy in the near term. Clearly as we expand, sometimes those efforts exceed our ability to find worthy investments or the ability to grow as fast as we'd like to when it comes to hiring. But at the same time, we also note that we have found (technical difficulties) cost efficiencies in this last quarter.

So you probably heard both (technical difficulties) opening remarks talk about the fact that the integration with (technical difficulties) incur the costs and distractions that we initially thought that it may pose. (Technical difficulties) that was an improvement. In addition to that, we also found efficiencies (technical difficulties) And therefore have lowered the amount of expected hiring for the year. And we have taken that to the bottom line adjusted EBITDA, and did play a role in the increased guidance that we provided for the rest of the year.

Sameet, it's Frank here. I'll take that second question on the direct orders business. First, in the direct orders business, I want to highlight the areas of value that are provided there. The first is the workflow. The workflow for both the buyer as well as the seller, the entire negotiation process.

Second is the optimization. It's important to keep in mind that this is all one part -- all part of one platform where there's a number of different features. So the platform still has to decide whether it's better to spend an impression, so not an advertising dollar but an impression. Whether it make sense for a publisher or seller to spend that impression in RTB or in static bidding or in direct orders or in guaranteed direct orders.

There's a lot of optimization knowledge that needs to go in that. Utilization of the data itself to either price the impression, to identify the impression based off of audience or context, as an example. The security and protection of that transaction as well. Then just the overall access to the marketplace.

So if a buyer and seller are transacting manually, they're transacting with a limited set of potential buyers. Just the number of buyers that they can make phone calls to, go have meetings with, you have their martini lunches, et cetera. So there's access to the marketplace itself, as well as all the SaaS applications, the SaaS-like applications, the reporting, the analytics. All this still goes into our direct orders product, including the payment processing itself. The dollars still flow through our platform. You're dealing with foreign currency exchange. There's a lot that really goes into the direct orders.

With all that said, we do believe that the direct orders -- when you talk about pricing I think you're talking about take rate. Another way to look at that is, is the effective price or value per transaction. The take rate for direct orders, we believe, will be lower. With that said, let me give you an example. Don't take any of this as guidance, this is just for illustration purposes. Say in real time bidding, if there was a $3 CPM transaction and say that there's a 20% fee applied to that. The net value per transaction to us would be $0.60.

In a direct order, because the value of that transaction is so much higher. So let's say that there's a $20 transaction. And again, for illustration purposes let's say that's at a 10% transaction fee. That's $2. So it's $0.60 compared to $2, which is over three times the value per transaction in the direct order.

So we think that even if the rate that gets charged is less, it's because it's on a higher value transaction, the net per transaction to us is higher. And it actually becomes a more profitable transaction overall because we're not processing large amounts of volume to go do that. With that said, I think there is the opportunity for us to continue to add value-added products and services just like we have in the past.

When we first launched our platform almost nine years ago we were charging 10% fees. And I think we've shown that over time we've been able to increase those fees because we've been able to layer on those additional value-added services that we've talked about in the past. And I think those same opportunities exist in orders as well.

Great. Thank you.

Your next question comes from the line of Todd Van Fleet with First Analysis. Your line is open.

Nice quarter. A couple of quick ones.

Can you tell us on the mobile side how many supply sources you are actually working with now? You talked about xAd and maybe Apple here. But can you give a number of how many inventory sources you are working with at this point? And then secondly, back on the prior question about the net revenue guidance potentially for the year. If -- I'm hoping that if we can think of may $4.4 million, $4.5 million of gross revenue being traffic acquisition costs in Q2, can you just give us an understanding as to how much kind of [tack], if you will, is built into the Q3 revenue guidance? Thanks.

Let's start with the second question with regard to guidance and [reflect] to traffic acquisition costs, as you called them. We refer to more as payments to sellers. It's a little bit different than the necessarily traffic per se. So it's a little different the way we view it. But look, we've provided guidance on a GAAP basis. I think we've given you some idea with regard to the overall GAAP revenue number, as well as where we think the take rate might go from a qualitative standpoint and where it launches from today.

I think that we certainly think that the amount that we take from our buyer cloud initiatives over the longer period of time will decline, but in the near term it's probably relatively stable. The takeaway fluctuation will primarily be influenced by a mix of, again, buyer cloud orders, RTB and that sort of thing. I think that's the direction to provide.

And with regard to how we view guidance from a revenue standpoint, we clearly thought about the amount of trajectory we've had from the buyer cloud and we are quite pleased with it. We'll see a full quarter effect of that in Q3. Then also we're quite pleased with the trajectory we've seen from both mobile and orders, as well.

Todd, Greg here.

As a matter of course, we don't typically disclose the number of total mobile sellers, but what I did mention in my script is that 70% now of the comScore 1000 sellers that work with us on desktop also work with us now in mobile. So I thought that would be an interesting statistic for you -- for everyone.

Todd, maybe I could give bit a little bit of color of why we find it difficult to talk about a certain number of sellers. First of all, the count becomes a little challenging when you have to start categorizing who the seller is, whether you do that by entity, division, website, application, application owner, consolidation of applications. And then of course you have some instances where we have relationships that aggregate different applications. So as a result, it becomes a little challenging. So we do talk about, obviously, the size of the audience reach, which continues to grow very nicely. We think we reach a pretty large number. We've talked about 650 million or so in the past, citing some third-party sources for that. I think that is really the way we're starting to think about this now.

Just to follow-up on that, Todd. Let me try to ask it a little bit differently than on the mobile front. Is there a way -- I'm just trying to get an understanding of how meaningful any one partner is to your inventory supply for mobile. So is there some statistic or a metric that you can provide us such that maybe (technical difficulties) top mobile partner is you're working with them and they supply X% of your inventory at this stage for mobile? Just trying to get an understanding of how concentrated you are with one supplier or another. Thanks. On an overall basis, which is what we tend to discuss and disclose, we don't feel that we have any significant concentration. Obviously, certain concentration categories, you can look at our 10K and see what the disclosures are there. The other thing (technical difficulties) to help you is, what does look like from a cohort standpoint? And if you look at the revenue for any group of sellers, you will see that the revenue (technical difficulties) we supply to the sellers continue to grow for every cohort across the (technical difficulties).

Your next (technical difficulties) of Rohit Kulkarni with RBC. Your line is open.

Thanks. (Technical difficulties) Two questions. One on one for the buyers, I think (technical difficulties) elaborate in what (technical difficulties) the synergies (technical difficulties) manifest as in just scenarios or (technical difficulties) cases to buyers (technical difficulties) platforms? And one of the (technical difficulties) about (technical difficulties) different forms of inventory, really different types of (technical difficulties) consolidated offering (technical difficulties), how does that compare in a seller's viewpoint versus some sort of inventory waterfall they may have been working with, be it Millennial or Google (technical difficulties) or some other inventory aggregator, and now there's Rubicon which can offer various different sales channels for various different forms of inventory as well?

Yes, Rohit. This is Greg. Let's talk for a minute about your first question, which is -- and frankly we're not hearing you great again. So I'm reviewing a question that you've typed in. And from that perspective, we spent a lot of time in Q1 -- excuse me, in Q2, last quarter working on ways that we could get to a better point with respect to our integration of Chango into our buyer cloud.

And we, as I mentioned in the script, we are really pleased with where we got to. We have gone to the point of unifying the two teams into one. They're now being led by the gentleman who founded Chango. And he's now become our Head of Buyer Cloud. And we have one unified sales team. And we've done that, obviously, for variety of reasons, because in part because your question of synergies, both on the cost side but also on the revenue side, because it becomes very important as we move forward to do a number of things.

We have a number of products and capabilities that address different channels within the buyer community as well as within the seller community. So we're really focusing in large part on making certain that we drive revenue from a consistent basis for both buyers and sellers and we're not overlapping sales teams. So we made sure of that in our first effort in unification and that, as I mentioned, has gone particularly well. So, we're excited about that piece.

The other piece that I should point out is that because we brought Chango capabilities into our buyer cloud, we now have a more sophisticated and advanced bidding capability. And as a result, we've gone to the added step of creating separation between our bidder and our buyer capabilities from our very important channel with DSPs. And we've spent a lot of time working with this channel over the last quarter to provide sufficient comfort to them with respect to how we share or don't share information on any given situation.

And we have put together a very organized approach to non-sharing information between buyers, of course. And also making products and capabilities available to all buyers at the same exact time. So that nobody would have a unfair advantage in any shape and would look at our marketplace as completely open to any buyer, whether within the Rubicon family or outside. These were very important steps that we took and thought about before we closed the transaction and implemented after we finished the integration.

Hey Rohit, it's Frank here.

I'll answer your other question around differentiation now that we have these capabilities. Look, we've been at this now for nine years. Our first products started by focusing on solving a big hole in the market for our sellers. We used that to gain a large install base of sellers. With that also has created a lot of data. A lot of market data, pricing data and our algorithms continue to learn with every single transaction, every single seller that gets integrated into our platform. And this is one of the reasons that we've been able to maintain and grow our leadership position in the market.

So our platform now has almost nine years of data, trillions and trillions of transactions that it has processed. Obviously that continues to grow across now more than 60% of the top 100 websites in the market. So our platform sees hundreds of millions of users across a large majority of their overall Internet experience, not just one website. And I think it's important to note that the sell side of this equation is really, really complicated. So if you're a buyer, and now we've got capabilities on both sides. If you're a buyer, you're basically bidding in an auction on impressions that you want.

If you're a seller, every impression has a unique value. And you need data to be able to accurately price that impression, identify that impression and connect it with the right buyer to create maximum yield within the parameters and rules that the seller sets. So, we believe that our platform does this incredibly well. And I think our growth in the market has illustrated that our products outperfoms the competition.

In addition to that, we now have the capabilities across desktop display, mobile, as well as video. And we're very strong in static bidding, real-time bidding and we've pioneered the category of order automation as well. So having all of these things in one platform holds a lot of value for a couple of reasons. One is that you're able to leverage that data across all of these capabilities, across all the different buyers and sellers, across all the different methods of buying, not just one of them.

Then the second is that because we have the static bidding, the real-time bidding and the orders our platform can connect buyers and sellers most effectively to make sure the right impression is reaching the right buyer and that the right metrics are being achieved for the buyers, whether that be a DSP, an ad network, an agency or an advertiser. So having all these things combined into one platform is really important.

Then there's also the efficiency for the seller of being able to have all these capabilities in one platform across desktop display, mobile, and video in one place makes it easier for them to manage their overall business. So I think that's why we continue to win business and that's how -- one large reason that we differentiate and outperform the competition.

Great. Thanks, Greg. Thanks, Frank.

Your next question comes from the line of Brett Huff with Stephens. Your line is open.

This is James Rutherford in for Brett. Hopefully you can hear me all right. I just had one question.

Great quarter. On a perceived risk maybe by some on the Street, this ad blocking. There's been some studies that show that it's on the rise globally. (Technical difficulties) perceive that risk in your seller base, your publisher base? And how do you think over the long term the industry (technical difficulties) that phenomenon? Thanks.

Sure. (Technical difficulties) let me note that we think that there's a great opportunity to bring the advertiser and the consumer closer together. We've (technical difficulties) spent today by advertisers trying to effectively guess what the consumer wants. We think there's a very big opportunity to make the consumer an active participant in this marketplace.

Today there's buyers, there's sellers as the active participants. And then there's the consumer, which is the silent or passive consumer -- passive participant in the marketplace. So we think we can make them an active participant where the advertisers doesn't have to just guess and throw things at the consumers. And I think, really, that's the core of what I think the long-term opportunity is with things like real-time bidding and automation. Look, this is the first time now where advertisers have the ability to connect with individual consumers on a one-to-one basis. That was effectively the promise of the Internet when it came along 15, 17 years ago.

Now advertisers have the ability to reach these consumers in real time and decide in real time which message is delivered to that consumer. So I think that's a tremendous opportunity for the industry. We're working on solutions for that right now. We hope that the rest of the industry does the same. But with ad blocking in particular, it looks like that is the symptom.

First, this is nothing new. Ad blocking has existed in desktop advertising for at least 15 years. I remember there was a version of Internet Explorer that came out that gave consumers the ability to block cookies, to block ads. We saw plug-ins that could be created for web browsers like Firefox exist in the market. This is something that is existed.

Clearly there's been enough of the market that's adapted and also has been growing where ad blocking has not been affected. There's been a lot of recent conversation about ad blocking, I think primarily from the announcement that Apple made. Just to clarify that, Apple with Safari is now giving people the ability to develop an app to do ad blocking. So it doesn't have it inherently built in Safari, as far as we understand it to be.

So if you look at the process in which this would need to be evolve. First, somebody has to go create the app. Second, they have to go get consumers to download and use the app. And then even then, if that was to be effective, 80% of consumers' time is spent in app not on mobile web, of which Safari and Apple just has a portion of the market anyway.

We don't look at this as a threat in the short term or even the long term. Again, it's been nothing new. Instead, though, I think we're looking at things like this and saying, how do we make advertising better for the consumer so people don't want to even block ads? How do we make it so advertising becomes an information service to consumers? And that's we're focused.

Your next question comes from the line of Jason Kreyer with Craig-Hallum. Your line is open.

Just wondering if you could talk a little bit about what you're seeing in the orders business? Where that growth is coming from. Maybe if you could dig into a little bit deeper on what you're seeing in guaranteed versus nonguaranteed.

Sure, Jason. This is Greg. Sure.

We talked a little bit about the orders market in my script about the guaranteed and nonguaranteed. Let me separate the two. The guaranteed orders market is in very early stage. Just like mobile, just like video we expect it to take some time. But going back to Frank's illustration about the opportunity of the orders market, the guaranteed orders market, when you look out four or five years you see a market that once automated is quite a bit larger than the existing market for automation today. So we're looking at a $40 billion-plus market for the automation of premium inventory that has yet to be automated. We expect that to be done in the guaranteed orders market as more and more sellers and buyers come online.

As I mentioned last quarter, not this quarter, we put quite a few of our sellers online on the platform for guaranteed orders. And we continue to add every quarter more and more sellers. This quarter has been also about working with our friends at the large agencies and holding companies and brands directly about having them begin to test that market and spend more in that market. We're seeing -- we're ahead of where we want it to be.

We've been investing in this area now for a better part of two years. You may have heard us talk about 49 BC a good year or so ago. And then of course we decided to acquire iSocket for the buyer side and Shiny for the seller side. We see this as a major growth driver for our Business over the next several years. And we're very pleased about the way things are going right now. We expect to see more adoption in the coming quarters.

Your final question comes from the line of Aaron Kessler with Raymond James. Your line is open.

Quickly on international. Any updates in terms of what percentage international is today and how the trends there are progressing, either client wins or growth rates relative to the US business? Thank you.

With regard to international, we're right around 35% for Q2 on a managed revenue basis from the seller perspective, which is a little bit down from what we've seen in the past of 40%. However, that's not indicative of any performance. Rather, our buyer cloud initiatives have mainly focused on the US in Q2. So as a result of a mix standpoint and the acceleration we've had in buyer cloud, we have seen an overall mix that's come down. So it's not a change in performance, but rather just the result of some overperformance, if you will, from the buyer cloud side.

With regard to clients and growth, they continue to grow on both sides. We've had a number of successes, namely in Japan, especially with regard to signing new sellers. And a lot of that revenue is just starting to come online. And we expect a solid Q4 from Japan as a meaningful contributor from the international standpoint. Overall, I'd say growth on the international front has been generally strong.

Great. Thank you. Good quarter.

There are no further questions at this time. I will turn the call back over to management for closing remarks.

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

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