Magnite, Inc. (MGNI) Q3 2017 Earnings Report, Transcript and Summary

Good day, everyone and welcome to The Rubicon Project Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that today's is being recorded. I would now like to turn the conference over to Nick Kormeluk. Please go ahead.

Thank you, operator and good afternoon, everyone. Welcome to Rubicon Project's third quarter 2017 earnings conference call. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, President and CEO; David Day, our CFO. I would like to point out that we've posted slides to accompany today's presentation on our website. Before we get started, I would like to 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 related to our anticipated financial performance, including without limitation, revenue, advertising spend, profitability, net income or loss, adjusted EBITDA, earnings per share and cash flow, strategic objectives including focus on header bidding, mobile, video, order and private marketplace opportunities, investments in our business, development of our technology, introduction of new offerings, the impact of our acquisition of nToggle and its traffic shaping technology on our business, scope and duration of client relationships, our fees, business mix, sales growth, client utilization of our offerings, our competitive differentiation, our leadership position in the industry, our market share, market conditions, trends and opportunities, user reach, certain statements regarding future operational performance, measures including ad request, fill rate, advertising, spend, take rate, paid impressions and average CPM and factors that could affect these and other aspects of 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 that are 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. 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 2016 annual report on Form 10K and quarterly reports on Form 10-Q for the three quarters of 2017 under the headings Risk Factors and Management's Discussion and Analysis of Financial Conditions 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 and in the financial highlight deck, which we have posted to the investor relations website @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 on the future of these metrics. I encourage you 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 and good afternoon, everyone. Welcome to our Q3 '17 earnings call. When I arrived March, I focused a team on accelerating our efforts on header bidding at the time it was the greatest and most immediate opportunity that we had to win back market share. And today, I'm happy to say that the team has made significant progress against this objective in just six short months. The amount of inventory that we have access to has grown by 50% year-over-year. According to a recent report issued by Rockford, within Prebid open source client-side header bidding implementations, we are now one of the top two revenue sources for desktop inventory being sold through these implementations and a mobile ad spend, we were neck and neck with Facebook's audience network as the leader. And with the launch of our open-source server-side header bidding solution, we expect to further grow our market share and strategic position within header bidding as sellers move towards the use of open-source server-side solutions to meet their monetization needs in a rapidly evolving market. Now that we are no longer playing catch-up in header bidding, we are shifting our efforts to focus on differentiating our platform. In alignment with our strategy, which I outlined on the earnings call last quarter, I see four areas of differentiation. First, cost. We are committed to becoming the low-cost provider. Second, transparency and choice, clear, fair and transparent auction dynamics that support multiple versions of header bidding implementation. Third, the programmatic supermarket, if it can be bought or sold programmatically, you can find it on the Rubicon project exchange and fourth, inventory quality and brand safety, which have always been key differentiators for our exchange and an area that we plan to continue to leverage. Let's start with cost. Earlier this year, we proactively made cuts to our pricing that lowered our total take rate from 24% in Q4 2016 to what's now just under 17% at the end of Q3. We did this to be more competitive and have improvements to our win rates from these changes. However, to win a greater share of that spend from buyers and to provide the transparency they want, we simplified our pricing model and completely eliminated our buyer fees across our platform as of November 1. This means that buyers will find simplicity and clarity working with us and their budgets will now go further in reaching the audiences that are most important to them. As evidenced through direct feedback and public commentary, buyers want more transparency into where their dollars are being spent and where their ads are appearing. They no longer want or need to work with dozens and sometimes more than 100 different exchanges to reach the audiences that they want. Buyers want to consolidate their spend on the platforms that deliver the best results and we believe that Rubicon project is strategically positioned to capitalize on this new trend due to the elimination of our buyer fees. The elimination of our buyer fees drives lower overall take rates than we first envisioned resulting in greater near-term operating losses, but it's the absolute right action to position us for the future. In fact, we are already receiving positive feedback from key buyers on our exchange, including Medium Mass who told us that they support our decision to enact a simpler, more transparent fee structure as it furthers enables their clients to efficiently purchase impressions and audiences that are the most valuable to them, while gaining greater visibility into the supply chain. The heart of transparency at Rubicon project is delivering a clean, fair, efficient and transparent marketplace so our clients can optimize their businesses to achieve the best results. Rubicon project has traditionally only offered a modified second price auction within its open and private marketplaces. However, since the introduction of header bidding, there’ve been a variety of auction dynamics being used by different exchanges and supply-side platforms, which directly impacted the ability of buyers to win valuable impressions as their bidding strategies were optimized for only second price auctions. As an exchange, our goals to facilitate the transaction of inventory at a price that is competitive for our sellers, but still aligned with the value it we will deliver to our buyers. To that end, we've been assessing the impact of auction dynamics in our marketplaces. In the third quarter, working closely with our demand and supply partners, we initiated more comprehensive testing that examines the effects of modified first and modified second price auction dynamics in our current environment. This testing was initiated on all header bidding traffic on our exchange in early September. We confirmed that the change of dynamics paired with lower marketplace fees and in some cases, no buyer fee resulted in better results for both our buyers and sellers. For instance, the amount of revenue that a seller achieves through our header bidding solution has increased steadily since the initiation of testing and we've also seen a positive upward trend in the win rates for our buyers as well as an increase in ad spend. These results were achieved before the deployment of nToggle's technology across all of our U.S. buyers. However, upon the integration completion, which remains on track for Q4 2017, we expect to see even better results related to buyer win rates, publisher revenue and ad spend increases in the future. We will share more around the results of auction dynamics tests as we have them. Now that I've discussed the steps we're taking to become the lowest cost and most transparent platform buyers and sellers, I'd like to shift focus and discuss the progress that has been made in becoming a high-volume global ad exchange. We've achieved great progress towards our goal of being the supermarket of programmatic inventory. If it can be bought or sold programmatically, you can find it on the Rubicon project exchange. Today buyers have been on every type of ad inventory including desktop, mobile web, mobile in app, audio, video, digital out of home and more and sellers can reach the premium brands and advertisers that they want associated with their sites and applications. By continuing to grow the amount and variety of inventory types on our platform, we believe that over time buyers will migrate off of specialized smaller platforms and increasingly conduct business with scaled one-stop platforms like ours. This quarter mobile ad requests have increased by 95% year-over-year and mobile now accounts for nearly half of our ad spend. One of the largest areas of growth within mobile and mobile app specifically is audio. We've seen a 3X increase in ad requests for audio, one of the emerging media channels that we've been investing in. This growth is due to the increasing global user base of streaming audio platforms like Spotify. Our video business continues to outpace market growth with ad spend up 73% year-over-year as compared to 26% year-over-year growth for the industry according to a recent Nielsen report with video ad requests growing more than 60% year-over-year in Q3. And today I'm happy to announce that there are more than 20,000 buyers accessing video inventory through the Rubicon project exchange. And last but not least there is orders, we've seen continued growth in orders with the most meaningful contribution coming from private marketplaces also known as PMPs. We've seen increasing demand from leading global agencies and holding companies that are looking to reach their key target audiences in a brand-safe environment and our PMP technology enables them to strike deals for specific inventory and audiences directly with publishers and app developers. We've also made strides to make access to these private marketplace packages as easy and accessible to buyers as possible through new partnerships with leading DSPs. Most recently we signed a partnership agreement with Google to make our PMP packages available to buyers through the DoubleClick Bid Manager marketplace, the first partnership of its kind for Google's DBM marketplace. Partnerships like this offer a unique value for our sellers as it makes their inventory packages available to more buyers. The last key differentiator that I'd like to discuss is one that as I previously noted has been a unique selling point for Rubicon project for a very long time; inventory quality and brand safety. This was an area that was invested in during the early days of Rubicon project and we remain vigilant and constantly evolving our processes and technology for identifying and blocking both bad ads and bad actors from entering our exchange. Our process is unique as it requires human oversight in addition to cutting edge technology. This is an area that we intend to focus on in order to deliver a best-in-class experience and results for both our buyers and sellers. The investments that we've made in this area position us well for new industry initiatives such as ads.txt. There's been a lot of change in the industry however, nothing has changed in terms of Rubicon project strength of offering and strategic position. As with any exchange, our growth is linked to our ability to drive positive network effects. By powering an exchange that is as efficient and cost-effective as possible for buyers and sellers, we are able to better -- we're better able to capitalize on positive network effects and further increase our market share. We strongly believe that we can and will win in the new ecosystem and in the long run if we match our superior tech offering and client service with the right pricing for the market. With that, I will hand the call over to David to give more detail on our financial performance in Q3 2017.

Thanks Michael. As Michael highlighted, we continue to take very specific actions in the third quarter to execute against our strategy to make Rubicon project the most attractive platform for buyers and sellers to trade on for their programmatic advertising needs. A long-term positive outlook for programmatic digital advertising growth makes our space compelling and we are well positioned in the most attractive growth areas of programmatic. However, getting back to growth will require investment in operating losses. As evidenced by our third quarter losses, which we expect will further increase in the fourth quarter due to the elimination of all our buyer fees and much lower corresponding take rates. Turning to our results, for the third quarter of 2017, we generated $195 million in advertising spend, $35.2 million in net revenue, adjusted EBITDA loss of $2.3 million, a loss of $0.14 per share in non-GAAP EPS. Total advertising spend decreased 5% in Q3 versus Q2 of 2017 and declined by 20% year-over-year, driven primarily by desktop ad spend, which was lower than prior year by 60% and by lower fees across our platform. This is in line with our prior comments that ad spend has begun to stabilize at levels experienced in the first half of 2017. Total mobile ad spend increased nicely with a 7% improvement over Q2 2017 and a 10% increase year-over-year, driven by mobile app. Mobile app ad spend, which is an area of focus for us continue to grow very nicely and is now over half our total mobile business. Ad spend mix for the third quarter was 47% mobile and 53% desktop, representing a continuing trend towards mobile from Q2 of 2017 when mobile represented 42% of total ad spend. This is also represents a sizable increase over Q3 of 2016 when mobile made up 34% of total ad spend. Non-GAAP net revenue for the third quarter declined 18% sequentially from Q2 2017, primarily due to a decrease in take rate and secondarily, from slightly lower ad spend. Non-GAAP net revenue declined 42% year-over-year, primarily due to a decrease in take rate ad spend and our exit from the intent marketing business in Q1 of 2017. Our take rate was 18.1% in the third quarter of 2017, a decrease of 290 basis points sequentially and 680 basis points on a year-over-year basis. Our Q3 2017 exit take rate was 16.9% and will continue to decline in Q4 due to the removal of all of our buy side fees effective November 1. Take rate is defined as non-GAAP net revenue divided by total ad spend. The year-over-year decline in take rate was primarily due to our price reductions made to improve our value proposition and grow share in a more competitive environment due in large part to header bidding. The sequential decrease in take rates in Q3 is largely related to the specific pricing actions we took as discussed last quarter. In addition, mix shift also had an impact on take rates; for example, the shift to header bidding and the shift from RTB to orders with header bidding and orders both carrying lower take rates. Operating expenses for the third quarter of 2017 were $51 million excluding a goodwill impairment charge, down from $68 million in the same period a year ago, representing a decrease of 25%. The impairment charge taken was for all of the remaining $90.3 million goodwill on the balance sheet, including goodwill from our acquisition of nToggle during the third quarter. The reduced near-term cash flow outlook as a result of lower take rates and the decision to eliminate our buyer transaction fees combined with the lower company's share price and market capitalization were drivers of the impairment charge. On an adjusted EBITDA basis operating expenses for the third quarter were $37.5 million, down from $45.3 million in the same period a year ago, reflecting the impact our cost cutting initiatives from late 2016 and earlier this year. Net loss was $103.6 million in the third quarter of 2017 as compared to net income of $3.5 million in the third quarter of 2016. The change in net loss year-over-year was due to the $90.3 million goodwill impairment charge and due to lower GAAP revenue, partially offset by reduced operating expenses and a lower net tax benefit for the quarter. Adjusted EBITDA loss was $2.3 million in the third quarter of 2017 as compared to positive adjusted EBITDA of $15.3 million reported in the same period one year ago. The decrease in adjusted EBITDA was driven primarily by a decrease in non-GAAP net revenue, partially offset by lower costs as previously discussed. Diluted GAAP loss per share was $2.11 for the third quarter of 2017, compared to diluted GAAP earnings per share of $0.07 in the same period in 2016. Non-GAAP loss per share in the third quarter of 2017 was $0.14 compared to non-GAAP earnings per share of $0.20 reported for the same period in 2016. Capital expenditures including purchases of property and equipment as well as capitalized internal used software development costs were $11.5 million for the third quarter of 2017. We closed the third quarter of 2017 with $139 million in cash and marketable securities, a decrease of $53.6 million from the quarter ended June 30, 2017. $38.6 million of this decrease was a result of the purchase of nToggle. The balance of the reduction in cash and marketable securities resulted primarily from CapEx investment and from cash used in operations. Free cash flow for the third quarter of 2017 was negative $15.1 million as compared to positive cash flow of $6.1 million during the second quarter of 2017. This negative cash flow resulted from cash used for operations and capital expenditures. We calculate free cash flow as net cash provided by operating activities less capital expenditures including capitalized software development costs. The pace of change in our industry experience this year is unprecedented. As Michael mentioned, we recently decided to be much more aggressive in our pricing and have eliminated our buyer fees, resulting in significant changes to our near-term financial performance. I will now provide color on some key performance metrics. We believe ad spend will show sequential improvement in Q4 due to seasonality and early signs of positive traction and estimate it will increase in excess of 20% from the $195 million level reached in Q3. Please keep in mind there has typically been a seasonal decline from Q4 to Q1. With the removal of all our buyer fees effective November 1, we expect that take rates will decline in Q4 by 400 to 500 basis points from our 16.9% Q3 exit rate. This move will also likely lower Q1 take rates by an additional 100 to 150 basis points to reflect the full quarter impact. We continue to estimate that Q4 adjusted EBITDA operating expenses will modestly increase over Q3. CapEx expected for Q4 will be approximately $20 million consistent with plans and typical CapEx spending patterns. We are working hard and investing heavily to be the lowest cost and highest value exchange in the industry and are very excited to be in a market leading position for our customer's needs. We remain confident and optimistic that our numerous, initiatives including our elimination of our buyer fees will continue to increase supply, improve our win rate, offer the lowest cost per transaction and drive market share gain. We are very aware of the short-term financial impact that our recent pricing decreases will have and are carefully monitoring our cash levels. As we previously discussed, we are for the moment willing to use cash to fund operations and invest in initiatives to drive revenue growth. However, we will be vigilant in managing our costs and are focused on gaining efficiencies through both scale and operations. I'll now return the call over to Michael for some closing remarks.

Thanks David. As discussed, our total take rate for Q3 2017 was 18% and we exited the quarter slightly lower than 17%. The auction dynamics tests in combination with the elimination of our buyer fees across our platform will further reduce take rates in Q4 2017 and into 2018. In the past I've noted that we believe the industry take rates will settle between 15% and 20%. However, now we believe that in order to be successful, exchange take rates will be between 10% and 15%. I am very proud of our accomplishments over the course of the last few months, despite the fact that our near-term results are behind where we hope they will be. However, with the changes in our industry, we believe that our total addressable market has grown and will continue to grow with further consolidation in ecosystem. So, we've made a conscious decision to make bolder moves to capitalize on the opportunity. We recognize that we are sacrificing near-term growth and profitability, but it's so we can own a larger piece of the more than $500 billion being spent on ads. The journey to get back to growth will not be an easy one, but we remain confident we have the right strategy and team to deliver. With that, I thank you for participating and operator you can open the line for Q&A.

Thank you. And we'll now begin the question-and-answer session. [Operator instructions] And the first questioner today will be Kerry Rice with Needham. Please go ahead.

Thanks a lot. On the take rate, it seems to slide given your guidance, it's going to settle out 10% to 12% little bit low or in the towards the lowering of the range of what you said the industry is. What -- I guess what gives you confident that it settles out there is the first part of the question. And then the second part is nToggle, does that help at all of the take rate or now that you've eliminated the buyer side of that cost. Is nToggle just more of an engagement, certainly helps as a tool for the buy side, but is it more of just an engagement to keep them spending more on the platform versus helping any kind of take rate there. And then I have one quick follow-up question.

Thanks Kerry. So what gives us confidence why the take rate is going to settle where we think it will? I'll answer it and let David opine as well, but having been in the marketplace for 15 so many years, now that we have stripped the fee down to just publisher side fees because that's essentially what's left and how we make money, that business has not been nearly as dynamic as the buy side fee business and boy did we live a little dynamic rollercoaster this year with that. It's been very steady. There are longer term contracts. The pricing has been very explicit with our selling partners and if anything, we get the sense through market intelligence that we're actually below market in our seller fee contracts, giving us some hope that perhaps there is some ability to move in some of our customers moving it north. But you point out is a very dynamic market. Our certainty is very strong. From a guarantee standpoint it's always tough to do that, but I really think for the foreseeable future, which would mean 2017 and 2018 and beyond that we have settled where we're going to settle. Of course, to just one caveat that Kerry and that's a mix -- media mix, similar products like orders carry a lower take rate and so we'll keep a careful eye on that and give any kind of findings to that that may have any impact to the take rate. David, do you have anything to add to that? And then the second question nToggle, nToggle was always -- we perceive nToggle as something that can help with win rate a lot more than take rate and so nothing's changed there. DSPs are getting overburdened with traffic, traffic that they don't even value, but they still have the process and incur the cost. So, the big hope of nToggle still lives very, very strong and that is we can help our buying partners see more the traffic they want, have the process, lessen the traffic they don't and that will lead to higher win rates on our platform, which obviously will then lead to higher spend and net revenue for us.

Okay. Great. And then just the follow-up is we heard from one of the buy side firms that at least their guidance is being impacted by the rollout of IOS, Apple IOS 11, that seems like that would impact the publishers as well, their ability to sell impression. So, have you seen and certainly, but have you seen anything there that might impact impression volumes and your ability to sell those impression?

Yeah, a terrific question and obviously we saw the result as well. I think that certain buyers are going to be much more impacted upon it folks that re-target -- this is going to have I think a disproportionate impact to them and say a brand buyer that is looking to target a certain audience. We'll keep a close eye on it. I don't think we've seen anything globally on our platform where we were like, oh that that's why that's happening. So, to date we haven't seen the impact of it.

Okay. Thank you very much.

Thank you, Kerry.

And the next questioner today will be Jason Kreyer with Craig-Hallum. Please go ahead.

Okay. Thanks for taking my question. Michael, can you just provide a little bit more color on the decision to eliminate the buyer's fees? Obviously, I'm sure you did some testing and ran through some different scenarios and maybe give us some of the green shoots on your takeaways during that testing that made you more confident whether it was better win rates, better inventory, any numbers to support that would be great?

Sure, and keep in mind, we eliminated buy side fees yesterday. So, the body of evidence is yet to come, but you correctly eluded to some testing that we did starting in September. That testing was generally around auction dynamics as we pointed to first modified -- first price modified, second price, which then had -- the byproduct of that was in instances sample size did include buyer side fees. And when we saw a modified first coupled with no buy side fee, we saw increase in revenue for publishers. We saw increase in win rate and downstream auctions and it really embolden us to say what if we expanded the sample set and that was the primary driver that we saw, a real opportunity here to grow market share and grow revenue. The secondary driver is there is no question that buy side fees in general wouldn't exist in an not-too-distant future and so we figured let's get out ahead of it. Let's use it to our advantage when others platforms are going to struggle as to how to work their pricing around it, gain market share when others are slow to adopt no buy side fees and in general lean into it because we think it's transparent and we think it's the right thing to do for the ecosystem.

And then moving on -- the conversation that you're having with your customers regarding server header bidding, how have those progressed over the last several months and what's your perception of market adoption or any thoughts on timing there?

Yeah great question. So, I think we've been pretty clear to say that Q4 was going to be -- it's traditionally a lockdown timeframe for publishers. So, any major tech decision, any implementation is shelved until Q1 Q2 timeframe because of the importance of the volume and revenue of Q4. But from what we've heard it it's kind of a two-step process rate Jason. It's open source like so we pitched the concept of why open source is correct, transparency fair etcetera and then our version of open source and then lastly, implementing on the server and we have some real live results that I'm sure we'll be able to talk about on our next call about some great engaging conversations with sellers and I think it's going to move pretty fast. As we get out of the Q4 timeframe there is a lot of folks that are deciding now and then we'll want to start implementation as soon as possible. So, we'll keep you posted, but so far so good. It seems like the bets we made in this area are going to pay off.

A couple times that you referenced our model, I think you're referring to the pre-debt model and I just want to make sure, are you still working with some other third parties on server-to-server?

Sure, so part of our choice differentiation for our publishing partners is that if they come to us and say, hey, all things being equal we're decided to go with Amazon Solution. We support that and we're closer to Amazon. We support and we're closer to Google. We'll support and work close with anyone that's part of the Prebid organization as long they code their solution to the standards of the organization. We'll support that as well. Obviously, our preference is our clients that adopt our flavor, but we're going to be very facile as it relates to working with others because we think that's what our clients want and will ultimately lead to an increase in added pressure on the platform, which will downstream result in revenue.

Okay. Just trying to sneak one last one in, just trying to understand the optics of the write-down on nToggle help me understand why you'd take the goodwill write-down on that one?

Sure, so it's not really write-down on nToggle. So not to get too deep into the accounting use but for any acquisition that we have, goodwill is pulled into a amorphous group of our pool of goodwill. And so, we assess that goodwill then where a single reporting unit or a single entity and we assess that goodwill just against market capitalization and valuation that we went through with an outside valuation firm on a macro basis. So, from an nToggle perspective, the minute we purchased nToggle that goodwill was really -- is separated from the results of nToggle. So, our outlook for deployment of the nToggle technology we're still extremely excited about it. We plan to get that rolled out by the end of this quarter here in the U.S. We don't see any change in the prospects of the potential left in revenue that will provide us. So, it's really separate from prospects of nToggle directly.

Thanks guys.

And the next questioner will be Mark Kelley with Citi. Please go ahead.

Hi this is Nick Jones for Mark Kelley. Thanks for taking my question. Can you walk through the take rate pressure in Q3 since I thought the buyer fees since you cut November, can you also talk a little bit about how we should think about spend growth and the DBA partnership become a bigger part of the revenue? And then lastly, are you guys seeing anything from Apple's ITP and Safari, thanks?

Sure, I'll take the first one or two. Yeah so in the third quarter as we talked about last quarter, our exit rate previously was 18.9% and we expected Q3 to come in something below that and that held true for the first two months of the quarter. We talked about some very significant and broad-based testing that we undertook in September and that testing was broad-based enough that that drove us somewhat lower take rate in September than the prior two months and so that's why you have this exit rate of 16.9% and of course a average rate for the quarter of 18.1%. And so, there was a little bit of drop in that last month, primarily driven by that testing. So that drove Q3 take rate activity and of course that testing is what led to this decision to eliminate our buyer fees. Sorry and the second question…

I was just wondering about the spend growth the DBA partnership becoming a bigger part of revenue?

I am sorry Nick, are you referring to press release that we issued about DBA and the private marketplace connection?

Yes.

Yeah, we think that it'll be part of the order story and what we're seeing is a trend is the biggest advertisers that are buying programmatically are as concerned about environment as they are price and that's definitely pushing more and more dollars to the order of business and this is just an easier way for them to access our private marketplaces. So, it definitely will play a role in the shift that we've seen underway for the last several quarters.

Okay. And then lastly any other thing on Safari's ITP?

Yeah, so we had originally addressed it a couple of calls back, we have not seen any direct impact in Q4. Obviously, we deal with thousands of buyers and so I guess it's a fair statement to say that collectively there hasn’t been an impact across the program market space. We know that certain buyers that have specialties like re-targeters are probably going to be the first hit from it, but we're keeping a watchful eye on it, but right now nothing to report.

Great. Thank you.

Thank you.

[Operator instructions] And the next questioner today will be Sameet Sinha with B. Riley FBR. Please go ahead.

This is actually [Lee] on for Sameet. Thanks for taking my questions. First off, I was wondering if you guys can may be talk about as a percentage of revenue what buyer’s fees are?

Well, if you look at our exit rate of Q3 of 16.9% and we're attributing 400 to 500 basis points decrease in this quarter and another 100 to 150 in the next quarter, those decreases are primarily resulting from our elimination of buyer fees. So that gives you an order of magnitude on the scale.

Okay. And then with take rate going down to the 10% to 15% range and eminent to that last point, you guys are taking out fees so that it's a very core offering. Are there any other sorts of friction points if you will that could potentially be eliminated that would further pressure that take rate?

No, we're very, very explicit, if you even to our website post this earnings, we've posted links to exactly how we make our money, exactly where it comes from and you'll see that there is no other primary source of revenue other than our seller fees. And as I said before, those are generally speaking contractual relationships that are longer in term and very explicit in terms of rate and they have held steady for a long period of time here Rubicon.

Yes, and as Michael for, those rate sell side rates were heavily discounted because we did have buyer fees and so there is some opportunity there in the future we're not going to focus on that from an external results perspective too much right now, but there's some potential upside from that. And then on the downside there are -- there is a mix as Michael mentioned earlier that orders in particular has a slightly lower take rate and so as mix changes, that rate could go down a little bit, but order of magnitude, nothing at all compared to the recent changes that we've seen.

Okay. And then I know you guys announced Google in the last couple weeks, Amazon is also onboarded, can you just talk about the partnership landscape and where there are other opportunities to integrate?

Sure, I think you hit the two largest by far, the other folks that we would work with would be other folks in the open source, the open source consortium, the Prebid.org so anyone that adopts that technology, we've as a member of the organization and acting lead role in it for this year, we've committed to work with partners that have created open source or backing away on its proprietary client-side implementations. We don't feel as though it provides the best monetization experience for our publishing partners and our buyers and it certainly is a great consumer experience in terms of the impact of what occurs with all that stuff on the page. So, if a server-side, it's open source, if it's server side, the PDA server-side and it's Amazon we'll lean into it, would imagine anyone else as the offering will take a look, I think we want to just be really flexible here and we think it's the right thing to do and it runs transparency. And we have a fair fighting shot in partnering with someone will do it if our client wants to do.

Okay. Thanks guys.

Thank you.

And there are no further questions. So, this will conclude the question-and-answer session. I would now like to turn the conference back over to Nick Kormeluk for any closing remarks.

Great. Thank you all for joining today. We look forward to speaking with you again on our fourth quarter earnings call as well as seeing you at a couple of upcoming financial conferences in January, which is the City Conference at CES as well as Needham in the second week of January. Thanks again.

And the conference has now concluded. Thank you all for attending today's presentation. You may now disconnect.