The Rubicon Project (RUBI) Frank Addante on Q4 2015 Results - Earnings Call Transcript

| About: The Rubicon (RUBI)

The Rubicon Project, Inc. (NYSE:RUBI)

Q4 2015 Earnings Call

February 23, 2016 4:30 pm ET

Executives

Erik Randerson - Vice President-Investor Relations

Frank Addante - CEO and Founder

Gregory R. Raifman - President & Director

Todd L. Tappin - Chief Operating Officer / Chief Financial Officer

Sameet Sinha - Analyst, B. Riley & Co. LLC

Analysts

Kerry Rice - Needham & Co. LLC

Rohit Kulkarni - RBC Capital Markets LLC

Jason Helfstein - Oppenheimer & Co., Inc. (Broker)

Debra Robin Schwartz - Goldman Sachs & Co.

Brian Nowak - Morgan Stanley & Co. LLC

Brian J. Pitz - Jefferies LLC

Operator

Good afternoon, everyone, and welcome to The Rubicon Project Q4 2015 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Erik Randerson, Vice President of Investor Relations. Sir, please go ahead.

Erik Randerson - Vice President-Investor Relations

Good afternoon, everyone, and welcome to Rubicon Project's 2015 fourth 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 Todd Tappin, Chief Operating Officer and Chief Financial Officer.

Before we get started, I'd 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 and in our buyer cloud operations.

Forward-looking statements involve risks, uncertainties and assumptions and actual results may differ significantly from the results suggested by forward-looking statements for various reasons, including without limitation, if such risks or uncertainties materialize or assumptions prove to be inaccurate. Further, we may adjust our plans and expectations in response to market conditions or other factors. Reported results should not be considered as an indication of future performance. A discussion of these and other risks, uncertainties and assumptions is set forth in the company's Annual Report on Form 10-K for the year ended December 31, 2014, and our 2015 10-K to be filed shortly as well as our Quarterly Reports on 10-Q, including under the headings Risk Factors and Management Discussion and 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. Reconciliation between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release which we have posted to the investor relations website at investor.rubiconproject.com.

At times, in response 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 a final note, I would like to mention that in the Events & Presentations section of our investor relations website, we have included a Q4 financial highlights presentation that summarizes our financial and operating results. I would like to suggest that you access this presentation as Greg will speak to one of the slides included in the presentation during his prepared remarks in a few minutes.

With that, let me turn the call over to Frank.

Frank Addante - CEO and Founder

Thank you, Erik. And good afternoon, everyone. Q4 was an outstanding quarter for Rubicon Project, highlighted by non-GAAP net revenue doubling year-over-year and adjusted EBITDA nearly tripling year-over-year. And for the full year, we more than tripled our adjusted EBITDA and we achieved GAAP net income profitability, our first year of profitability as a public company.

Even more exciting, we surpassed $1 billion in managed revenue in 2015, achieving an ambitious goal that I set for the team two years ago at a time when we were generating less than $0.5 billion dollars in managed revenue annually.

We also significantly expanded the consumer reach of our platform in 2015 to approximately 1 billion people worldwide, including our fast growing base of mobile users. We achieved these important milestones, thanks to the efforts of our exceptionally talented team, who continue to enhance our business and position us as the industry's leading independent and complete solution that enables buyers and sellers to automate advertising.

And we're just getting started. There remains an opportunity to bring consumers and brands together in a more meaningful, productive and transparent way. And we are uniquely positioned to continue to drive strong growth for years to come, through our product innovations and competitive differentiation. Our standout success in a competitive and dynamically evolving market truly demonstrates the strength of our culture.

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

Gregory R. Raifman - President & Director

Thank you, Frank. To begin with I'd like to extend my congratulations to our team for delivering another quarter of outstanding results. We doubled our non-GAAP net revenue and achieved $20 million in GAAP net income in Q4, leading to our first full year of positive GAAP net income. We also surpassed $1 billion in total managed revenue for the full year and beat expectations consistently across the board. In sum, Q4 capped a stellar year of growth and innovation in 2015, and represented our eighth consecutive quarter of over-performance since the IPO.

Everyone on the call today is aware that our consistent strong performance comes at a time when many companies in our sector have struggled. Although the well chronicled challenges in ad tech have negatively impacted valuations for public companies in the space, it is important to understand that not all companies are created equal.

This afternoon, I will focus my remarks on the clear differentiation that positions Rubicon Project to deliver greater value for buyer and seller clients than any other company in our market space.

What makes us different? Simply put, we offer the complete solution that allows buyers and sellers of advertising to achieve more effective results in an automated environment. This point is significant. Our technology enables the world's most respected publishers and application developers to monetize their business, while also empowering buyers to target the exact audiences they seek through every major form of digital inventory, type of ad unit and channel and reach an audience of approximately 1 billion consumers globally. It is this capability that serves as our core competitive advantage.

We know that advertisers are seeking fewer partners with broader, more innovative capabilities. So although many fast follower point solutions with limited capabilities have struggled to differentiate themselves in a competitive market, Rubicon Project has developed a full-stack solution for buyers and sellers resulting in our highly differentiated value proposition. Despite this, we also continue to read and select media and financial reports that Rubicon Project is portrayed as either an SSP or just a display-only SSP.

We are not just an SSP, nor are we a display-only SSP and we have not been one for several years. In fact, today, our mobile exchange is the third largest in the world, surpassing $0.25 billion in managed revenue in 2015, and comprising nearly one-third of our total business in Q4. Furthermore, we also offer a comprehensive solution for the world's most premium buyers including brands, agencies, trading desks, and DSPs to access audiences at scale within our ever growing marketplace.

For many years, we have supported the world's leading buyers in our marketplace. Earlier this month, we expanded our partnerships with two of the largest advertising holding companies in the world; Publicis and IPG. Therefore, anyone who continues to refer to Rubicon Project as just an SSP, simply does not understand our company or our key business offerings. What also separates our business is our execution as illustrated in our consistently strong financial results quarter-after-quarter.

Our Q4 2015 financial highlights presentation available on our Investor Relations website includes a slide that clearly depicts the strength of our technology stack as well as our financial performance. I encourage everyone on today's call to review the earnings presentation while I discuss slide 11 of the presentation.

The top of slide 11 showcases the comparative capabilities of our platform based upon our assessment of publicly traded companies in the market. Only Rubicon Project, Google and Facebook offer strong capabilities as leading providers of mobile and desktop inventory. In fact, as I stated earlier, we manage the third largest mobile exchange in the world. And only Rubicon Project, Google and Facebook can support the buying and selling of every major type of digital ad unit.

Importantly as well, Rubicon Project is also consistently the only company ranked in the top tier of independent third-party quality rankings across international, mobile, in-app and desktop inventory. Recently, we were recognized as the number one marketplace for quality inventory internationally out of more than 100 companies. So from a technology perspective, reach, commitment to quality and capability to service all buyers and sellers across every type of inventory, Rubicon Project is strongly positioned for success as the industry accelerates its growth in 2016.

Moving now from technology and innovations to financial reporting, Rubicon Project's performance also shows strong differentiation in the market. The bottom of slide 11 illustrates the proof points in our financials, resulting directly from the capabilities that I just mentioned.

Rubicon Project is one of only two public companies in ad tech that have announced revenue growth greater than 50% in 2015. And Rubicon Project, Google, Facebook and Criteo are the only public companies in this space that have achieved positive net income for 2015, positive free cash flow for 2015 and adjusted EBITDA margins on net revenue greater than 20% for the year.

Our full-stack solution for both buyers and sellers is a core contributor to our value proposition and our best-in-class financial results, and has established a clear foundation for continued growth in the future.

Let me take a few minutes now to highlight several of the exceptional results our team delivered in Q4 and for all of 2015. First, I would like to discuss our truly explosive growth Rubicon Project has experienced this past year in mobile.

In the fourth quarter, mobile managed revenue, again, more than doubled, growing 144% year-over-year and accelerating from 114% year-over-year growth in the third quarter. In 2015, mobile increased from just 20% of our total managed revenue in Q1 to being nearly a third of our global managed revenue in the seasonally strong fourth quarter. This sizeable growth has fueled our rise to becoming the third largest mobile exchange in the world and underpins the potential for substantially more growth before the end of 2016.

Insights from the recent Cyber Monday shopping period tell the story behind the value of our full-stack offering. Every one of the top 50 buyers in our marketplace during the biggest day in our company's history purchased both desktop and mobile inventory to reach their target audiences.

Moreover, a review of the entire fourth quarter further demonstrates the adoption of our complete solution whereby 84% of our top 100 sellers worked cross-channel with Rubicon Project to monetize both mobile and desktop inventory. This is up significantly from the fourth quarter of 2014, when 65% of our top 100 sellers worked cross-channel. And importantly, our clients are working cross-channel at scale. In 2015, the number of buyers of mobile app inventory, which spent six figures or more, increased by nearly 140% year-over-year.

Our strength in mobile has also helped to drive important new customer wins. Recently in January of this year, we partnered with Zynga for an exclusive launch of all of its premium guaranteed and reserved inventory in our marketplace via programmatic buying.

According to comScore, Zynga's mobile applications ranked sixth in consumer time spent online per month. Our expanded relationship with Zynga is strategically important because like so many media owners Zynga has historically held back much of its premium inventory, exclusively for its direct sales force. Therefore Zynga's decision to now make all of its premium inventory, previously only available through its direct sales channel, now available through Rubicon Project not only demonstrates the value of our Orders marketplace, it also signals a trend we expect to see much more of in the future. We have proven we can drive the right demand through Orders as well as open auction RTB.

And earlier this month, we announced a highly strategic win with Gameloft, the world's largest digital and social games developer. Rubicon Project will automate mobile advertising across Gameloft's large audience that reaches more than 147 million unique players per month.

Moving now from mobile, our Orders platform that I just mentioned is also gaining significant adoption from buyers and sellers. In Q4, our managed revenue from Orders grew 125% year-over-year. Global managed revenue originating from our Orders product increased to 18% overall in Q4, up from just 13% a year ago.

Spotify is an example of a premium seller that has generated exceptional growth from our Orders platform since launching with Rubicon Project in mid-2015. Spotify now reaches a large audience of 60 million users, and our platform allows Spotify to activate and fully leverage its proprietary first party data which drives increased value for both Spotify and the buyers of Spotify's inventory in our marketplace.

In Orders, as in mobile, our buyers and sellers are opting to deepen the relationship with us to work cross-channel. And thus, we are seeing the same broader adoption for Orders. In Q4, 94% of our largest 100 sellers were working with Rubicon Project to drive growth in both our Orders and RTB offerings, up from 83% in Q4 of 2014. Impressively in Q4, 89% of our top 2,000 advertisers utilized both Orders and RTB solutions to reach their audiences at scale.

And we continue to track increased demand from buyers for Orders. Most notably, we recently established a global partnership with IPG for our Guaranteed Orders platform. Cadreon, which is the ad tech unit owned by IPG Mediabrands, selected our market leading Guaranteed Orders platform to help power the reservation of the premium and direct inventory that it seeks to acquire for its vast array of Fortune 1000 clients.

In addition, within Publicis, we have expanded our relationship with its VivaKi subsidiary to include both our intent marketing and Orders capabilities. These wins bring even deeper agency integrations to our buyer capabilities.

In summary, increased adoption of our complete automation solution helps us to further extend our position of market leadership in mobile and Orders as well as in open auction RTB and this creates valuable network effects for growing our buyer and seller client base.

At the same time, we continue to further innovate in our core business and we see solid increased demand for our RTB products, which remains a key growth driver for 2016. Our recently introduced FastLane header bidding feature is particularly relevant to both our RTB open auction and Orders offerings. FastLane enables Rubicon Project to sit much higher in the ad stack of the web publisher or mobile app, which allows the strength and scale of our buyer demand to create much greater demand for impressions.

This leads to higher CPM prices and increased in revenue for our seller clients and greater impression volumes to Rubicon Project. Early results from FastLane adoption are promising with many of our largest sellers either already on-boarding or in the queue for Q1. Sellers such as Tribune Publishing, a long time partner, which operates prominent outlets such as the Chicago Tribune and The Log Angeles Times has been using our Orders platform exclusively. So it was only natural that Tribune turn to our FastLane innovation to drive a more holistic approach to managing yield on their properties across all types of inventory, including the most premium and highly desirable impressions for which buyers are willing to pay more.

Since deploying FastLane, Tribune Publishing has experienced a significant increase in their CPMs while delivering better ROI for its advertisers. Based on this success, Tribune is already planning to implement our FastLane for mobile apps feature that we recently announced, the industry's first and only mobile header bidding solution. Given these results, we plan to have more than 100 additional sellers live on FastLane in the first half of the year.

Finally, I would like to spend a moment discussing our focused efforts developing a high-quality premium marketplace for video. As we have stated before, we continue to focus only on premium, highly desirable video inventory to sell in our marketplace and we will not relent from this position. The market has reacted positively through our commitment to quality and I'm pleased with our early successes as our growth in video shows true promise with an upward trajectory that exceeds our mobile product at the same early stage of development nearly three years ago.

In the past three quarters, we have increased the number of premium video sellers on our platform by nearly 400%, while at the same time we have increased the number of video buyers on our marketplace more than 60%.

And just a couple of quarters after launching mobile video in our marketplace, more than 25% of our mobile buyers have transacted in mobile video. Video is a premium ad unit. We believe that video will be bought and sold similar to other premium ad units in our marketplace, ultimately through Orders. Therefore, we also believe that our future growth opportunity in video is further enhanced by our strong position in mobile and Orders, where we believe much of the video automation will be transacted in future years.

To wrap up, I am proud to report that in 2015 we delivered on our promise and successfully accomplished our strategic objective of providing a complete automation solution for buyers and sellers of advertising. And our solution will only improve in the coming quarters. The increased adoption by our buyers and sellers of our complete automation solution throughout 2015, across every major form of digital inventory, type of ad unit and type of channel has contributed significantly to our record financial result.

Furthermore, we also delivered solid results against all of our other 2015 objectives as well. We grew managed revenue in mobile and Orders by triple digit growth rates year-over-year. We surpassed $1 billion in total managed revenue. We generated nearly $15 million in free cash flow. We successfully acquired and integrated Chango in order to significantly expand our buyer capabilities. And we achieved very positive early results in video that we intend to build upon in 2016. We believe we are just at the tip of the iceberg with our growth opportunity and that our differentiation will continue to strengthen our foundation for growth in 2016 and beyond.

And with that, I would like to turn it over to Todd to discuss our stellar financial results for the quarter. Here's Todd.

Todd L. Tappin - Chief Operating Officer / Chief Financial Officer

Thank you, Greg. Overall, we have continued to experience tremendous growth led by RTB and mobile. Managed revenue which is the advertising spending transacted on our platform for the fourth quarter of 2015 was $336 million compared to $216.5 million in the fourth quarter of 2014, an increase of 55% 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 composed of 77% RTB, 18% Orders and 5% static. And by channel, managed revenue was composed of 69% desktop and 31% mobile for the fourth quarter of 2015. Managed revenue for the full year 2015 was $1 billion compared to $667.8 million in the prior year, an increase of 50% year-over-year.

GAAP revenue for the fourth quarter 2015 was $94 million compared to $41.8 million in the same period in 2014, representing a year-over-year increase of 125%. For the full year, GAAP revenue was $248.5 million compared to $125.3 million in 2014, an increase of 98%. Non-GAAP net revenue for the fourth quarter of 2015 was $83.7 million compared to $41.8 million last year, an increase of 100% year-over-year and once again ahead of expectations.

For the full year 2015, non-GAAP net revenue was $227.3 million compared to a $125.3 million in the prior year, an increase of 81%. For the full year, average CPMs increased year-over-year from $0.67 in 2014 to a $1.09 in 2015. Paid impressions associated with Orders and RTB were higher year-over-year while paid impressions from static transactions were lower year-on-year. Total paid impressions in 2015 were 920 billion compared to 999 billion in 2014. However, the fourth quarter paid impressions in 2015 were higher compared to the same period in the prior year.

Take rate, which is non-GAAP net revenue divided by managed revenue, increased to 24.9% in the fourth quarter of 2015 compared to 19.3% for the same period in 2014. The increase in take rate year-over-year was primarily due to the higher mix of RTB and buyer cloud transactions, which carry higher take rates, and a lower mix of static transactions.

Looking ahead, we expect take rates to decrease as buyer cloud pricing may intentionally be lower to drive more volume. Additionally, if Orders increases as a percentage of overall managed revenue, take rates may decline, since Orders carry a lower take rate, but could yield higher absolute net revenue due to higher CPMs typically associated with Orders transactions.

Operating expenses including cost of revenue increased to $75.8 million in the fourth quarter of 2015 from $41.6 million during the same quarter in 2014. The increases in operating expenses were primarily due to an overall increase in personnel expenses of approximately $12.8 million, which included the expansion of our sales efforts and buyer cloud initiatives and the impact of prior acquisitions, which includes an increase in payments to sellers of $10.3 million included in cost of revenue and an increase in non-cash amortization of acquired intangible assets of $4.1 million.

For the full year 2015 operating expenses including cost of revenue increased to $254.1 million from $144.1 million. The increases in operating expenses were primarily due to an overall increase in personnel expenses of approximately $46.9 million, of which $6.7 million consisted of an increase in non-cash stock compensation and the impact of prior acquisitions, which includes an increase in payments to sellers of $21.2 million included in cost of revenue, and an increase in non-cash amortization of acquired intangible assets of $14.8 million.

Net income of $20.4 million in the fourth quarter of 2015 was substantially higher than the net income of $1.4 million reported for the same period in 2014. For the full year 2015, net income was $400,000 compared to a net loss of $18.7 million in 2014. Adjusted EBITDA of $36 million in the fourth quarter of 2015 was well above expectations and well above adjusted EBITDA of $13.3 million in the fourth quarter of 2014. Adjusted EBITDA for the full year 2015 was $59.5 million compared to $19.1 million in 2014, an increase of 211%. The increase in adjusted EBIDTA was primarily due to the revenue performance coupled with operating efficiencies.

GAAP earnings per share was $0.43 for the fourth quarter compared to $0.04 in the same period in 2014. For the full year 2015, GAAP earnings per share was $0.01 compared to a loss per share of $0.70 in 2014. Non-GAAP earnings per share in the fourth quarter of 2015 was $0.72, which was well ahead of expectations and significantly higher than the $0.25 reported in the same period in 2014. For the full year 2015, non-GAAP earnings per share was a $1.08 compared to non-GAAP earnings per share of $0.20 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 $28.4 million for the full year 2015. We closed the year with $153.2 million in liquid assets and generated full year free cash flow of $48.4 million.

Looking ahead, we expect the following for the first quarter of 2016. Non-GAAP net revenue to be between $58 million and $60 million. GAAP revenue to be between $64 million and $68 million, as noted in our prior communications, where we guide investors to focus on non-GAAP net revenue as we believe it is a better measurement of revenue performance.

Adjusted EBITDA to be between $4.5 million and $5.5 million and non-GAAP earnings per share to be between breakeven and $0.02 based on approximately 56 million forecasted weighted average shares. For the full year, we continue to expect non-GAAP net revenue to be between $275 million and $295 million. GAAP revenue to be between $315 million and $355 million, adjusted EBITDA to be between $45 million and $60 million, and non-GAAP EPS to be between $0.65 and $0.78, based on approximately 58 million forecasted weighted average shares.

As a result of the exceptional Q4 2015 performance, we believe that a few additional comments about the full year 2016 guidance might be helpful. Q1 2016 guidance represents 55% to 60% year-over-year growth in non-GAAP net revenue, which includes the impact of prior acquisitions, however, most of the growth is driven by ongoing operations.

Our Q4 2015 and full year 2015 results exceeded expectations particularly with respect to adjusted EBITDA with 43% and 26% margins respectively. While these results are strong, it would not be prudent to revise our 2016 guidance, based on this one quarter result, which is also a seasonally high period. Q4 2015 is not part of the 2016 fiscal year, and Q4 2016 is too far out to adjust for Q4 2015 results, while we are only in the second month of 2016.

With respect to the 2016 adjusted EBITDA estimates and related cost structure, we plan to continue to invest in R&D while gaining operating leverage in sales and marketing and G&A. Moreover, the cost structure reflects a full year affect of the 2015 investments and head count.

As we previously noted, we believe that we're 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 2016 include buyer cloud initiatives, Orders, international expansion, mobile and video, buying and selling.

In addition, we believe that we have demonstrated differentiated results and capabilities compared to others in our sector. To wit and worth repeating, we doubled our non-GAAP net revenue in Q4 2015 and generated our highest GAAP net income in the company's history of $20.4 million. Additionally, we more than tripled our adjusted EBITDA year-over-year for the full year 2015 and we generated $48.4 million of free cash flow.

We'd now like to open the line for any questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, at this time we'll begin the question-and-answer session. Our first question today comes from Kerry Rice from Needham. Please go ahead with your question.

Kerry Rice - Needham & Co. LLC

Thanks a lot. Nice quarter guys. The two questions I really have, one is on take rate, expecting that to come down actually, it went up in Q4. And you discussed maybe driving volume by reducing the price on the buyers cloud. Can you talk at all about maybe that what you think is a reasonable trajectory for take rates as we think about 2016? And then the follow-up is around the acceleration in RTB. Orders is growing nicely and we expected that and obviously Q4 seasonally strong. Is there anything else that you would call out driving that acceleration in RTB revenue?

Todd L. Tappin - Chief Operating Officer / Chief Financial Officer

Hi, Kerry. First on the take rate, the increase in take rate was once again year-on-year primarily due to mix, as RTB was accelerating and primarily mobile is a key driver of that, just some extraordinary growth we've seen. And the RTB associated with mobile driving the take rate up. Naturally, as we continue to move forward, we've talked about Orders and having the lower take rate, but the higher CPMs and therefore absolute revenue on a transaction basis going higher and hopefully driving higher overall absolute dollar net revenue. And so as that continues to increase, that would be what we would expect from that dynamic.

The other one is the buyer cloud initiatives, which we've also discussed which, as we try to move toward a more transparent marketplace and pricing structure, we would expect those take rates to also come down. The combination of which over time we think take rates will come down but driving higher volume and higher revenue per transaction on all cases and therefore driving some of the projections you've seen in terms of increasing year-over-year revenue growth.

Frank Addante - CEO and Founder

Hey Kerry, I'd add to that, this is Frank here. I think what we're seeing in mobile is the effects of our network effects. For a number of quarters now we have said that, we invest for the long haul. We are a marketplace business and given that we are a marketplace business, we do benefit from those network effects. And once you get to that critical mass, on these sales – supply side or the demand side, that's when those network effects really catch fire. And I think that's, that's what's been happening in our mobile business. And as Todd said, that's a key contributor to that growth.

Kerry Rice - Needham & Co. LLC

Great. And then on the, I guess, just the RTB anything else you'd call out? It sounds like it was – is mobile is really what you're signaling here as the key driver?

Gregory R. Raifman - President & Director

Kerry, this is Greg. I think our message to the industry is resonating. We are, as Frank said, we are building a very high quality premium marketplace in a great market, and a fast and growing market, and RTB is one of the various products that we offer in our marketplace. And we are continuing to see little-by-little separation between us and some of the other folks in the industry. And as a consequence, the network effects that Frank talked about apply not only in mobile, but apply in all the various products and in all the various channels that we sell. So you ask specifically, excuse me, about our buyer cloud offerings, I think the same thing applies there as well with respect to our RTB offerings.

Frank Addante - CEO and Founder

Yeah Kerry, one other thing to add to this. In 2015, early 2015, we spoke about how we took our technology platform from just operating our own marketplace to providing a more open environment for others to build exchanges in marketplace as using our technology. So you may have heard us – heard about us talk about things like Exchange API, as an example. So in 2015, we have seen that also be a strategy that other companies employ. So we're not just powering our own marketplace now, we're powering other people's marketplaces, I think highlighting our strength as a technology company. And from that it's not just our own self development efforts that are contributing to our growth, it's others who are building products and services on top of our platform.

Kerry Rice - Needham & Co. LLC

Great. Can you elaborate on any partners there?

Todd L. Tappin - Chief Operating Officer / Chief Financial Officer

Sure. We've – excuse me. My voice is a little hoarse. We've talked about partners in the past, in the mobile industry in particular. We've launched, several years back, our Exchange API with InMobi, which has gone very well over the course of the last several years. We've expanded to exchange a – to xAd, another partner there. We have other partnerships that we will naturally announce as we continue to work with them. We are very pleased about the additional growth we've seen from helping other marketplaces grow and be part of our larger marketplace. So those are the key ones that we've talked about in the past. And as we continue to announce more, we'll be sure to let you in but this is a key strategy for our growth. Instead of continuing to hire a bigger and bigger sales team, we've been very careful and measured about how we grow our overall team and I think that contributed to the extremely profitable fourth quarter and profitability for the whole year.

Kerry Rice - Needham & Co. LLC

Okay. Thank you very much.

Operator

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

Rohit Kulkarni - RBC Capital Markets LLC

Great. Very nice quarter, guys. As in, just trying to slice through the acceleration in managed revenue. As in, would it be fair to assume that the core Rubicon excluding the buyer cloud also accelerated? If so, what are the drivers behind that acceleration on a sequential basis?

And secondly, on kind of as you look ahead over the next 12 months to 24 months and the questions we get from investors, as you look ahead to build out your complete ad tech stack, Chango acquisition was clearly a nice add-on to help build out the buyer side of things. Are there other pieces that you think, as you scale, as you grow, as you want to build a bigger mode, that are missing pieces in the – in this grand scheme of things. I'll throw out options and you can, feel free to add more, be it an ad server, be it a DMP, be it underlying DSP building more comprehensive technologies in there. So it's just a big picture question. And the first was mostly for Todd.

Todd L. Tappin - Chief Operating Officer / Chief Financial Officer

Hi, Rohit. Yes, so, with regard to – on the growth on RTB, I mean, obviously you can see that the acceleration was naturally still RTB. We added Orders to the composition and we don't break out the difference on revenue between buyer and seller clouds. But even if you were to look on a pro forma basis, you would see net revenue growth from Q4 to Q4 of about 67%, roughly in the neighborhood of approximately 65% year-on-year.

So that kind of gives you some sense that really the acceleration has primarily been ongoing operations, although, I guess, we don't break it out and nor do we have specific results for Chango since everything's been consolidated. But buyer cloud continues to be a contributor. So overall, we're actually pleased to see really all facets of the business growing.

Frank Addante - CEO and Founder

And I, Rohit, I'll take your second question. So, look, we set out to build the full advertising technology stack from the very beginning. We feel like we have a fairly complete platform today, and we've got offerings in desktop, mobile, video. We've got auctions, Orders, we've got the seller side, the buyer side of the equation. We've done seven acquisitions in the history of the company, three as a public company, four as a private company.

So we are – we've built a people platform and a technology platform that enables us to scale both organically as well as inorganically. So when appropriate, we will use the inorganic strategy, but the bar for us to do so is a very high bar. We've got an excellent engineering team, we've got a team that is really focused on innovation; we typically lead in the market when we introduce new products and services into the market. So sometimes for us to go find something to acquire to accelerate that becomes a challenge, but from time-to-time, we do.

So some of the specific pieces that you threw out there, DMP I mean the core our platform is a data management platform. I mean we process trillions of pieces of data; we connect buyer and seller data. We're very good at that. The DSP portion of it, our buyer cloud has a number of bidders included in it, a number of different ways for buyers to buy, whether that be through RTB, whether that be through static bidding or through Guaranteed Orders or Non-Guaranteed Orders, so we've got a lot of those components into our platform.

The ad server is an interesting one. A lot of people may not recognize this, but we actually incorporated the company as adMonitor Inc. That was one of my former companies; the company that – where I engineered one of the first ad servers in the market. If you recall, my background's in engineering, and this was one of the first ad servers in the market with a company we took public. It was ultimately acquired by DoubleClick and now part of the Google technology stack.

We thought initially that one of the key components would need to be an ad server, and over the years we found a couple of things. One is that we found that the ad server was becoming less and less relevant. And what we're finding at the same time is that automation and the core decisioning engine that comes with automation, that data processing engine that makes decisions using lots and lots of data to match buyers and sellers, to match impressions to the right consumers, we found that automation was taking off a lot faster than we expected.

So the need for the ad server decreased very, very rapidly. And in fact, we've acquired two ad servers in the past. The mobile acquisition that we did as a private company was a mobile ad server and then we also acquired one with Fox Audience Network. So we've got some of those components in our platform today, but in the traditional sense of the old legacy ad servers, one of the ones that I built 18 years ago, we're finding that to be less and less relevant in today's market.

Rohit Kulkarni - RBC Capital Markets LLC

Okay, great. Thank you very much.

Operator

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

Jason Helfstein - Oppenheimer & Co., Inc. (Broker)

Thanks. Fundamental and kind of financial question. So it's clear you guys are taking market share. Do you think you're taking market share from – is it more from like a Google or is it from smaller players in the market? I know it's hard to figure that out because Google doesn't disclose directly, but if you can opine on that.

And secondly, clearly – again, you guys are doing the right thing from a financial perspective, I mean, the free cash flow was so much better I think that we're all looking for. At this point, you have 23% of the market cap even using the after-hours prices in cash right now. Do you consider reinvesting your free cash flow to the buyback stocks, since you guys have a healthy cash position and the market seems to have a little interest in buying your stock, so why not buy your own stock given the type of trends you're seeing in the free cash flow dynamics of the business right now? Thanks.

Frank Addante - CEO and Founder

Okay. I'll take the first question regarding market share. So your first – this is as you know a very large and fast growing market, so there's still a lot of greenfield out there. So mobile, mobile is still a developing market, very early stages in mobile. Video same thing, especially when it get to the quality part of the market. So these are very nascent early stage markets. So there is a lot of greenfield out there, so I think it's less about taking market share from others, and I think the market share is really been taken from the manual processes, not necessarily other companies in the space.

And then extend that further on an international basis, we are a global company, so there's a lot of developing markets. Our automation is either early stage or growing.

And then the last piece there is the Orders business. Today 30% of the market is projected to be in the short-term automated, that means there's 70% of the total advertising spend is yet to be automated. Our Orders product addresses that, so we're trying to convert as much of the manual process orders into an automated environment. So that's primarily our focus. So when we're talking about capital market share, largely it's coming from greenfield.

Gregory R. Raifman - President & Director

So, let me add to that Jason, one or two points, this is Greg. And we'll turn over to Todd for the second part of your question. And that is that there is a couple other things to keep in mind is, we're continuing to drive partnerships on both the – both sides of our, excuse me, our marketplace. And we're looking for additional opportunities to drive revenue that are sourced from digital budgets that haven't been automated yet, and I think Frank a kind of mentioned that in general.

But when you're thinking about the budgets that are going to video, mobile, display, not all of which have moved into RTB yet. So our recent partnership with IPG is a good example of one where we're working now with one of the largest holding companies, I'm trying to unlock spend that has not been automated to-date. So this kind of spend doesn't necessarily come from one of our competitors, it actually comes from areas that hasn't hit this part of the industry yet, and I think that's important to note.

I think the other piece that's important to note is that as we continue to build out full-stack that we talked about in the script and we've gone a long way over the last several years to do that. And we'll continue to look to augment those pieces that will provide additional revenue sources for us like we did with – like we did with the acquisition of Chango, and we continue to look for those other opportunities that we haven't built out organically. So it's not all across. At this point, we've reached the scale that has made us invaluable to the ecosystem. It's not all about taking share from our smaller competitors.

Todd L. Tappin - Chief Operating Officer / Chief Financial Officer

And Jason, with your question with regard to cash and use of cash. It's certainly a question of merit, and one that we've certainly discussed, especially at recent trading levels. One of the things that we have to consider is obviously use of cash for business purposes. And as a little more clarity on cash, not every quarter is a free cash flow quarter. While we expect to be cash generators and we generated $48 million of free cash flow this past year, and that's terrific. Also recognize that our balance sheet is really more a function of managed revenue, not net revenue to where our accounts receivable are $218 million at the end of the year, our accounts payable $248 million at the end of the year. And we can see somewhere in the neighborhood of $30 million plus or minus swing intra-month depending on the timing of receipts and payables.

Not only that do we have float considerations with respect to shares in the market. And the upside in investing in the business, so when we have 100% year-on-year growth, it does beg for reinvesting of that capital. And then, naturally, we do want to have flexibility whether there is a particular acquisition that makes sense or additional investment that would make sense. And so all those other factors also need to be considered.

Frank Addante - CEO and Founder

Yeah, Jason, hey, it's Frank here. As I mentioned before, this is a large and fast-growing market. And I think you've seen us be pretty methodical about our approach. So when we're in growth mode, we've really hit growth mode; when we're trying to optimize the business for profitability, I think we've shown that we can do that fairly well as well. So we've got a lot of leverage in the business. One thing that we are is, Greg likes to say is, measured about the approach, one of our culture values here is go fast, but don't hurry. So we're not going to necessarily go rush into the market, I think you're seeing that with mobile. We've communicated some things here with video. When we enter our market, we're going to do it right and we're not going to go rush into it. So sometimes things get better than we expect, I think we're seeing that now with the mobile business.

And when that's the case, we want to make sure that we've got the cash to be able to invest. That's the whole reason that we went public in the first place, to go raise the capital and the currency for us to accelerate our growth and continue to grow in this market, because it is such a large market and such a fast growing market. And we just want to make sure we've got the capital and the currency to not only compete, but to continue to grow and post the kind of performance that we have in the past.

Operator

Our next question comes from Debra Schwartz from Goldman Sachs. Please go ahead with your question.

Debra Robin Schwartz - Goldman Sachs & Co.

Great, thanks and congrats on the quarter. I think you mentioned in the prepared remarks header bidding and we're hearing more and more about that in the industry. Can you frame this development and what type of impact do you expect header bidding to have for Rubicon, as well as the industry more broadly?

Gregory R. Raifman - President & Director

Debra, this is Greg. Yes, we are very enthusiastic about our position in the market for our header bidding. We feel like we've got a fantastic solution there. It's not our first generation, actually it's been a product that we've been working on for several years. And we're beginning to see great results, I talked about some of them in my script that some publishers are seeing a 200% increase in CPMs, we've got a 100 more publishers lined up on the ready to go forward. We are actually seeing more and more impressions this way, or using it also to see more users as a consequence. If publishers want us to provide this capability, we're going to do it and we're going to do it the best that can be done in the industry, and I think this has also helped us – seeing us win.

If publishers are happy with the unified auction, that's fine, we'll create the unified auction form as we have. So we're basically creating those products and capabilities for our publishers, in this case header bidding or buyers that make it easy as possible for them to transact in our marketplace because that is the end game.

So just to be clear, the header bidding solution that you talked about is called FastLane and we've got it in the marketplace. What's also interesting to note is we announced that we're going to be delivering the first ever FastLane for mobile apps, nobody else has that in the marketplace, that's going live, it's in beta now. And we expect to see our publishers or, excuse me, our app developers roll that out as well in first half of this year. So I think we're well positioned with respect to header bidding.

Debra Robin Schwartz - Goldman Sachs & Co.

Great. Thank you.

Operator

Our next question comes from Brian Nowak from Morgan Stanley. Please go ahead with your question.

Brian Nowak - Morgan Stanley & Co. LLC

Thanks for taking my questions, there are two. The first thing, can you go back to the buyer cloud take rate comment? Can you just talk about why cut the rates? Are you seeing increased competition? Do you need to cut the rates to get access to more inventory or add dollar demand? What drives the decision to start cutting the rates already?

And then the second one on the guidance. I think you lowered the top end of the net – the non-GAAP net revenue guidance for the year. What are you assuming for the Zynga and Gameloft in there? So I think those were announced post the original guidance or am I – am I mistaken?

Todd L. Tappin - Chief Operating Officer / Chief Financial Officer

Okay. On the first question, Brian, we're not consciously saying that buyer cloud needs to come down for any external pressure. In fact, it's a very offensive move. It's a move because the industry has time and time again asked for transparency, and we think that we can provide it. Not only that, but buyer cloud is another piece that differentiates us and puts us in a position of having both buyers and sellers always interacting on our platform, and able to do that across any type of inventory, across any type of ad unit, and doing that across any type of channel. And now those differentiating factors are very important. And so what we're doing is, trying to take control, and we're trying to make sure that we are in a leadership position throughout, but make no mistake they are absolutely offensive moves, not defensive ones.

And with respect to guidance, you'll see that we didn't necessarily just take down the top range. What we did is we just simply narrowed it. So the midpoint of the range actually hasn't changed. In fact, if you look at, even when we provided our Q1 guidance, you will notice that that's a 55% to 60% year-over-year growth in non-GAAP net revenue. And we call out again that our Q4 2015 and full year 2015 results were pretty exceptional and particularly with respect to adjusted EBITDA with 43% and 26% margins for the quarter and the year.

And the other thing is that, if you look at the sequential growth for Q4, it was up, what is it, 47% which is also pretty extraordinary. So really what we've done is, we've looked at the guidance that we provided back in October for 2016, and felt like at this stage, as we sit here in the month of February, that it makes sense to really provide the same guidance. So we're really didn't change anything, we just narrowed the range for people a little bit on that one item, keeping that midpoint the same.

And we also call out that launching off of Q4, is obviously a great place, but that's not part of 2016 yet. So we're feeling pretty confident in the numbers we provided with respect to the guidance and again it's really not changed.

Frank Addante - CEO and Founder

I just want to underscore one thing that Todd said, the lowering take rates on the buyer cloud was not due to external pressures. It's been a strategy. I think we've stated that strategy from the very beginning. Before we entered this market with our solution, there were companies that were taking 60%, 70%, we heard about 80% take rates and part of the reason that Rubicon Project needs to exist is to create this fair and open market. So this is in our DNA to do and this has been our strategy from day one of the company and we took and employ that same strategy on the buyer cloud part of our business.

Operator

Our next question comes from Brian Pitz from Jefferies. Please go ahead with your question.

Brian J. Pitz - Jefferies LLC

Thanks for the questions. First, just a little more on FastLane. How has the update to that header business been received? Has it demonstrated any latency or load time issues with publishers that have adopted it and maybe any comments on adoption? And then just separately, how do you think about opportunities outside of digital inventory? I know you have TV out-of-home billboard partnerships, how big do you think about in terms of the TAM for these non-online inventory sources? Thanks.

Gregory R. Raifman - President & Director

Yeah. Hi. Excuse me. Okay, let me go over the FastLane information again. We've seen it – very enthusiastic response to it. We haven't seen any latency issues whatsoever. We've seen – we have a long list of more than 100 publishers waiting to go live on it. So that tells you that the adoption has been fantastic, in fact faster than we would have expected.

And I would also answer to your second question is, our intent is to make it easy for buyers and sellers to transact all kinds of advertising in our marketplace. And as you know we've started with digital advertising. We recently announced a deal in the United Kingdom with out-of-home advertising. We continue to look at that marketplace. We will continue to look at all types of ad formats as they grow and where the consumer moves to.

We've seen – we followed the consumer to the mobile environment. The consumer is consuming a lot more video in the mobile environment, and that's been really a growth driver for our mobile business. So as the trends continue and the consumers continue to move into different directions, we're going to provide the capabilities for advertisers and sellers to make it easy to reach those consumers, now over a billion consumers transact in the marketplace at this point.

Frank Addante - CEO and Founder

Look, latency is really what our whole core platform is designed around. We've had to engineer our own proprietary real-time cloud. And we've got tens of thousands of CPUs we've built into our data centers. As we've mentioned in the past, we engineer our own hardware. We're programming silicone. We have to be faster than websites where our applications load and we also have to be faster than all the bidders combined, because the faster we could process these transactions, it equates to higher revenue for both the seller and the buyer at the end of the day. So latency is something that we tackle every single day, so latency is usually a non-issue for us.

To answer your second question about the total addressable market, yeah, I mentioned before that there's a lot of greenfields here. I was just talking before just about digital: desktop, mobile, video. TV, digital billboards, I've seen advertisements on water faucets; we're approaching the Internet of Things where we're going to see refrigerators and televisions and coffee machines all connected to the Internet.

So I think the addressable market continues to grow, and grow, and grow for us. If you look at our customer base, the buyers and sellers that exist in our marketplace, some of the most premium sellers of advertising in the world, we've got pretty much every major buyer around the world in any major market that's already connected into our platform.

So whether that's mobile, or video, or in the future digital billboards, or television, or water faucets, or what have you, a lot of those participants already exist in our marketplace. We're seeing that growth from mobile, we're seeing our network effects and our existing install base provide benefits for us with our Orders business. We have no reason to believe that that wouldn't translate into these other markets as well.

Our core technology platform looks at everything as a transaction. It doesn't care whether that's a video ad on the other end of it or whether it's a mobile ad. Yes, there's some things that are discrete or specialized to specific markets, but I'd say, 80% to 90% of an advertising transaction is pretty much the same. You have to match buyers and sellers, you have to use data to determine fair market value pricing, you have to make sure that those transactions are protected and safe. You have to bill the – handle the billing and payments, you have to do foreign currency translation, whether that's TV ads or whether that's a mobile ad. So we think we're very well positioned to go attack these other markets and it's always been something that's been in our sight. So I don't have a specific number for you on how big that market is, but I can tell you it continues to grow. And the other thing that's been nice and pleasing to us is that more and more of those other markets are becoming digitized.

When we started the company, Rubicon Project nine years ago, it didn't occur to me that you would see so many digital billboards. I read a study the other day that said that 30% of billboards are going to become digitized over the next – in the not so – in the foreseeable future, right. So as more and more of these analog type places to advertise become digitized, more and more of that market is coming closer to us, whereas in the beginning I thought we would have to go develop APIs and extension points to the analog markets. But – we of course, plan to do that, but I think a lot of the analog markets are becoming digital a lot faster than we even expected.

Operator

And our – we have time for one final question today, and it comes from Sameet Sinha from B. Riley. Please go ahead with your question.

Sameet Sinha - Analyst, B. Riley & Co. LLC

Yes, thank you very much. Can you talk about international? Europe was a big, big market a couple of quarters back. You have a new data center in Japan and you obviously opened an office for Latin America, also a couple of quarters back. Can you talk about the trends there and how far behind are they from the trends that you saw domestically?

And secondly, I thought you mentioned paid impressions were actually up in the fourth quarter year-over-year. Is that a sustainable trend and is that a signal that your work against ad fraud is, not that it's ever complete, but that you've been able to clean out your network to a significant extent?

Gregory R. Raifman - President & Director

So let me start with the international trends. I'll turn it over to Todd for the paid impressions. That's one of his favorite questions.

International continues to be a steady growth driver for us. I think it has – we've expanded dramatically from the United States to cover the Rest of the World. We're in JPAC, we're in LATAM, we're in EMEA. We tend to be very strong in the areas, in the markets that we're in. We've – last quarter I think I announced that we had signed up our ninth cooperative around the world, so that continues to be steady growth. Notwithstanding the additions to the buyer cloud that we incorporated last year including Chango, the international team as a percentage of overall continues to reach steady growth of about 35%. So when you think about it, that's really almost closer to 40% give or take in terms of growth on the overall.

And so from our standpoint, we're very pleased about where things are going with our international team and it's continued to be a very important asset for us.

As for paid impressions, I'll turn it over to Todd.

Frank Addante - CEO and Founder

This is Frank. I'm going to say one quick thing before Todd answers the rest of the question here. Sameet, you used the phrase, cleaned up your network, and I just want to make something very clear about that is that, our network was never dirty to use that phrase. We've always gone after premium customers, some of the most prominent brands in the world. And we've never gone after the low end of the market, we've never gone after companies that are not name brands.

What we recognized before we went public was that a lot of those customers were buying media from places where the ad impressions are not being seen by humans, right. So they were victims of this issue, not contributors to the issue.

So it was almost like, imagine, if you had a computer and somebody gave you antivirus software for the very first time you installed it, you may have had the virus but you didn't know about it, right? So a lot of our customers had no idea of the issue that they were facing. We've talked about this in the past that those impressions that existed on our platform, number one, we're providing a service to our customers, to provide them the security technology to protect their brands and their sites. But two is, it virtually had no impact on revenue and that's because those impressions were not valued or being bought by the advertisers on the other end. So I just wanted to make that point clear.

Todd L. Tappin - Chief Operating Officer / Chief Financial Officer

Hi Sameet. Before I answer the specifics of that, just the numbers, I do want to tack on something that Frank said on the quality. Remember that, we are the only company to which Pixalate ranks in the top five for both mobile and desktop. And I think that, that's a testament to the fact that we've really taken a very strong view on inventory quality. And so that is absolutely not a driver with respect to our paid impression count really, it's about mix which is that static is now down to about 5%.

And as you probably know, static is high volume, very low CPM. And as you continue to climb up the ladder, you end up with Orders at a lower volume, but very high CPM and in the center there is RTB. And so as RTB garners a higher mix as does Orders, then you just see impression counts come down, but you've also seen the results of a 100% year-on-year net revenue growth as a result of the CPM is increasing. So it's really just a factor of that mix.

Operator

Ladies and gentlemen, with that we've reached the end of today's question-and-answer session. I'd like to turn the conference call back over to management for any closing remarks.

Erik Randerson - Vice President-Investor Relations

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

Operator

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.

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