Good afternoon, and welcome to the Rubicon Project Third Quarter Earnings Conference Call. All participants will be in listen-only mode. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Rubicon Project's website following this call. After today's presentation, we will conduct a question-and-answer session. I would now like to turn the conference over to Bonnie McBride, Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone, and welcome to Rubicon Project's 2016 Third Quarter Earnings Conference Call. As a reminder, this conference call is being recorded. Joining me today are Frank Addante, CEO and Founder; Greg Raifman, President; and David Day, our Interim Chief Financial Officer. Now, before we get started, I would like to remind our listeners that our prepared remarks and answers to questions will include expectations, predictions, estimates, and other information that might be considered to be forward-looking statements including, but not limited to, guidance we are providing and other non-historical statements related to our anticipated financial performance, operating and strategic plans, expectations regarding new initiatives, our relationships and business with buyers and sellers using our platform, competitive differentiation, 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. Forward-looking statements involve risks, uncertainties and assumptions, and actual results may differ significantly from the results suggested by forward-looking statements for various reasons, including without limitation if such risks or uncertainties materialize or assumptions prove to be inaccurate. Further, we may adjust our plans and expectations in response to market conditions or other factors. Reported results should not be considered an indication of future performance. A discussion of these and other risks, uncertainties and assumptions is set forth in the company's Annual Report on Form 10-K for the year ended December 31, 2015, as well as our quarterly reports on Form 10-Q included under the headings Risk Factors and Management Discussion of Analysis and 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 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 and webcast replay of today's call or to learn more about Rubicon Project. With that, I will turn the call over to Frank.

Good afternoon, everyone, welcome to Rubicon Project's Q3 earnings call. I'm going to take a different approach to today's earnings call. I'm not going go off of a prewritten script. I feel like it's better to just have a direct conversation with our investors about some of the key questions that I think are facing Rubicon Project today. So I'm going to start off with an overview of our financial results, and then I'm going to address four key questions. So, on the financial results, on the top line we reported net revenue of $60.6 million, which is at the lower end of our guidance range. On the bottom line, we reported $15.3 million of adjusted EBITDA, which is above our guidance range. And we also announced a cost reduction of $30 million of annualized expenses. For full-year 2016 guidance, we're guiding down on the top line by about $14.5 million. I'd like to note that our cost reductions do not decrease our investments for growth. And I believe that this cost reduction puts Rubicon Project in a better position to compete and win, especially in a market where machines are making decisions, not people. So, I'm going to address the following four questions. Number one is why did we decrease our guidance for Q4? Number two is whether or not Rubicon Project's strategic position within the market is being threatened? Number three, why we believe that header bidding is providing short-term headwinds and how those short-term headwinds will turn into long-term tailwinds? And number four is why investors should be bullish on Rubicon Project and why I'm particularly very excited about the future prospects of the business? So, let me take these questions, one at a time. Number one, why did we decrease guidance for Q4? So, as I…

Thanks, Frank, and thanks to all of you for joining us. Today, I would like to talk more about our operational and strategic progress in the quarter and then David will discuss our financial results. To begin with, as Frank highlighted in his opening remarks, although we delivered solid progress in Q3 operationally, we have not yet seen those improvements translate into increased growth in revenues or market share, therefore requiring us to lower our Q4 guidance. In particular, our core business has been challenged by the following three factors: first, header bidding, which has impacted both our desktop and mobile web businesses; second, general softness in the advertising market due to a number of macroeconomic trends including hesitation from advertisers to spend in advance of the general election; and three, our initiative to reduce overall costs in our business. First, let me address the progress we've made with respect to header bidding, our efforts to regain any lost market share, and why we believe Rubicon Project is ultimately well positioned as the industry landscape evolves. There could be no doubt that header bidding has changed the ad-tech ecosystem by creating a level playing field in a real-time bidding marketplace. In this new world order, each supply-side platform can compete for all available impressions rather than being predicated on hierarchical relationships. This gives us the opportunity to monetize literally trillions of premium impressions for which we previously were unable to compete. Let me provide a few data point and some additional color on the market dynamics we are seeing unfold. First, from a pure scale perspective, we now have more than 200 premium publishers utilizing FastLane across more than 1,000 top websites globally. In less than six months, we refocused our business from minimal integrations in header bidding to having…

Thank you, Greg. Now, to recap our financial results starting with revenue. Before I begin, note that we've adapted our terminology and going forward instead of managed revenue, we will now refer to advertising spend, which is more descriptive. There is no change to the underlying meaning or calculation, which remains advertising spend on our platform. GAAP revenue for the third quarter of 2016 was $65.8 million, representing a year-over-year increase of 2%. Advertising spend for the third quarter of 2016 was $242.8 million, representing a year-over-year decrease of 1%. Non-GAAP net revenue for the third quarter of 2016 was $60.6 million representing a year-over-year increase of 5%. As Greg mentioned, the decrease in advertising spend in the third quarter was primarily due to continued headwinds in U.S. desktop spending, which declined 12% year-over-year, more than offsetting the 31% year-over-year growth in mobile advertising spend. Advertising spend was composed of 34% mobile and 66% desktop for the third quarter of 2016, compared to 26% mobile and 74% desktop a year ago. In addition, advertising spend by inventory type was composed of 75% real-time bidding or RTB, 23% orders and 2% static during the third quarter of 2016, compared to 77% RTB, 16% orders, and 7% static in the third quarter of 2015. As mentioned last quarter, static bidding was sunset during the third quarter. Take rate, which is non-GAAP net revenue divided by total advertising spend decreased on a sequential quarter basis to 24.9% in the third quarter of 2016 from 25.3% in the second quarter of 2016, a decrease of 40 basis points. In the third quarter of 2015, take rate was 23.7%. The higher take rate in the third quarter of 2016 on a year-over-year basis largely explains why year-over-year GAAP revenue and non-GAAP net revenue increased slightly,…

And ladies and gentlemen, we will now begin the question and answer session. Please limit your question to one question and a follow up. Our first question will come from Brian Fitzgerald from Jefferies. Please go ahead with your question.

Thanks. Looking at header bidding in video and mobile and apps how far along is that business in development? And I guess what has been the response from clients thus far? And then will the workforce rationalization impact the timeline in terms of rolling out header bidding solutions to video? Thanks.

Sure. Brian, hey, this is Greg Raifman. Excuse me. Good question on header bidding. To start with, we don't see – let me start with your second question first, we're not seeing or we don't expect to see any slowdown in our development of header bidding because of the cost reduction actions we took today. They were more targeted or I should say focused on G&A generally and sales and marketing and not as focused on product and engineering. Getting back to it, as we talked about in our scripts at length, I just want to highlight again that our process moving forward in header bidding development has taken a little bit of time. We've seen a lot of really good improvements over the last quarter or two, especially in the desktop arena where it's been most acute, but also in the mobile web area to begin with. And where we've seen improvement is higher CPMs for our customers, which is a win for them. We've also seen higher win rates in the auctions that we participate, which is great. But we realize that we have more work to do because, as you all know, we came out of a very dominant position in the waterfall environment, pre-header bidding. And a lot of our systems were optimized for that environment. And so, what we've done over the last couple of quarters and we intend to do for the rest of this year is to really take the opportunity to put our header bidding product FastLane into market with a better and more optimized system and solutions for the header bidding environment, not only desktop, but also in mobile web, mobile apps. So, that's really been our focus for the last couple of quarters. And we don't see it impacting the video environment at this point in time.

Great. Thanks, Greg.

Our next question will come from Jason Helfstein of Oppenheimer. Please go ahead.

Hey, this is Alec filling in for Jason. Thanks for taking the question. So, what is the difference in net revenue for $1 spent in FastLane versus the legacy sell-side platform? And then I have a follow-up. Thanks.

Sure. There's not – this is David. There's not a significant difference in the activity that runs through FastLane versus our other RTB activity.

Okay. Thanks. And then one follow-up, if I could. Do we need to wait until FastLane is over 50% of spend to see an inflection of revenue growth for desktop?

This is Greg, again. Good question. As we pointed out, FastLane is our header bidder product that is gaining share month-over-month-over-month. And we have said that as of the end of October, it was in the vicinity of 15% to 16%. So, we're not anticipating it'd be over 50% anytime soon or in the next couple of quarters. We actually see it growing towards about 20% through the end of this year and then beyond it. And one thing I think it's important to note is that notwithstanding all the attention we've seen in header bidding over the last year that in fact still the majority of all impressions delivered in programmatic environment are still done in the waterfall, in fact, probably 80% compared to 20% overall. So, we don't see us being at 50-plus percent in the next couple quarters.

Okay. That's very helpful. Thank you.

Our next question will come from...

Oh, oh, one last thing to point out, just I do want to point out just to make sure we understand. We are – I didn't mention it but our FastLane product is in mobile in apps. So, not only mobile web, but mobile in apps. And our video header bidding product went live in Q4 or...

Okay, very helpful. Thank you.

...this quarter.

And our next question will come from Andrew Bruckner of RBC. Please go ahead.

Thank you. I'm wondering, if you can just elaborate a little bit on the softness you're seeing on the advertising side? Is it all specific to programmatic? Are there specific verticals that are pulling back? And any reasons that you think might be there? Thank you.

Sure. So, there's a number of factors here, header bidding being one of them. We've talked about just a general slowdown in the desktop display market. It's a particularly interesting year given the election. I think there's a lot of speculation as to what kind of impact that has. We're also looking at Brexit. So, there's a combination of things that just really create a lot of noise in the forecasting that make it really sort of difficult to figure out what the impacts are and what those trends will look like in the short-term.

We'll move on to our next question. Our next question will come from Kerry Rice of Needham. Please go ahead. Kerry Rice - Needham & Co. LLC: Thank you. Just a few more questions on the header bidding. I think last quarter you had indicated that you thought it would kind of take through the back half of 2016 before you'd start to see maybe the inflection point in header bidding on the desktop for Rubicon. Do you still feel that way? It sounded a little bit like maybe that had been pushed out somewhat into another quarter. And then, when you talk about win rates, can you shed a little bit more light on what you do to have those wins in header bidding, so that you can gain more market share versus the solutions out there? And then, one additional question on Chango. I think last quarter you had also talked about some challenges or some headwinds there due to a focus on self-service platforms within the industry and maybe you can give us an update on your work on Chango towards self-service? Thank you.

Sure, Kerry. So, our timeline for header bidding is still very much intact. We've made incredible progress there, as Greg talked about in his part of the script. We've built a product, I should say, a feature set. And just to be clear, this is a feature set. This is not an entirely new platform or new product. It's an extension of our existing feature sets, just like mobile, video, and orders are. And so we built this, took it to market, we brought it to market, got over 200 implementations and we did that very, very quickly. And I think that speaks to the strength of our customer base and the position that we have in the market. Now what we're talking about is tuning. We're very much focused right now on tuning that implementation, making sure that it runs fast, making sure that the algorithms are tuned, making sure that the pricing for that product is correct in all the markets that we serve. And that tuning cycle takes a little bit of time. But I'd say the heavy lifting of getting the feature set built and taking it to market has been done. And now we've got to go to optimize the revenue. With that said, what's more important to us at this point in time is that we want to get the implementations. Given that we are a marketplace business, we want to go build up scale on one side of the marketplace or the other because typically when we do that the revenue follows, just like other marketplace businesses. It's a same strategy that we take with real-time bidding when we rolled it out, same strategy that we rolled out with mobile that's now turning into us being a top three exchange in just a…

Yes, that is a fair statement for sure. I think our sell-side position is the strongest position. It's something that we've been able to continue to build on. You look, again, we launch a mobile business, a mobile feature set into the market. In just a couple of years that's a $300 million advertising spend business. We launched video into the market. As we said last quarter, we're expecting that to be $100 million advertising spend business in 2017. We launch orders into the market. In just a couple of years, that's a $225 million approximately 2016 business. And now we're looking at header bidding as another growth driver for us. Us being able to leverage that sell-side position and grow is our strongest asset right now. And I think new opportunities have emerged that enable us to leverage that. Kerry Rice - Needham & Co. LLC: Okay. Thank you very much.

Our next question will come from Brett Huff of Stephens. Please go ahead.

Good afternoon. Thanks for taking my questions. One is just a follow-up on the question I think it was asked before, but not sure you guys got to it. Can you talk a little bit more about how the conversations go that you're having with your clients you're trying to win back some of the market share as you install and trying to sell your header bidding solution, what is the driver of that? Is it pricing? Is it functionality? Is it speed in the browser? That's one question. And the second, can you talk a little bit more about muscle versus fat in the $30 million that you're cutting and what you were worried about maybe cutting too much or where kind of where those priorities were? Thank you.

Of course. Greg here. So let's start by saying to begin with we haven't lost any clients to-date, and I think that's important to recognize. Where we saw some impression leakage in earlier of this year, we are now working pretty actively to regain it. And as a consequence what we have been doing is trying to redo our header bidding product to be more elegant, to be faster, to be simpler, to be more effective in the header bidding environment as compared to the waterfall environment. So, a lot of conversations with clients have to do with a combination of things. Of course, what is our pricing with respect to it. And we analyze our pricing all the time. We want to maximize the return that we have for our customers, at the same time, maximizing the opportunity for Rubicon Project. So, from one perspective, we've been focused on spending the last couple of quarters to really retool our products to be the most effective possible. And the preliminary results are very promising. As I mentioned, we're seeing higher CPMs because of the results of our effort. Number two is we're seeing greater win rates and that's because we're now starting to, as Frank talked about, tune it better. We have a lot of plans for that through the course of this or rest of this year. So, we really do think that we will see better results from our header bidding product starting in Q1 and Q2 of next year. And we remain very optimistic there. So, our clients are very pleased. As Frank mentioned, our business in header bidding has grown very rapidly over the last couple of quarters to the point that it's a business unto itself. I mean, we can get the actual numbers for you, but I think we generated over $80 million in advertising spend already this year in just header bidding, as compared to the waterfall, which is done in basically two quarters and catching up with a lot of the companies that have been working on it for several years. So with that, let me turn it over to Frank, who'll give you more details on the restructuring and cost reduction efforts that we did today.

Yeah. Hi, Brett. So, muscle versus fat is a good question. So, I just want to make it clear, we are not cutting anything that would prohibit us from growing. We do see a lot of growth opportunity in the business, as I just described. And also, I want to be clear that our cost-cutting measures here are offensive, not defensive. A number of things have evolved in the market, some which have created some headwinds that we've talked about and some that create new opportunities for us. So, let me kind to break down the fat versus muscle. So meaning, where do we see some of these cuts? So, one is what I would consider to be education. For 10 years now, we've been trying to educate the market on the benefits of automation in programmatic and mobile advertising and orders and things like native. So, there's been a lot of upfront educational efforts. And when a company is in growth mode, you typically want to do that to get as many people on your platform as fast as you can. The story that I've told at our team here is it's kind of like the Facebook commercial where they're talking about launching solar planes because they're trying to get more people online. We've invested a lot in education trying to get people really to embrace programmatic and automation. The second is start-up costs for mobile, video, and orders. Again, we've made a lot of these investments. We did them concurrently. There's more startup costs upfront in advance of revenue like we've talked about, but we don't have to continue to invest at the same levels once we see scale in those markets. And we feel like in some of those markets we're at scale and some we're very,…

Great. Thank you.

Our next question will come from Matthew Thornton of SunTrust. Please go ahead.

Yeah. Hey, guys, thanks for taking the question. Couple, if I could. I guess first one just a modeling question. If I look at the guidance, it seems to imply that your expense base will be up fairly significantly sequentially, yet obviously you're executing kind of cost reduction strategies. So I'm trying to see if there's anything that I'm missing there? And then secondly, I guess, just in terms of what inning we're in terms of maybe bigger picture and this is probably for Frank or Greg, when we think about header bidding, what inning are we in as it relates to U.S. desktop, mobile, including in-app, as well as international, which is probably in an earlier inning? Maybe any sense as to where we are? And then, I guess, the combat to header bidding, I know you guys were involved in the Google kind of First Look program. I'd love to get your thoughts on just how that's progressing and how you see that as compared to header bidding as a solution in general? Thanks, guys.

Great. Thanks. So, on the first question about costs, we have put in some significant cost-saving measures. There are a few costs related to some of our OpEx related costs, related to our data center build-out that are shifting a bit from Q3 to Q4, so there's a little bit of noise from that perspective. And then there are a few costs related to some of the normal year-end types of activities, audit and other types of things. But there's no significant foundational shift.

Matthew, Greg here. Let me answer your last two questions. First of all, Google First Look program is progressing. It's very early days for that. We're a willing participant. Google has been quite a good partner of ours, and we're happy to accommodate them in this. Anything that will enhance the users' experience or the consumers' experience, we're obviously on board for that, so we're working with them to integrate effectively, but there's a lot more to come on that later. With respect to header bidding, and what inning are we in? I'd have to say we're still in the early innings. There's so much more work to be done as an industry here. There's a lot of cost that has been generated as a result of header bidding, there's been waste. There's a lot of inefficiency. There's a lot of good that's come out of it, but also a lot of waste, which is why we initially had trepidations about the industry moving so quickly because it's not quite as efficient and elegant as the server side solutions that we have been proposing to-date. There's more to come in the mobile arena that we haven't really seen to-date that we're working on. And keep in mind, it's still a North America phenomenon and 80% of the revenues are still outside of header bidding. So, it's really unclear as to the direction this will go long-term. But we, of course, will be eager to participate in it because if our customers are seeking this kind of capability, we're going to provide it for them. Let me turn it back over to you guys because we're kind of running out of time, we want to make sure we get through all the questions.

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

Hey, guys. Thanks a lot for taking my questions. Just wondering if you can talk a little bit about the utilization of FastLane in Q3? So, you talked about 200 new implementations in the quarter. I think that'll continue to scale as you move forward. But as you're making tweaks to that platform, I'm just trying to understand if we saw the full benefit from those 200 implementations in Q3? Or if we'll continue to see incremental benefits as we move into Q4 in 2017?

We absolutely have not seen the full benefit of it. In fact, we're not close to seeing the full benefit of FastLane to-date. And you'll be hearing more about that over the course of the next couple of quarters.

Okay. And then on take rates, if you can give any qualitative thoughts on take rates? I was a little surprised to see the increase in orders in the quarter, which would typically drive a lower take rate. But we saw take rates higher than I was expecting, a little bit higher year-over-year. And so, maybe you can run through by segment what take rates look like?

Yeah, sure, Jason. So, look, we've guided that take rates will come down over time. I think we're starting to see some of that in our reported financials. And we think that will continue to be the case going forward. Look, we operate a lot more of a complex business than we did a couple of years ago, many products in many different markets. And they all have varying take rates. So we don't break out our take rates by individual products. But I think overall you can expect that take rates will continue to come down over time. And I think we're efficiently positioned to do that.

Hi, It's David. I'll just add one comment. The other dynamic that's going on is our static bidding business has been decreasing and we terminated that business in the third quarter and that does have similar take rates to our orders business. So part of the increase that you see in the orders business, offset by the lowered static bidding portion.

Thanks, David.

Our next question will come from Mark Kelley of Citigroup. Please go ahead.

Hi, guys. Thanks for taking my question, just a quick one. You brought up a lot of smaller competitors that are maybe solely focused on header bidding. Are you seeing more competitors into the market? Or has that been pretty stable? And then, I guess at what point do you think scale really matters and starts to hinder some of these smaller players where maybe the barriers to entry get a little bit higher for just the header bidding focused guys? Thanks.

Yep, Mark, yeah, I think it's been pretty stable. Again, while there are hundreds of ad-tech companies out there, there's really just a handful of exchanges or SSPs or header bidders, whatever you want to call them. Scale does matter, and I think you're starting to see that scale matter with us right now. I mean, for us to go and build this feature set, take it to market, get 200-plus integrations so quickly, I think that scale really does matter. And that's on the sell-side, by the way. On the buy-side, there's global demand, all these DSPs that you want to be able to connect to. The inventory quality and safety of the marketplace, all of those things are real major factors. So just like we've seen in these other markets that we've entered, mobile, international markets, orders, the scale helps us to take these things to market and do so very competitively. And then start to build moats around what we do.

All right. Thank you.

Our next question will come from Lee Krowl of B. Riley. Please go ahead. Lee Krowl - B. Riley & Co. LLC: Thanks, guys, for taking my questions, two really quick. Just I'm curious if you guys saw any impact in the quarter from ad blocking software? And then also just looking at the stock price and a very cash-rich balance sheet, just any thought strategically, particularly as it relates to any tuck-in M&A to increase technology robustness? Or just allot share repurchases? Thanks.

Yeah, sure, so look, ad blocking has been something that's top of mind for us as really an opportunity. We are not seeing any meaningful impact on the business from ad blocking today that we can see. However, if you look at the consumer experience, what consumers are saying, they basically have one of two choices, it's either to see all ads or block all ads. And Rubicon Project given the position that we're in where we reach and touch a billion consumers across more than 50% of their Internet experience, we think that there's a better way that best serves the buyers of advertising, the sellers of advertising and the consumers. In terms of M&A, look, this is a company that has been acquisitive both as a private company and as a public company. We've done seven deals. So, we're constantly looking at ways that we can advance our product roadmap, add to our technology. If we can more quickly accelerate share to build up one side of our marketplace or the other, so we can accelerate and fuel some of those marketplace network effects, we certainly want to look at those. We recognize that we've got a significant cash balance and, if and when there are the right opportunities to put that to work, we will. But with that said the bar for us is very high. There's a big difference between spending a balance sheet and investing in it. And we want to make sure that the things that we do exhibit excellence in engineering, have a really high-quality team, or a very high-quality offering, and things that we think are sustainable over the long-term.

Our next question will come from Rich Tullo of Albert Fried & Company. Please go ahead. Rich R. Tullo - Albert Fried & Co. LLC: Thanks. Thank you very much for taking my question. This is kind of a little 40,000 feet in the air kind of a question. What are you doing culture-wise to ensure that RUBI has the bandwidth to predict and address point of disruption? It seems like things are constantly changing. The big telco mergers and acquisitions may mean more change is on the way. And then change is going to be fast and radical rather than slow and evolutionary. So, what are you doing to prepare for the next header bidding that's on the horizon because there's always going to be something I think in this industry?

Hey, look, I think that's absolutely fair. 10 years ago when we started the company, the only competitors that we had were Google, Yahoo, Microsoft, AOL, very, very large dot giants. So from day one, we've been in a market that's highly competitive. And the way that we've been able to compete in that market, gain share and sustain the business has been to really innovate and use that agility to be able to innovate ahead of the large companies in the space. Built upon marketplace network effects, marketplace businesses are very difficult to displace, and even us while we've seen some of the shorter-term headwinds, I think you're seeing pretty rapid response to that in terms of our implementations with header bidding. And then the third is data, right. Our algorithms now have over – almost 10 years of data. So our algorithms know what happens to supply and demand curves when there's an election. They know what happens when 4th of July falls on a Tuesday versus a Saturday. They understand when there are major sporting events. They understand the different trends overall. And that's what's enabled our platform to compete and win and perform in the market overall. So we want to continue to fuel all three of those things: innovation, marketplace network effects, and the data which is the lifeblood that makes our algorithms work and perform. You mentioned culture and I think that's a wonderful question. We've traditionally invested heavily in products and making sure that we solve the markets problems through products. We went through a period of time, appropriately so, where we invested more. After our IPO in sales and marketing, which a lot of that equates to the education costs that I mentioned before. In this markets it's now, you continue to move faster towards a market which is a machine-driven market, making machines making decisions versus the sort of the old world people-driven martini-lunch decision-making. That's where we're best positioned. And I think we feel better competing in that type of market than we do in the type of market where you've got to invest in a lot of these educational costs and wining and dining customers.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you, everyone, for joining us today. We look forward to talking to you throughout the fourth quarter and updating you again on our fourth quarter and year-end conference call sometime in early February.

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