October 25, 2016 Last Updated 4:23 pm

Rocket Fuel reports lower revenue, net loss of $10.7 million

‘Unexpected weakness’ in political advertising leads to disappointing earnings report for programmatic marketing platform

REDWOOD CITY, Calif. – October 25, 2016 — Rocket Fuel Inc., a leading programmatic marketing platform provider, today announced financial results for the third quarter ended September 30, 2016.

“Rocket Fuel’s third quarter net revenue of $62.6 million was slightly below our guidance of $63 to $66 million primarily due to unexpected weakness in our political and EMEA businesses,” said Randy Wootton, chief executive officer. “While we are disappointed with our top-line performance, we are pleased to see steady growth in our platform solutions business, with revenue increasing 141% year-over-year. Our ongoing focus to drive further operational improvements was evident, as we delivered adjusted EBITDA at the high-end of our guidance range, representing strong improvement both sequentially and year-over-year. Additionally, we had a good quarter from a free cash flow perspective, and made progress towards our stated goal of being free cash flow positive for 2016. We remain committed to our plans to return the company to growth and build a successful platform solutions business.”

Financial Highlights for the Third Quarter of 2016

GAAP Revenue: $109.7 million, 2% below last year’s third quarter total of $111.8 million.

Revenue derived from North America was $90.9 million, down 3% from last year’s third quarter. Revenue from outside North America was $18.8 million, up 2% from last year.

Platform Solutions revenue grew significantly year-on-year, representing 19% of GAAP revenue in the third quarter versus 8% in last year’s third quarter. Media Services revenue was 81% and 92% of GAAP revenue, respectively.

Non-GAAP Net Revenue: $62.6 million, down 8% compared to $68.2 million non-GAAP Net Revenue in the third quarter of 2015.

GAAP Net Loss: $(10.7) million, or $(0.24) per diluted share compared to a net loss of $(136.6) million, or $(3.19) per diluted share, in the third quarter of 2015.

Non-GAAP Adjusted EBITDA: $6.6 million compared to $3.4 million in the third quarter of 2015.

Non-GAAP Adjusted Net Loss: $(3.6) million, or $(0.08) per diluted share, compared to an adjusted net loss of $(7.0) million, or $(0.16) per diluted share, for the third quarter of 2015.

GAAP Net Cash provided by Operating Activities: $8.3 million, compared to $9.5 million in the third quarter of 2015.

Non-GAAP Free Cash Flow: $3.8 million, compared to $5.6 million in the third quarter of 2015.

Cash and Cash Equivalents: $78.7 million as of September 30, 2016, up sequentially by $12.0 million from the second quarter 2016. Cash and Cash Equivalents was $78.6 million as of December 31, 2015.

Top Customers: Revenue from top 50 customers was 59% of total revenue, compared to 49% in the third quarter of fiscal year 2015. Revenue from top 250 customers was 86% of total revenue, compared to 80% in the third quarter of fiscal year 2015.

Employee Headcount: 858 as of September 30, 2016, down from 962 in the third quarter of 2015.

Financial Outlook for the Fourth Quarter of 2016

For the fourth quarter of 2016, the Company expects:

– Non-GAAP net revenue between $57 million and $62 million.

– Non-GAAP Adjusted EBITDA between $1 million and $6 million.

The Company does not reconcile its forward-looking non-GAAP financial measures, net revenue and Adjusted EBITDA, to the corresponding GAAP measures due to the high variability and difficulty in making accurate forecasts and projections in respect to the interplay between revenue and the corresponding margins. Our Media Services and Platform Solutions have different media margins and the pace of the transition of some of our business from Media Services to Platform Solutions, the pace of adoption, or activation of existing Platform Solutions customers, and the corresponding future margins cannot be reasonably predicted. The GAAP measure net income includes stock-based compensation expense that is impacted by future hiring and retention needs, and the future share price of Rocket Fuel’s stock. Similarly, restructuring charges, which we exclude from our non-GAAP measure Adjusted EBITDA, are impacted by future decisions and by actions involving our facilities that are difficult to predict. The actual amounts of these excluded items will have a significant impact on the Company’s GAAP net income. Accordingly, reconciliations of these two forward-looking non-GAAP financial measures to the corresponding GAAP measures are not available without unreasonable effort.

Management Changes

Today, the Company announces that Stephen Snyder, an experienced SaaS executive, will join the Company as its Chief Financial Officer, effective November 10, 2016. Mr. Snyder will succeed Rex S. Jackson, who is resigning from the Company, effective October 26, 2016, to pursue another opportunity. Mr. Snyder brings to Rocket Fuel more than 20 years of financial leadership, most recently as CFO of a technology platform company in the energy industry, and having served in executive roles in finance, operations and sales at Adobe Systems and Hewlett Packard. Beginning on October 27, 2016, Henrik Gerdes, the Company’s Vice President, Corporate Controller and Treasurer, will serve as interim Chief Financial Officer.

“Stephen’s financial expertise will be invaluable to Rocket Fuel as we continue our transformation into a SaaS-based platform. He is a great addition to our strong management team,” said CEO Randy Wootton. “Rex has made many valuable contributions to our company that have set us up for success, and I wish him the best of luck in his new role.”

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