The Rubicon Project (NYSE:RUBI) and Telaria (NYSE:TLRA) filed a joint proxy statement/prospectus on Thursday, detailing the two ad tech companies' merger agreement in order to inform shareholders ahead of an opportunity for them to vote on the deal. This follows news earlier this month that the U.S. Federal Trade Commission granted Rubicon and Telaria early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, increasing the likelihood that the deal will close in a timely fashion.
Alongside the filing of this prospectus, Rubicon and Telaria released preliminary results for the fourth quarter, giving investors more up-to-date insight into what the combined company will look like.
Estimated preliminary revenue for the two companies during Q4 totaled $68.5 million, within the companies' combined guidance ranges for the top-line figure. But advertising exchange specialist Rubicon boasted stronger-than-expected revenue during the period, while connected TV-focused Telaria's was soft.
Rubicon management estimates its fourth-quarter revenue rose to $48.5 million -- at the high end of its guidance for $47.0 million to $48.5 million and above analysts' average forecast for revenue of $47.7 million. The company also said it estimates its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for both the fourth quarter and the full year to be above the midpoint of guidance ranges for those periods. For the full year, management was guiding for an adjusted EBITDA margin in the mid-teens. For Q4, specifically, Rubicon had guided for an adjusted EBITDA margin that is "above 30%."
Telaria's fourth-quarter revenue is estimated to be approximately $20 million, missing a consensus estimate for $21.8 million and coming in about $600,000 below the low end of management's guidance range for the period. But Telaria said its connected TV (CTV) revenue climbed to about $10 million -- up 55% year over year and accounting for half of total revenue for the first time. This is impressive growth considering the tough comparison Telaria was up against in the year-ago quarter when CTV revenue soared 232% year over year.
"CTV continues to drive the growth of our business and exceeded our expectations in the fourth quarter and for the full year," said Telaria CEO Mark Zagorski.
Telaria also noted that "adjusted EBITDA for Q4 and full year 2019 are expected to be positive, with full year adjusted EBITDA representing a significant improvement over the same period last year."
Looking good together
Highlighting the two companies' strong growth trajectories, Rubicon's total estimated revenue in 2019 was up 25% year over year, rising to $156 million. Telaria's estimated 2019 revenue increased 23% year over year to $68 million, with CTV revenue jumping 100% year over year to $30 million.
Of course, Telaria's non-CTV business is facing headwinds, declining in both Q3 and Q4. But this is where Rubicon can come in, bringing more value to publishers outside of CTV. As Zagorski explained in the company's Jan. 30 update, "We believe bringing our two companies together will enable us to accelerate the growth of our CTV business and bolster our capabilities in desktop and mobile video."
Meanwhile, Rubicon gets access to Telaria's booming CTV business, which has a compelling addressable market as linear TV advertising shifts to CTV, fueled by rapid growth in CTV content, ad inventory, and viewing.
Together, the two companies will form the largest independent sell-side (the side of advertising transactions that helps maximize publishers' ad inventory yield) advertising platform. They plan to scale their technology and their reach by offering "a single platform for transacting connected TV, desktop display, video, audio, and mobile inventory across all geographies and auction types," the companies said in a joint press release when the deal was first announced last December.
Along with the two companies' preliminary results on Thursday, Rubicon CEO Michael Barrett implied that stakeholders are excited about the deal. "Reactions from buyers, publishers, stockholders, analysts, and employees have been extremely positive and we look forward to capitalizing on the additional revenue opportunities this combination creates," he said.
A compelling valuation
Highlighting the attractiveness of the combined company is its conservative valuation relative to The Trade Desk -- the largest independent buy-side (the side of advertising transactions that helps ad agencies and brands optimize their ad spend) platform. Including Rubicon and Telaria's preliminary revenue estimates for Q4, the combined company has trailing-12-month revenue of $224 million. With a combined market cap of about $1.05 billion, this translates to a price-to-sales ratio of about 4.7 -- significantly lower than The Trade Desk's price-to-sales ratio of more than 21.
If the combined company can fortify its lead on the sell-side and become the go-to destination for premium programmatic inventory, Telaria and Rubicon could become an ad tech powerhouse.
The deal could close this quarter. Rubicon's Barrett, who is slated to take the helm of the combined company, said in an investor presentation on Jan. 14 that the company hopes the deal will close in the first quarter of 2020 -- if not, then "leading into Q2."
The merger, of course, is subject to shareholder approval and other customary closing conditions. But given the Street's response to the merger news based on the two stocks' sharp gains since the deal was announced in December, shareholders are likely on board.
The deal is structured in a stock-for-stock merger in which Telaria shareholders will receive 1.082 shares of Rubicon Project stock for every Telaria share they own.