Good day, and welcome to the Rubicon Project First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nick Kormeluk, of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Rubicon Project's first quarter 2020 earnings conference call following our merger with Telaria. Since Telaria merger closed subsequent to the close of the first quarter, full financial results and our 10-Q will be presented on Rubicon Project standalone basis and we will provide summary results and commentary for Telaria’s first quarter performance. On this call, we will provide commentary on combined business trends following the impact of COVID-19 and actions we are taking to adjust. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, CEO; David Day, our CFO; and Mark Zagorski, President and COO for the Q&A session all from different locations. I would like to point out that we have posted our financial highlight slides to our Investor Relations website to accompany today's presentation. Before we get started, I will remind you that our prepared remarks and answers to questions will include information that might be considered to be forward-looking statements, including, but not limited to statements concerning our anticipated financial performance and strategic objectives, including the potential impacts of the COVID-19 pandemic on our business. These statements are not guarantees of future performance. They reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements including with respect to the severity and duration of the COVID-19 pandemic. A discussion of these and other risks, uncertainties and assumptions is set forth in the company's periodic reports filed with the SEC, including our 2019 Annual Report on Form 10-K and subsequent filings and including our 10-Q for the first quarter of 2020. We undertake no obligation to update forward-looking statements or relevant risks. Our commentary today 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 and in the financial highlights deck that is posted on our Investor Relations website. We define cash flow as adjusted EBITDA less capital expenditures, which excludes changes in working capital. 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 on the future of these metrics. I encourage you to visit our Investor Relations website to access our press release, financial highlights deck, periodic SEC reports, and webcast replay of today's call to learn more about Rubicon Project. I will now turn the call over to you Michael. Please go ahead.

Thank you, Nick. The world's health behaviors, the global economy, advertising and more specific to us the digital programmatic advertising market have all changed quite significantly since our last earnings call, which was just 10 weeks ago. On the one hand, we are thrilled with the completion of our merger with Telaria, which is transformative for our combined future. On the other hand, it seems a bit trivial to be presenting our financial results at a time when the world is squarely focused on fighting this pandemic in dealing with the many lives that have been so severely impacted. Operating safely now, and returning to normal business operations is a goal we all share, and we take our job to best manage through this turbulent times for shareholders, employees, and customers very seriously. So, how have we been affected and responding? We officially closed the majority of our offices in conjunction with the California New York orders on Friday, March 20 and some sooner like Milan and Tokyo, and we strongly encourage working from home even before then, across all of our global offices. We continue to operate and perform at a high level with minimal disruptions, as our teams have always been very adept at working while traveling and from home. We first noticed an impact on spending revenue in mid-March. Prior to mid-March, we were tracking within the range of our revenue guidance for Q1. The impact continued to worsen through the first half of April, before showing signs of stabilizing in the second half, with total April revenue down roughly 30% year-over-year. As a result, we increased our previously announced synergy cost reduction targets of 15 million to 20 million to now exceed 20 million in cost reductions. We have also taken additional short-term actions to lower…

Thanks, Michael. We had very solid results for Q1 considering the revenue drop-off we experienced in the second half of March. On a standalone basis, Rubicon Project delivered $36.3 million in revenue, a 12% increase year-over-year. I believe it's helpful to note that we were tracking in-line with our guidance prior to the impact of COVID-19. We delivered adjusted EBITDA of $2.8 million for a margin of 8% in Q1 2020 as compared to approximately breakeven adjusted EBITDA in Q1 2019. The Q1 year-over-year increase in revenue was driven by 22% mobile growth and continued strength in audio. Desktop revenue was flat year-over-year. Operating expenses, which in our case includes cost of revenue, for the first quarter of 2020 were $47 million versus $45.7 million in the same period a year ago, driven primarily by one-time merger-related costs. On an adjusted EBITDA basis, operating expenses, including cost of revenue, for the first quarter were $33.5 million as compared to $33.2 million in Q4 2019 and as compared to the $32.5 million in Q1 2019. This was also below the 35 million in total adjusted EBITDA operating expenses we expected. We continue to benefit from the traffic shaping, filtering, and general efficiency gains we discussed in the past. As a result, our gross margin for the first quarter was 61%, up from 53% in the same period a year ago. We believe these tools are crucial differentiators for us in managing infrastructure costs as we have seen a large increase in ad requests. In April, we experienced a surge of ad requests representing a year-over-year increase of over 50%. One-time deal related costs in Q1 were approximately $2 million and are excluded from adjusted EBITDA. Net loss was $9.7 million in the first quarter of 2020 as compared to a net…

[Operator Instructions] The first question comes from Jason Kreyer of Craig-Hallum. Please go ahead.

Hi guys, good afternoon. Hope everybody is well and quarantining? Wanted to assess Michael – Michael wanted to ask you – just maybe you can walk through what the environment has looked like over the last eight weeks kind of on a media type or a channel basis? You gave commentary on CTV, it sounds like that's been a little bit more resilient, but perhaps you can provide some qualitative remarks on, you know, the differences between display and audio and video in different types.

Yes, hi, Jason. Yeah, great question. And, you know, I think that we've seen, you know, channels that were growing – media type channels that were growing faster than, you know, channels like say for instance desktop display performed slightly better in this environment, just given the rate of growth that they had coming into it, and the popularity from advertisers, but it's safe to say that with the lighten ad load in the decrease in whole categories of advertising that no one channel [immediately immune] from just decline and spend, including CTV, but as we said, it's a bright spot. It's still growing, certainly not at the 74% range that it was in Q1, but we anticipated to continue to grow, which is a real outlier.

Okay, thanks. And Michael, I wanted to get your perspective on Connected TV, you know, this is kind of the first public forum since the merger was completed. So, you know, perhaps you can give like the Rubicon perspective on where you see Connected TV going, and then what Rubicon needs to do to get there, you know, above and beyond the assets you've acquired with Telaria?

Jason, unbeknownst to you, we have a special guest person on the Q&A, which is Mark Zagorski. So, we have the expert online to answer any specific question. I'll give the Rubicon flavor then Mark can chime in. So, here's what's super exciting for me about and we're getting fast up to speed on understanding CTV, as well as the Telaria team has, but the good news is that team remains intact. They are key assets for the new company and they have hit the ground running and theirs is excited as we are to be able to come as this omni-channel offering. So, if you looked at our customer sets, you have the peer CTV players, and so what can Rubicon bring to that? Well, I think it can bring added investment in, you know, technology, it can bring added sales resources, but more importantly, you know, we've lived through this header bidding war for the last several years, and I'm not intimidating at all that CTV is going in the way of header bidding, but there will be unified demand solutions that will come to market and I think we're really well-positioned as a company with our experience in the header, coupled with Telaria’s long-time experience in CTV. And lastly, you know, for companies like Disney and you know, entertainment companies that have multiple media properties that do everything from banner ads to, you know, CTV to audio, being able to be that one stop shop for them, that's independent, global scaled. That's where we see a ton of excitement. Mark, do you want to expand on anything?

Sure, I think I think Michael nailed the key points. I'll just kind of, Jason, talk from two aspects, the first being the macro-economic environment and then micro how it relates to us. I think from a macro perspective on the CTV front, you know, we are – I think we’re heading into a [watershed moment] for the future of CTV and specifically based on some of the things that Michael mentioned in his script, which is: A, you’ve got the dynamics on the consumer side changing rapidly, which is cord-cutting is accelerating, which we're seeing across the board, but also consumer habits around watching AVOD and ad supported CTV, have just accelerated. And we've known that, we see that in the statistics. And I think what we're doing is, we're creating habits on the consumer side that are going to be hard to break when we come out on the other side of this, you know, of the COVID issue. On the buyer’s side, we've also seen things like cancellation of up fronts and increases in direct-to-consumer spending and increases in performance metrics that are needed for advertising and particularly around television and CTV spending. Those two things come together bode well for the CTV business, you know, in general, and just saying some of the things that we've seen in the past are just getting accelerated by the current environment. Micro basis for us is a company. You know, I think you know, Michael really said it all, which is the fact that as the companies that we work with work through streamline and cut cost and have less partners versus more. There's really very few options for them to do so across multiple platforms, desktop, mobile, display, audio, CTV, and you know, where that that option. And then secondly, as there are drivers towards efficiencies in the CTV space, so moving towards unified options, or more streamlined option, the capabilities that Rubicon has worked in the last several years with pre-bid and with the, you know, the solutions they've built, are going to lend themselves well to the CTV platform that that we previously had built at Telaria. So, you know, look, there are lots of things to get through, but I think if you look at the macro trends and where we're seeing from a micro perspective, both from a build and any position, strategic position, those are good things. And I think they're things to look forward to.

Great. Mark, good to hear your voice again. Last one for me, just on demand manager. Can you comment anything specifically on what you're hearing from customers that are adopting the platform in this environment? I mean, it would seem to be this as a great opportunity for buy versus build where you can essentially bring in an outside solution that requires less headcount, and comes at a cost that would be much lower than that headcount and I'm wondering if you're getting that kind of feedback from publishers, or is it just something that publishers can't focus on right now given you know, the volatile economic backdrop?

No, I think you hit the nail on the head with that description. You know, we've always said with demand manager, our biggest competition is pre-bid right, and open source software is free, and it's open source, but it requires quite a bit of capabilities to run it effectively into maximize your monetization. And unfortunately, that usually means people, in house engineers, building special tools, etc. So, yeah, we think it's a wonderful backdrop and we are hearing in-bound from our clients who not too long ago said, no we're covered. We got the solution in-house that are reaching out and really kicking it higher. So, yeah, we think it's an opportunity for demand manager to achieve all the things that you laid out when you said in your opening.

Alright, thanks a lot guys. Stay healthy.

Thanks Jason.

The next question comes from Lee Krowl of B. Riley FBR. Please go ahead.

Thanks for taking my questions, guys and hope all as well. One of the things to start off, on a point of clarification around guidance, you guys said that, you were modeling the numbers you provided based on the observed trend, quarter-to-date. Is the quarter-to-date trend down 30%? Is that the right assumption that drives that guidance?

Yes, so our April on a weighted average basis was 30% down. The trend that we saw in April was some degradation over the first half of the month, and then a stabilization in the latter half of the month, and so that guidance is based on you know, just, you know, a few percentage points higher than that 30%, but that's correct. We've seen stabilization and that's the visibility that we have. And so our guidance’s is based on that observed trend that we have so far.

Got it. And then you kind of provided some detail across inventory types, maybe come at it from a different angle, but, you know, it looks like domestically revenue growth was pretty solid while international was flat year-over-year, any additional color on the dynamics of domestic versus international?

Yeah, I can take some of that, and then Michael if you want to [indiscernible]. You know, last fall, we talked about the impact of a couple of things; one, some inventory, low value inventory calling that we undertook, and also a move to cut out our resellers. And so the industry is focused on limiting, you know the number of hops at any given ad slot takes in the ecosystem. And those impacts disproportionately impacted our international business versus our domestic business and so I think that was one of the primary drivers.

Got it. And then, you know, just based on kind of your enthusiasm around demand manager and the stated interest and contracted interest versus last quarter’s update, you know, fully appreciating the macro backdrop is what it is, but is there a chance you guys could provide maybe an update to the $5 million expectations for the year? You know, assuming that it's more transactional based, and you know, we've seen a significant increase in total volumes of impressions, would that lend itself to perhaps track higher than that $5 million initial guide?

I think it's too early to really weigh in on that because it is ad spend based, you have, you know, very definitive drop in our revenue, because of that current environment, and so, you know, there'll be – there'll be puts and takes with just the lower revenue from the current, you know base, although we do think there could be an acceleration or an increase in perhaps expected installs, but it's really tough to try to, you know, figure out how those are going to balance out with each other.

Lee, in terms of the pricing model, because it's a relatively new product, we went to market with several pricing models. It seems like the model that publishers are most comfortable with is that share of spend model and although many have asked for more of a SaaS like pricing and you can imagine in this environment to go from the cost – to go over to the cost ledger is a tough journey for any vendor and so I think that that model the shared media will probably stay the course for the vast majority of our clients this year, so we're quite exposed to ad spend in that instance there.

Got it? That makes sense. Thanks for taking my questions, guys.

Thanks Lee.

Thanks Lee. The next question comes from Matthew Thornton of SunTrust. Please go ahead.

Hey guys, good afternoon. Hope all is well. This is Anthony Duplisea on for Matt Thornton. Thanks for taking the question. So, you already…

Hi, Anthony.

Hi. You acknowledged this a little bit earlier and you know, it is still early on in the merger, but are there any early wins in the marketplace that would provide proof points for Rubicon and Telaria coming together maybe relating to how you're sharing with buyers as they pursue supply path optimization or maybe cross selling successes that you're seeing so far with clients or anything else specifically that you want to highlight?

Yeah, I mean, you're – this is Michael, Anthony. Good question and it’s certainly, you know, pretty early as deal closed [indiscernible] so we really couldn't even go to market until that point, right? But and then there's also the uncertainty right? We didn't know if we were going to be at the offices for a month, for three weeks, so there was a tendency at that point to say, hey, out of the gates let's just stay focused as two separate companies because working from home after the merger is completed. Boy, that's a lot to chew off, but very quickly as we realized that this was going to be the new norm for quite some time, particularly for folks based in New York and Los Angeles and London and Milan and Tokyo that we said okay, let's accelerate it, let's [indiscernible] teams. We had already on day one classed the buy-side team, so that team is able to talk to agencies as one company and we quickly classed the sell-side teams. So, I'm just amazed, given this environment in the, you know, the challenges of working remotely, how quickly we've been able to engage with clients that have some real subjective conversation. So, so the energy is there, the interest is there, and I would just say look towards the future quarterly calls for proof points and examples that we’ll share with you.

That's very helpful. Thanks, guys.

The next question comes from Kyle Evans of Stephens. Please go ahead.

Hi, thanks for taking my questions. I will lead out with one you guys have talked on in the past, and I'm sure, by the time we get closer to the end of the two years that Chrome gave us, you'll be thoroughly sick of talking about it, but any update on kind of what you're seeing in the privacy sandbox in terms of replacing the targeting and tracking that's in jeopardy because of the deprecation from Chrome? And then I’ve got some follow ups.

Yeah, so no real substantive updates per se. One of the well timed events we've ever had was we were able to squeeze in before the pandemic really reared its head. We were able to squeeze in a customer conference and be able to include the Senior Telaria folks and their customers. And it was a full day of talking about how pre-bid could help in that respect. How can pre-bid help publishers with their first party data and help? How can it sync it to the buyer’s identifiers and a ton of promising discussions, a ton of promising energy came out of it, it’s one of many legitimate efforts that are out there. It's the only one that I kind of think is truly a universal solution, as opposed to proprietary solutions, but the industry is hard at work and unfortunately, there's no silver bullet that we can report upon. That's going to be the cure of for the third party cookie world. Obviously, [it warrants mentioning] that because of over 50% of our business is mobile app; we've been working without cookies for a long time. And you talked to Mark and their team in the CTV world, there's never been a cookie. So, we're quite used to working in a range in media between buyers and sellers without cookies, but unfortunately, Kyle, nothing too earth shattering to report in terms of our efforts to come up with a unified solution.

Well, we still all have some time here. So, we'll figure it out.

Yeah, we do.

Maybe an update on the competitive landscape, I'm interested to know kind of how, how SPO has been accelerated because of the pandemic economic downturn?

Yeah, I mean, you know, it's hard to say we've seen it when you're saying that you're trending to 30% down right? But hey, maybe that 30 could have been 50, there is no question that most of the costs that I am involved with from our buy-side partners and our sell-side publisher partners is all about stability. It's all about balance sheet. It's all about, you know, my seller and I've been burned previously on the sequential liability when the size maker, when [indiscernible] went bankrupt, how am I getting protected by you against this, and you know, obviously we walk them through our strict protocols and how we manage our receivables. And, you know, to date they've been very satisfied with our answers, very satisfied with us as one of their lead partners. And likewise with buyers and so, you know, I really do think it's a [fight] to quality and a time like this. And obviously the biggest guy we got we compete against in that is a Google, but I think that if you look at independent players, no one looks quite like us from a balance sheet standpoint, its ability, access to capital, and somebody's been there for publishers for as long as we have. So, I feel really good about where we sit in this whole piece of the SPO puzzle, but a puzzle nonetheless, right.

Last one, well, maybe my last one, but the – any kind of distinct differences in terms of the unit volume unit pricing trends across desktop, mobile, audio, CTV I mean, obviously CTV is faring better, but 75% to 10%, which I think what you said, is still a pretty sharp trend down, just curious as to what you're seeing on sell-through and rates?

Sure. So, you're talking about on the revenue side, right. So from a pricing perspective.

Yes.

So, yeah, so, and I think it's been pretty widely reported in the press. So, you saw, you know very significant drops in CPMs really across the board because, you know, it makes sense. You've got an increase in supply, you know, in CTV and really through every channel and you've got lower demand. And so those, those CPMs have dropped, but, you know, the volume of paid impressions, you know, compensates, you know, partially for that CPM drop. So, that's the dynamic that we've seen. I don't know, Michael if you want to add anything to that?

No. Mark, do you have any specifics that you have on the CTV side that you want to share?

Yeah, look, I think on the CTV side, what's interesting is that, although we've seen some compression of [indiscernible]; we also are seeing that as an opportunity for new advertisers to come into the space. Right? So, as we noted in the script, we're seeing an increase in direct-to-consumer and performance advertisers, who really never had an opportunity to get in. I think this could be again, another pivotal moment where we've opened an entire category of advertising to a new vector of advertisers. So, you know, again, lots of things in flux, but because of that, we've seen some, you know, green shoots and you know, different things pop up out of the place.

And I think this is maybe related to the question I just asked, but you, somebody alluded to kind of a 50% increase in ad request, I want to make sure that I understand exactly what's driving that dynamic, please?

I'll jump in from the CTV side. Sorry, David, do you want to…

Go for it, Mark. Go ahead.

Yeah, no, we've seen, I think there's two main factors. The first is a massive increase in viewership that's happened on ad support television. It's in that, you know, companies like Pluto and Tubi who have, you know, published – they’ve seen viewership levels go through the roof during the pandemic, not just because of what's going on because the stay-at-home orders, but also because if you remember, you know, Tubi was recently acquired by Fox, and they have moved very quickly to move Fox programming onto Tubi. So, not only through AVOD, but also doing some things around, you know newer shows like Masked Singer and other content moving to Tubi. Pluto continues to expand its amount of content that has been, you know, licensed from the Viacom catalog onto the system. So, you've got, you know, more people at home watching more AVOD because of cord-cutting, but you also have more content coming across there. That has created, you know, an interesting dynamic on the advertiser side that is created, you know, more veils, there's just more veils because there's more people watching. That being said, there's also you know, you know, pullbacks in how much has been sold directly, right? So, if you have those two factors, which is: A, more content, more viewing; and B, less being sold directly, because the sales forces are just, not going to [field] and not able to delivery. It’s created an increase in number of total veils that we see coming through the CTV part of our system.

Got it.

Yeah, I think that's very similar for all of the media type seasons have that – a huge surge in viewership, [user ship], and then a decrease in direct sold, resulting in a lot of publishers reaching out to us to see if we can fill an [ad veil].

I get it. Thanks, guys.

Thank you, Kyle.

As there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Michael Barrett for any closing remarks.

Thank you. We're pleased to deliver these Q1 results and share with you how we view the current market. Despite the challenges facing us, we remain very excited about the future long-term growth prospects of our business, especially CTV. We look forward to talking to many of you through virtual investor conferences in May, hosted by Craig-Hallum and Needham. Thank you again for joining us for our Q1 results call. Have a good evening and please stay safe and well.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.