Good afternoon. My name is Courtney, and I will be your conference operator today. At this time, I would like to welcome everyone to Q2 2014 Earnings Conference Call for The Rubicon Project. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. [Seth Brown], Investor Relations, you may begin your conference.

Good afternoon, everyone, and welcome to Rubicon Project's 2014 second quarter earnings conference call. As a reminder, this conference call is being recorded. Joining me today are Frank Addante, CEO, Founder and Chief Product Architect; Greg Raifman, President; and Todd Tappin, Chief Operating Officer and Chief Financial Officer. Before we get started, I'd like to remind our listeners that our prepared remarks and answers to question will include predictions, estimates and other information that might be considered to be forward-looking statements, including but not limited to the guidance we're providing and other non-historical statements related to our anticipated financial performance, operating and strategic plans and the markets and our competitive position. 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 risk or uncertainties materialize or assumptions prove to be inaccurate. Reported results should not be considered an indication of future performance. A discussion of some of the risks, uncertainties and assumptions is set forth in more detail in the company's registration statement on Form S-1 and quarterly reports on Form 10-Q including under the headings Risk Factors and Management's Discussion and Analysis of financial condition and results of operations. 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, which we have posted to our website. At times in response to your questions, we may offer incremental metrics to provide greater insights into the dynamics of our business or quarterly results. Please be advised 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 at investor.rubiconproject.com to access our second quarter press release, periodic SEC reports, a webcast replay of today's call or to learn more about The Rubicon Project. With that, let turn the call over to Frank.

Good afternoon, everyone, and we appreciate the opportunity to update you as we continue our mission to automate the buying and selling of advertisement. Advertising is undergoing one of the greatest revolutions in its history. Rubicon Project pioneered advertising automation seven years ago. And today, we are driving this transformation. I'll be speaking briefly about the trends and opportunities in the automated advertising market and the advancements we have made to accelerate our vision. Then Greg and Todd will provide updates on our operating and financial results. Q2, our first full quarter as a public company, was a strong quarter. We exceeded our guidance for both revenue and adjusted EBITDA. Year-over-year revenue growth accelerated to 49%. And while we have projected an adjusted EBITDA loss, I'm happy to report we delivered a positive adjusted EBITDA in our first quarter as a publicly-traded company. As a result of this strong performance and product and customer advancements, we will be increasing our outlook for the rest of the year. We have a unique position in the market as the largest independent exchange. Rubicon Project plays a critical role in advertising automation. Publishers and application developers rely upon The Rubicon Project Exchange to manage hundreds of DSPs, ad networks and agency trading desks. And DSPs, ad networks and agencies rely upon our exchange for automated access to these websites and applications. This critical position comes with deep integration into both sellers and buyers that are sticky and have strong network effects. These are large contributors to our accelerated growth and leveraged in our bottomline results this quarter. It's taking these integrations at greater levels of predictability to our business. Our team remains focused on being aggressive at innovation, while being fiscally prudent. Clearly, these results reflect our commitment to this philosophy. According to…

Thank you, Frank. As we discussed in our last earnings call, Rubicon Project has a number of major strategic initiatives that we are focused on this year. I'm pleased to report that in Q2, we made progress on some of those initiatives that will help our business continue to grow and strengthen our position as a leading destination for buyers and sellers or advertising. One of our strategic initiatives is to expand our inventory on the Rubicon Project platform. During Q2, we had some significant wins as we continue to grow our inventory base, which comprises many of the most premium publishers and applications on the internet. There're a number of reasons why sellers have been choosing Rubicon Project as their primary monetization platform. Our industry-leading auction capabilities enabled static bidding and RTB purchasing, and we are increasingly finding that our orders technology is a major differentiator for premium sellers. This orders functionality helps to automate the workflow and processes involved in direct negotiation of media sales between buyers and sellers. The market for orders has the potential to be many times the size of both static bidding and RTB. And the CPMs we enjoy here are much higher as well. Our ability to provide a single platform for sellers to monetize inventory of the all three buying methods, static, RTB and orders across all of their properties, all of their geographies and all channels including display, mobile and now video, which has promises on schedule and already in private beta, further adds to the value we bring. As Frank mentioned previously, we are very happy to welcome Comcast and its 19 million monthly visitors to our family of premium publishers during the second quarter. We are similarly pleased by the additions of Ziff Davis, PBS, MPR, Move Inc. and…

Thank you, Greg. Overall, we have continued to experience tremendous growth, once again led by our RTB solutions, while continuing to invest in the business to drive future growth. Due to seasonality of our business, we will compare the second quarter of 2014 to the second quarter of 2013. Managed revenue, which is the media spend transacted through our platform in a given period, is an important operating metric for both internal and external evaluation purposes. Because many companies in our industry record revenue on a gross basis, managed revenue provides comparison to others in our industry. Managed revenue for the second quarter of 2014 was $153.5 million compared to $112.7 million in the second quarter of 2013, an increase of 36% year-over-year. The increase in managed revenue was primarily driven by an increase in both pricing and bidding activity led by RTB, which represents the largest portion of our business. According to IDC, RTB spending globally was expected to grow approximately 50% year-over-year from 2013 to 2014. Rubicon Project's RTB managed revenue grew 75% for the six months ended June 30, 2014, versus 2013, thereby significantly outpacing expected industry growth rates. The increase in managed revenue resulting from the increase in average CPM with marked high buying was partially offset by a decrease in the volume of paid impressions year-over-year, which was primarily a result of the quality control initiatives we instituted during the end of 2013. As a result of the end of year 2013 anniversary of the traffic quality control initiatives, we expect to experience the same comparison throughout the remainder of 2014 versus 2013. We report revenue on a net basis and generate fees from buyers and sellers transacting on our platform based on a percentage of managed revenue. Our take rate represents the total of…

(Operator Instructions) Your first question comes from the line of Deb Schwartz with Goldman Sachs.

So you talked about several of the initiatives that you had in the quarter, including increasing the number of sellers. Just wondering if you could give us a little bit more clarity of what drove the upside from your guidance, whether it was more sellers, better penetration of existing sellers or even mobile and how much that contributed in the quarter.

Most of that increase in revenue was driven by the increase in average spend per buyer. We also saw increased bidding activity. We think our matching algorithms are operating quite effectively, certainly leveraging the massive amounts of data that we have accumulated and really I think that's been a core driver. RTB continues to be the stand-out performer amongst our product suite.

As it relates to the price/volume dynamic, you mentioned increasing number of sellers and then similarly trying to improve quality. Can you sort of talk about how CPMs and impressions played out in the quarter?

CPMs were really pretty strong. Bid impressions were also one of those metrics that continued to do well, but it's going to have a lower number compared to 2013 because of the traffic quality control initiatives. We really spent a lot of effort on making sure that our traffic is clean of non-human traffic and those sort of things. And when we took the biggest initiative, that was actually in December of 2013. So a late anniversary, if you will, which means that we expect 2014 numbers to be lower than 2013 as a result of those efforts. However, a lot of those initiatives still continue through 2014. We now have built it into an ongoing component of our operations. And that said, if we want to break down the bid impression growth between the different product suites, you'd actually see the bid impressions for RTB rose. And that's in contrast to the static type of product base, which we're actually seeing a shift moving more from those static ads in that product base toward RTB. And so that's one of the reasons you're seeing the higher mix of RTB revenue in conjunction with the rest of our business as well as some influence regard to bid impressions. Those traffic quality control initiatives really have a minimal impact on revenue, especially with this shift toward RTB, because buyers will simply just reallocate to the higher quality traffic.

I'll add to that that our orders business continues to grow and the orders business is different from the auction business. In the auction business, we need to see holes impressions in our system for them to be available in real time for the auction, whereas our orders business is driven by higher CPMs, but on lower volume. And part of that is that our algorithms are trying to more discretely match buyers with the exact impressions that they're looking for. And part of what drives pricing in this arena is creating scarcity. So our algorithms are driven in the orders business partially by scarcity. And the third part of the orders business as well as that of the orders are processed in advance versus in real time. So the inventory or the impressions can be provisions on demand using the technology versus sitting in the auction environment in advance.

As we moved into higher quality inventory processing the growth in private marketplaces as well, and in those kinds of environment, you're going to see higher CPMs, you're going to see better quality inventory and you're going to see more controlled sellers and buyers put in place to work together. So this is part of our strategy long term and we're pleased with the direction it's going.

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

Maybe can we continue along the lines of the orders business and the automation? Maybe if we take a step back or think about some of the things that were said in the industry over the quarter about some shifts to private exchanges, can you talk about maybe where we are in that cycle? Are we in just ending one here? And then how do I think about the industry evolving? Is the industry going to primarily evolve as private exchanges initially do you think from advertisers until they get some comfort level with that and then maybe shift more towards open exchanges? If you can talk about that a little bit. And then the second question is the adoption of RTB by large brands, you mentioned P&G shifting a big portion of their online advertising towards RTB. Would you say we're in the early stages there as well or if we're in the later stages of that?

If you look at the evolution of our product suite, initially we created a static bidding product that automated the sale of inventory between publishers and applications with ad networks. And that's where we first entered the market. Then that evolved to real-time bidding, which essentially standardized those integrations. Prior, those integrations were all one-offs. Our technology, how to integrate into every single ad network's reporting system uniquely, how to standardize all the counting methods from all the ad networks. RTB put a standard in place for all those transactions to occur. Both of those protocols, real-time bidding as well as static bidding, is where we're able to build our orders business. So if you look at the evolution of RTB, initially it actually started off as a pretty controlled environment. We had features in our product called permission controls. Essentially what those permission controls did is they allowed the seller to be able to set pricing rules to be able to exclude certain buyers or only make it available to certain buyers. And those buyers could have been DSPs, they could have been ad networks, they could have been certain advertisers or agencies. From that was essentially born this term that we use in this industry called private marketplaces, which essentially is just controlled RTB. You're putting rules around RTB. That's evolved a little bit further now to what we call the private exchange. So the private exchange is basically think of it as an opt-in versus an opt-out. So companies like Comcast can set up a private exchange where it's invite-only to certain advertisers and they could set certain rules or promotions or incentives for those buyers to purchase. So I guess it was a long way of saying that I think this is just another step in…

Do you think that ultimately the private exchanges kind of continue to evolve to where everybody eventually adopts kind of an open exchange type of platform? And then just other question as far as any comments on Facebook's acquisition of LiveRail on the video side, how that may change the marketplace?

As you can tell, you've asked a couple of questions that we could spend a whole afternoon talking about. I mean this is very close to us. And Frank talked extensively about the progression of technology with respect to the various products that we've developed. And I think it's important to note that we develop products for buyers and sellers of all different kinds. Some buyers want to participate in private exchanges like GroupM just announced that they prefer to work in private exchanges rather than open exchanges. Some of our sellers want to sell some of their inventory in public open environment. Others want to work in private. And some do that. Some sell some of their inventory in private and public. So we provide the gamut or the range of products for all different types of buyers and sellers to conduct their transact of buying and selling of advertising. And what we are seeing as time goes on is that there is not only a move towards automation that we've spoken about, Frank has spoken about for seven years ago and we've added to that, but in fact there is a move to automation in the more premium inventory. And that's I think one of the directions we're seeing. As you know, we announced our own product 49bc about a couple of months ago that we intend to go to market with later in the year, dealing with automated guarantee and premium inventory. That's the next evolution of private exchanges and direct orders. So if buyers want to buy by all different methods, static, RTB, private, open, we were agnostic and we're happy to support that in all different ways. We're happy to support buyers reaching their audiences at scale and I think that's what we do better than anybody else.

I think the big media companies have had a longstanding relationship with the advertisers and with the agencies. And I think in some cases, they're perfectly fine selling their inventory in open auction environment. And in other cases, they want to maintain those relationships and grow those relationships and describe their unique differentiators. So I think that's where the private exchange capabilities come in. So I don't think it's one or the other. I think that the sellers or advertising will utilize both depending on the case. You also asked about the Facebook acquisition of LiveRail. LiveRail, great company, great team. I think it's a positive sign for the market overall. I think it's showing that the adoption of automation is important. And I think Facebook has certain been a great player in that. And I think in the world of social, they're certainly a leader. We worked a little down into really three parts. There's search. There's social. And then there's premium content. And of course, Google is leading in search. I think Facebook is leading in social. And then the premium content is the Foxes of the world and Viacoms and eBays of the world to our customers. So I think there're three segments of markets, which of course leading in the third. When it comes to video, I think Facebook has a lot of video of course on their side and they're trying to find new and better ways to monetize them. And I think LiveRail is going to be very helpful in that. But Facebook has not traditionally made their product available to third-party sellers whether that be websites or applications. And I think one of the reasons that we need to exist is to be that open independent exchange that doesn't have owned and operated properties to compete with their sellers and isn't trying to sell our own advertising from those owned and operated properties to the advertisers to put this in channel conflict with the customers, whether it be buyers or sellers. And then the last point, while video is certainly important, we again just launched our video capabilities in private beta, from an advertiser's perspective, they're trying to reach their audience in all available ways in digital whether that be display or mobile or video. And one of the advantages of our platform is that we provide the capabilities to access those audiences across all three forms, not just one.

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

Can you provide for me any more color around what led to sequential rise in take rates assuming RTB as a percentage of managed revenue kind of stayed more or less around 80% from Q1 to Q2? And if you could call out one or two factors that you think are sustainable or you felt were one-time-ish in nature? And just on the take rate side, how should we think about take rates as your business shifts more towards perhaps international or more mobile over the next 12 to 24 months?

Take rates on a sequential basis increased primarily due to an increase in RTB mix. It did increase quarter-over-quarter and sequential basis obviously considerably basis more on a year-over-year basis. That was still primary driver. And what we've been saying for some time and we'll continue to emphasize is that we do see more upward momentum on take rates than downward pressure. And there was no one-time event and I think we have certainly a leverage position and a critical position in the market. That all said, we also think that the penetration pricing strategy that we've been using is still right for the near term. And therefore while there are opportunities sometimes to increase the take rates, we would still guide investors to think of them as being relatively constant going forward.

Just a question on the buyer side of things. As you look forward to your product roadmap for direct orders, particularly from the buyer side, are there any missing strategic pieces that you think you need to build out completely from your 49bc beta launch, perhaps any first-party advertiser data or tools not just for DSPs, but more going towards agencies and trading desks, anything that you think is strategically missing there?

We have buyer capabilities really since inception. Initially the target user for the buyer capabilities was the ad networks and we provided a self-serve interface for those ad networks to be able to buy inventories at static bidding from publishers and now application developers. Real-time bidding, the product was in API for DSPs to create applications and be able to access inventory real time. And then as we've moved into the order automation capabilities, we're providing interfaces for agencies as well as the advertisers to be able to purchase directly from the publishers and the applications that exist in our platform. We are not in the business of selling media. We are in the business of supplying technology. And when these advertisers agencies are buying directly from the publishers, sometimes they might use a DSP to be able to execute campaign and sometimes they're processing that order directly with the publisher. Our job is to connect them in all the ways that both the sellers and the buyers prefer. In terms of holes, we sit on and process mounds and mounds of data, I mean 6 petabytes of data over 4 trillion bids which are essentially data signals on a monthly basis across 600 million users on a global basis. So as you can imagine, the value of that data is incredible. And I think we're really just at the tip of the iceberg in terms of putting that data to use. So we identify a hole as in taking that data and creating value from that for the buyers.

And just a housekeeping question on 49bc and InMobi. What is the expected launch or general acceptance launch of both of them?

InMobi, we're already in market with the powering InMobi Exchange. We have a number of phases that are underway. We're well through our first stage and continuing along. This is a very large partnership and we expect it to go to fruition over the course of the rest of this year and into next year. And we want to get it right. And we're working with the significant large InMobi team to get it right in all aspects of it. So we expect to see improvements in the phases through the course of later this year to reach the ultimate potential of multi-billion impressions per day. With respect to 49bc, we also see that as an evolution, as the beginning of a process of automating the order side of the business in a guaranteed manner. It's going to take both acceptance from buyers and sellers. And so we are at the beginning of that process and the industry is frankly at the beginning of that process. Now as Frank mentioned, you see companies like Proctor & Gamble and American Express and others talking about how they can automate the multi-billions of dollars of their spend per year. We don't expect to see any given product taking over the marketplace in a short period of time. We see it to be an evolution from where we are today to looking back several years from now.

With InMobi, Naveen and his team over at InMobi have been built an incredible business, just massive, massive scale, 759 million users on a global basis, 30,000 mobile apps. Typically, for publisher, there's a good 60 to 90 day ramp-up period that just gets the customer up and running, get everything configured. And then the network effects of our business kick in. So the advertisers typically follow the audience. So once they activate that audience and make it available in an automated environment, then the buyers come and then kind of activate those deal networks, more seller inventory and audience attracts more and more buyers. So as Greg way saying, I think there's a pretty quick ramp-up time. Clearly, this is an important deal and an important customer and partnership for us. But we're already up and running in market and then that will continue to grow and as network effects continue to grow, then that's something that gets fueled over many months into a year-plus.

There are no further questions at this time. I'll turn the call back over to the presenters.

Thank you all for joining us this quarter and we look forward to staying in touch as the days and months progress.