Q4 2020 Magnite Inc Earnings Call
Good afternoon, and welcome to the Mcknight fourth quarter 2020 earnings Conference call.
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Please note this event is being recorded.
I would now like to turn the conference over to Nick Hormel, Luke head of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to magnates fourth quarter 2020 earnings Conference call. As a reminder, the comparisons you will see in the 10-K as reported included the combined financial results for the fourth quarter of 2020, but for 2019 and for the first quarter of 2020. The results do not include Gloria given the merger date.
April for 2020 during.
During the course of this call from you refer to results and associated year over year comparisons with the phrase as reported we are referring to the basis as reported in our 10-K, when we will make comments referring to pro forma comparisons we are using combined company metrics, including <unk> for the prior year period in 2019, and the first quarter of 2020.
As the basis for comparison in order to provide additional detailed insights that management also uses to evaluate our business performance.
When discussing pro forma information as it relates to the spot ex acquisition. We are also including the preliminary results of spot ex for the relevant period.
As a reminder, this conference call is being recorded joining me on the call today are Michael Barrett CEO with day to day our CFO.
I'd like to point out that we have posted financial highlights slides to our Investor relations website to accompany today's presentation.
Before we get started I will 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 concerning our anticipated financial performance and strategic objectives, including the.
Potential impacts of COVID-19 on our business as well as statements concerning the proposed acquisition of spot ex the timing or terms on the closing of the transaction and the potential benefit from synergies, we expect to realize there from.
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 and 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.
Discussion of these and other risks uncertainties and assumptions is set for it in the company's periodic reports filed with the SEC, including our 2020 annual report on form 10-K and prior filings.
Take no obligation to update forward looking statements for relevant risks for.
Our commentary today will include non-GAAP financial measures, including adjusted EBITDA and with respect to pro forma comparisons that include spot ex results non-GAAP net revenue.
Reconciliations between GAAP and non-GAAP metrics for our reported results for the preliminary spot ex results can be found on our earnings release and in our financial highlights desk that is posted on the Investor Relations website, we define cash flow as adjusted EBITDA less capital expenditures, which excludes changes in working capital.
Net revenue as GAAP revenue less amounts paid to sellers that are included with costs within cost of revenue.
We'll be referencing preliminary non-GAAP net revenue on adjusted EBITDA results for spot ex for the year ended 2020 on for the fourth quarter of 2020. These results are preliminary and unaudited and are subject to change also note that we will use the term online video or O. L V, where we previously used the term non CTV video.
<unk> 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 maybe onetime in nature, and we may or may not provide an update on the future of these metrics I encourage you to visit our Investor Relations website to access our press release financial highlights deck periodic SEC reports and webcast replay up.
Today's call to learn more about mcknight with that I'll now turn the call over to Michael Michael. Please go ahead.
Thank you Nick.
Our revenue performance in the fourth quarter was strong across the board and most notably in CTV and online video or L. O L D.
Demonstrating our value as the leading independent sell side platform.
Top line growth once again outpaced industry performance, especially in this too fast growth segments in the market and we meaningfully exceeded the trends that we shared in our last earnings call.
Overall topline strength led to further margin expansion demonstrating the leverage we have in our financial model to deliver a profitable earnings growth.
I'll briefly cover Q for 2020 results.
Revenue was 82 million, which equates to a 69% as reported increase year over year.
And a 20% pro forma increase year over year.
<unk> revenue was $15 3 million representing.
Representing an increase of 53% year over year on a pro forma basis.
<unk> revenue grew 35% year over year on a pro forma basis, and we delivered $30 million of adjusted EBITDA with a margin of 37%.
Next I wanted to highlight a few key topics.
First I'll talk a little more about the pending acquisition of spot ex and share some additional details on their business.
Second I'll talk more broadly about CTV market CTV product and market trends.
Third I will go into broader programmatic market trends, providing information on client wins and spo progress and lastly, I'll provide an update on our identity initiatives.
We are thrilled to have announced the proposed acquisition of spat ex despotic steel is a big strategic win for magnate our clients and shareholders.
Product is great tech great people strong customer relationships.
Cash growing revenue and is highly profitable.
The transaction is expected to close in Q2 pending customary regulatory approvals.
One of the exciting benefits for the acquisition will be to combine two great engineering and sales teams, which will accelerate the release of new features and functionality for our CTV clients.
All of this supercharge development roadmap.
Is to draw more linear television advertising dollars to AD supported programmatic CTV by providing our clients with the tools they need to succeed.
Combining magnet in spite ex pro forma results for 'twenty 'twenty would have resulted in approximately $350 million of non-GAAP net revenue.
For Q4, 2020, CTV would have been the largest for that closely followed by O. L V positioning magnate to go head to head with the larger players in the CTV market.
The combined companies would have also had a meaningfully higher combined adjusted EBITDA margin of 22% in 2020.
And that's prior to any targeted cost synergies day.
David will provide additional financial details related to spot ex.
I'll now turn to CTV market trends and product news.
CTV growth trends continue to be very favorable.
From cord cutting to increasing growth estimates to movement of linear TV dollars to CTV to recent results from the trade desks trade desk and Roku.
All signs support very healthy market growth dynamics.
We continued to outpace industry growth estimates from E marketer in CTV in the fourth quarter and grew our Q for CTV revenues, 53%.
We recently announced an open beta for our new CTV unified Decisioning solution.
This product is critical to increasing publishers revenue by enabling them to have their direct and programmatic inventory compete for the highest price thus driving higher yields. It is particularly important during a time of increased demand where programmatic cpm's.
Can exceed direct sold vpns.
Many publishers, who primarily sold direct missed an opportunity to adjust their strategies and allocate more inventory to programmatic.
The product is currently in beta with a handful of clients with positive early results.
It's something that we plan to charge for separately and will share more specifics in subsequent quarters.
The broader programmatic market also performed well in Q4 of for.
Particularly of particular note <unk>.
<unk> grew 35% in Q4 on a pro forma basis, we are pleased to see the benefits of revenue synergies from the talaria merger and their participation in this growing market earlier than expected.
Next I want to provide an update on key customers and examples of supply path optimization or spo.
Consolidation continues to take place on our industry and our omni channel offering.
Servicing technology, plus the opportunity to cross sell from the <unk> merger has put us in a great position to grow further on.
On the agency front, we expanded our work with Avast and building out a trusted marketplace, while deepening relationships with key publishers.
In Q4.
Ignite wants to Vas is meaningful media marketplace on our technology platform.
The programme now features over 100 publishers across the U S and in key European countries.
We also continued our work with omnicom's marketplace in Q4.
Omnicom is bringing large engaged advertisers that are shifting spending to curated premium and transparent inventory.
The build out of this marketplace is a major priority for them in 2021.
We formally launched in marketplace in December and now feature 20 premium publishing partners running display and online video inventory.
CTV marketplace solution is in development.
Along with Spo, we believe there is additional room for total AD spend acceleration as there are several sectors, including auto travel entertainment and sports.
Performing well below pre COVID-19 levels and have significant upset.
I'll now shift to give you a brief update on our efforts with respect to identity solutions as you are aware.
Third party cookies and idea phase are going away.
This creates an opportunity for a magnet to bring greater value to publishers on.
Pleasantly surprised at the pace of development of the new identity solutions and the way that the programmatic ecosystem.
Has come together to for.
Find open viable alternatives that work in a privacy compliant manner.
We believe three primary identity solutions will co exist and complement each other to replace the current landscape and.
And we are deeply involved in the development of all three.
First and particularly important to us.
Sure first party data segments that are created within our magnate marketplace and can be bought at scale across a large number of publishers to find desired audiences.
Second.
Open source identifiers, such as offered by the trade desk and live ran.
That are based in based on logged in users will play an important role on the market.
We are particularly pleased to see the trade desk announced that it's universal I'd to that Oh, well now live within and be operated by <unk>, an independent organization that we co founded which is designed to ensure and promote fair and transparent marketplaces across the industry.
And third privacy sandbox from Google Chrome.
For the browser preserves identity and creates cohorts for groups.
We believe that our platform and scale.
Position us well to provide the infrastructure and tools have publishers need to succeed in the new world of identity.
Our keep our key growth drivers remain the same.
<unk> CTD, which will continue to be our most compelling opportunity for the foreseeable future further accelerated with the addition of <unk>.
Increasing market share gains across all formats and device types as we better service for fragmented marketplace as a transparent independent omni channel partner.
Expanding our software solutions as seen with our new unified Decisioning product and our demand manager offering.
And lastly, playing a leading role in transforming the landscape of targeted advertising and creating value for our clients with broad reaching identity solutions.
Before turning the call over to David I wanted to provide a contract update for a very strategic CTV and market leading client Disney.
It is well known debt, we've been serving as their SSP partner.
And that we've had a strong CTV relationships through Hulu dating back several years.
We are pleased to announce that we have renewed our contract for an additional 18 months. In addition, we are excited to announce we'll be expanding our relationship by powering programmatic transactions across the wider umbrella of premium Disney such as ESPN and ABC among others.
As part of their Disney D ex HP or cross platform offerings.
As we continue to expand on opportunities within who lose platform and there are many content partners. We will now also work across and directly with these additional Disney properties.
This is a true omni channel partnership and our relationship is stronger than it has ever been.
Look forward to continued innovation and growth as we work closely with our partners at Disney.
With that I will hand things over to David who will go into greater detail regarding financial performance and expectations.
David.
Thanks, Michael.
As Michael described we are pleased to report improvement and strength in our top and bottom line performance as we continue our recovery from Covid driven challenges in 2020.
For the full year 2020, we delivered $221 $6 million from revenue.
42% increase over the prior year.
Including <unk> revenue for Q1, 2020 pro forma revenue would have been $236 7 million for.
For the full year, we generated $43 $1 million and positive adjusted EBITDA of $17 $4 million improvement over 2019.
As Michael mentioned Q4, 2020 revenue of 82 million represented a year over year increase in as reported revenue of 69% and was up 20% on a pro forma basis.
The revenue recovery was greater than originally expected and was broad based across channels and formats led by CTV pro forma growth of 53% and <unk> pro forma growth of 35% with the driven from both for new business wins and Q4 political spend.
Q4 revenue was also supported by an unseasonably stronger than expected last 10 days of the quarter, where we have typically experienced greater revenue drop offs than this year.
Q4 revenue for mobile increased 24% and desktop grew 3% on a pro forma basis.
With mobile growth driven by mobile App N O L D.
Our revenue mix for Q4, 2020 was 19% CTV, 48% mobile and 33% desktop.
For the year total pro forma video revenue, including CTV was $106 million for approximately 45% of total pro forma revenue.
Demand manager revenue for the year came in slightly below $4 million.
We continue to see more inventory through the product and are focused on larger publisher penetration, where we continue to see adoption by leading publishers.
We previously provided specific AD spend and take rate amounts on an annual basis.
Given the growing complexity inherent in our AD spend which would double count AD spend related to demand manager unified Decisioning for CTV and other initiatives.
And importantly, given the significant and growing competitive sensitivity related to our take rates will not be providing specific ad spend and take rate figures going forward.
From a qualitative perspective, however take rates remain stable.
Operating expenses, which in our case includes cost of revenue for the fourth quarter of 2020 were $74 million versus $47 5 million on the same period a year ago.
Increases were primarily driven by the inclusion of <unk> operating expenses and some relative increases in cost of revenue due to increased amortization, resulting from the <unk> merger and from your increasing cloud costs.
On an adjusted EBITDA basis operating expenses, including cost of revenue for the fourth quarter were $52 million as compared to $33 $2 million and keep for 2019 also driven primarily by the addition of the costs, resulting from the <unk> merger.
Our GAAP based gross margin for the fourth quarter was 74% up from 66% in Q3 2020, and also up slightly from 73% in Q4 2019 on an as reported basis.
Net income was $5 $9 million from the fourth quarter of 2020 as compared to net income of $1 $5 million in the fourth quarter of 2019.
Adjusted EBITDA was a positive $30 million, resulting in a margin of 37% higher than originally expected primarily due to strong revenue growth.
The strong incremental flow through of revenue to adjusted EBITDA continues to demonstrate the leverage we have in our financial model from incremental revenue growth.
GAAP income per share was <unk> <unk> for the fourth quarter of 2020 compared to GAAP income per share of <unk> from the same period in 2019.
Non-GAAP income per share in the fourth quarter of 2020 was 19%.
Compared to non-GAAP income per share of <unk> 17 cents reported for the same period in 2019.
There were $112 7 million weighted average basic shares.
$24 4 million diluted shares outstanding for the fourth quarter of 2020.
The increase in diluted shares is directly attributable to more in the money options driven by the increase in our share price.
Capital expenditures, including bulk purchases of property and equipment and capitalized internal use software development costs for $9 $3 million for the fourth quarter of 2020, resulting in a total of $24 5 million for the full year in line with our guidance from last quarter.
We had strong free cash flow in Q4 free cash flow was $20 7 million in the quarter, which we define as adjusted EBITDA less capex.
Closed the year with $118 million in cash.
$14 million from the $104 million balance at the end of Q3.
The cash increase was driven primarily by the positive free cash flow of $20 7 million for the quarter plus the inflow of $10 million of stock option proceeds.
Net by working capital changes.
As a reminder, our cash balances can swing disproportionately both up and down compared to the run rate of our business since we collect and pay the gross amount of flow through to our sellers, while we record revenue on a net basis.
As Michael mentioned, we are thrilled with the pending acquisition of spot ex which we believe combined with our current industry, leading team and technology will create important scale for us as we compete for advertising spend and significantly accelerate our CTV footprint print growth and.
<unk>.
I wanted to highlight bulk spot ex standalone as well as magnate combined metrics that illustrate.
Right our potential future scale. Following the successful completion of our acquisition of spot ex which we expect to occur in Q2 pending customary legal and regulatory requirements.
Note that the following amounts are based on preliminary unaudited results from spot ex that.
Also that because flat ex reports a portion of their business on a gross revenue basis I will use non-GAAP net revenue to represent combined results on an apples to apples basis.
All of this <unk> revenue is in video CTV and OLED.
On a standalone basis for 2020 spot ex generated $116 million and non-GAAP net revenue of which $67 million with CTV.
Total non-GAAP net revenue year over year growth of over 25%.
CTV non-GAAP net revenue year over year growth of over 40%.
<unk> non-GAAP net revenue year over year growth of high single digits.
Adjusted EBITDA of $35 million for an adjusted EBITDA margin of just over 30% based on non-GAAP net revenue.
In spite ex has about 440 employees with almost half in engineering product and technology.
Combining Q for 2020 magnate and spot X on a pro forma basis.
CTV and OLED non-GAAP net revenue would have represented approximately 67% of total combined non-GAAP pro forma net revenue.
CTV non-GAAP pro forma net revenue would have nearly tripled to $42 million.
Magnetic standalone are approximately 34% of non-GAAP pro forma net revenue.
The <unk> business would have represented approximately 33% of non-GAAP pro forma net revenue.
Combined pro forma adjusted EBITDA for the full year 2020 would have been approximately 76 million for a margin of approximately 22% prior to the application of any potential cost synergies.
This includes adjusted EBITDA of negative $2 4 million for <unk> in Q1 2020.
Note that we are currently targeting in excess of $35 million and run rate operating cost synergies with more than half of the synergies targeted to be realized within the first year of combined operations.
The spot ex acquisition consideration would have been valued at 1.1 dollars 7 billion.
Based on the value of magnate stock on the date of signing comprised of $560 million in cash and 14 million shares issued to the RTL group.
This represents a roughly 10 X multiple on spot acts as 2020 non-GAAP net revenue.
Goldman Sachs has provided committed financing for the transaction.
I will now share some indications for our first quarter, which I will remind you of course does not include spot ex as it is expected to close in the second quarter.
We expect revenue for the first quarter to be in the range of $58 million to $62 million and we expect CTV to continue with strong year over year growth range.
We expect demand manager revenue to roughly double to $8 million in 2021.
We expect that adjusted EBITDA operating expenses in Q1, including cost of revenue will be $51 million to $53 million we.
We expect that Capex for the full year 2021, we have roughly $25 million.
Shifting now to our long term financial targets, we continue to target long term annual topline revenue growth above 20%.
With an upward bias as the broader advertising market more fully recovers from Covid and post closing on the spot ex acquisition.
We are raising our long term adjusted EBITDA margin target to 30% to 35% pending our successful acquisition of spot ex to reflect the higher margins from spot ex including achievement of related synergy targets and overall scale and efficiency improvements in our operating leverage.
We are very pleased with our performance this quarter as the clear leading independent Omnichannel, SSP, particularly with our CTV and all of the growth rate and with our margin improvement.
We look forward to closing the spot ex acquisition and benefiting from the potential accelerated growth rates and margins.
With that let's open the line for Q&A.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
And the first question will be from Laura Martin with Needham. Please go ahead.
Hi, guys can you hear me okay.
Sure, Ken Hey, Laura.
Hi, Darrin really great numbers, you guys. So Michael let's talk about Chuck plane, Whats Youre doing an awesome job Masterchef player one acquisition net.
Paul do you want to stay on what should we expect from you.
Is it big picture Master planner over that 12 months and then secondly, maybe for David just on that.
When we bought fly on my when you guys. When you have a kind of on two on our immersion alright. My recollection was that R. O. L. V. That's non CTV revenue was actually had negative growth, but in the fourth quarter, you just reported 35% growth.
Does that mean that fit and when we buy fought and fought ex we should be able to accelerate that.
Non C T D revenue growth thanks, guys.
Yeah.
Thank you Laura.
Take the top one and David you can grab the second question, Yes, no listen I think that day.
With Talaria closing for one of last year and fingers crossed spat ex some time around there.
I think we have our hands full and we are.
We have all the pieces, we need we're going to integrate the heck out of it we've got a great senior leadership team here at.
Fedex is extremely talented.
The team there mesh the two teams together good a team as one market and I really truly believe if there's anything else that's going to occur on the M&A area it'll be rounding out the edges. It won't be kind of swing for the fence like you've seen in the last two acquisitions.
Yeah and on the Oh L V. Yellow are really pleased with that performance you know nothing is ever truly 100% fixed.
So I don't want to Jinx us but.
We're really pleased as we mentioned last quarter, our O. L. V had ground turned positive had grown 3% until we felt like we had that stabilize the patient as it were.
And.
We think we're ahead of schedule in.
Bringing those businesses together and having positive momentum going forward. So I think we're in really good shape.
Thanks, very much and congratulations on the Hulu Disney extension.
Thanks for.
And the next question will be from Jason <unk> with Craig Hallum. Please go ahead.
Hey, guys congrats on the quarter end spot ex Michael.
Michael I want to start out on connected TV. So obviously one thing we've talked about there's this opportunity where AD spend is really yet to catch up to consumer behavior, which is already moved over towards streaming just wanted to get your take what triggers that catch up and then with the combination of Mcknight and spot ex how do you think you guys can help the industry accelerate that shift.
Yeah, Hey, Jason Great question. So yeah, you know listen I think in the history of advertising, especially whenever any new media comes along.
How long was it when we you know online media first started and you heard everyone grasping about look at all these eyeballs over here and magazines are still getting more money than online and little by little it at more away in.
Certainly don't see that occurring.
As slowly as it did or as slowly as it was perceived to have happened. When you were on the on line side.
Usually because the form it is identical right youre talking about.
Haile produced television ads that are running in highly produced content. So it's just that the eyeballs that shifted over and it's quite easy for marketers to shift dollars towards it on.
So I think that some of it is in green practice. Some of it is more of a committed upfront approach, we're now folks for asking for more flexibility too.
Target buckets of dollars towards programmatic I think we as an industry has to get our measurement our house in order and that's more of an ecosystem thing than a magnate thing, but we have to figure out how it is debt marketers who spent the last 50 years advertising on television and.
Meanwhile, you can find household audience numbers in.
Gross rating points, how does that translate to CTV and how are they able to know that they are selling boxes. It tied right. So all of those things take a little bit of evolution, but it's happening with the pace that I don't think anyone.
Thought I'd ever wood and some of that's the silver lining of the pandemic where AD supported video on demand just revenue.
Went up into the right and so the eyeballs are there and generally speaking.
Folks for that.
And then another question just on on your Spo conversations curious if if you're having conversations today.
Those conversations compared to those in the fall on just what are the key drivers of the decision for an agency to consolidate their spend with Mag night, and then how do those conversations change when you layer on products.
Yes. Another good question. So if you look at the arc of Sto.
Wouldn't even guess where we are on that arc, but you know we've been talking about this Jason for several years now.
So when we're Rubicon Standalone, we were asked to come in to agencies and say okay you.
One we want you to be one of our top display platforms right.
We're not going to consider you for video because there's other people that do video and then when we closed the merger all of a sudden the conversations where well why are we doing it video over here display over here, we should be able to just have one conversation for one platform that can do both and I would say that spot ex.
I just will further accelerate that it'll make us look that much more different than every other platform that's out there and I think that day.
It puts us in a unique position.
From an spo standpoint to really give the agencies the choices that they've been asking for and that is why am I spending all these dollars on the walled gardens.
When there's no one out there that looks like them debt is scaled baked them in and I think we're slowly but surely answering that question for the agencies.
Okay. Just the last one kind of a point of clarification on what you talked at the end of your prepared remarks with Disney, but you've called that a true omni channel partnerships. So I'm curious is this inclusive of all AD formats, and then wondering with that relationship if theres any exclusivity or kind of a partner of choice.
Or anything tied to that.
Sure. So it's you know Disney obviously being a far reaching media Empire with many many many media formats.
The exclusivity or the the.
Preferred partner.
<unk> around the <unk>.
The cross platform inventory. So if you were to buy inventory.
From the D ex H P that debt debt Disney Cross platform sale.
On all of that goes true magnate.
And specifically for you to buy your Hulu only and didn't buy any of the cross platform inventory that true would go through magnate.
You are capable of buying ESPN without going through magnate, but conversely, magnates very capable of selling ESPN inventory as well. So we have access to all of it some of it.
On a preferred partnership others in an open market partnership but.
We really do enjoy a special relationship with them.
<unk> built some great software for them and there is even more positive things in the offing. So.
Yeah kudos to the team into our Disney partners for getting this resolved because Oh boy.
Boy, it's been a terrific last 18 months and can't wait for growing that relationship even further going forward.
Perfect. Thanks, Michael.
Thanks, Jason.
And the next question will be from Shyam Patel with Susquehanna. Please go ahead.
Hey, guys. Congrats on a great 2020 in the spot ex deal on all of the strategic moves you guys have made over the past few years.
I had a couple of questions.
Yeah.
I guess first one in terms of the CTV.
Landscape from the supply side standpoint, Michael could you just talk about how you feel about your positioning.
And just.
At this point do you think it's possible for traditional SSP to kind of enter the CBD market.
And then second question is.
In terms of the unified Decisioning. It seems like this is something that's much needed in the industry.
You talked earlier in your prepared remarks about early positive feedback from some of the beta clients and I was just wondering if you could talk a bit more about this and just maybe elaborate a bit on just your vision and expectations for what this could enable.
Yeah, great job on that thanks.
Thanks for the question.
Yeah, So listen I think we feel very good about our positioning as it relates to this.
The supply position from the CTV standpoint, but I think it's silly.
Silly to not acknowledge the fact that.
There are some very very large sources of CTV supply out their debt.
That we go up against you know, namely.
Comcast corporations freewheel.
Google has this little AD, serving a company within their Empire.
It has access to the C. P V and obviously there for Youtube.
And you have more and more folks.
Trying to attempt to do a walled garden approach where.
It's a debate short term.
Value and SSP can bring to it so so what whatever I think we've done I think with the pending acquisition of spatter ex we've clearly positioned ourselves as the leading independent CTV slash Omni channel SSP, there's no one that looks like us and as it relates to the ability for an SSP and has never.
CTV to jump in on.
I just put myself on their shoe before we bought tomorrow and we were going to see that build by partners scenario. It just dawned on I said the build the scenario would cost.
A lot of money you have to hire a lot of talent and Theres a lot of risk because the market is always moving in by the time you build your first version the market might be on to the fourth version. So we thought that our merger was the only way for us to get into it.
And you know as you look around the landscape.
If I'm, an SSP and I don't have a CTV capabilities I don't think building has become an even more attractive and I think if you start to look at who you could partner with or buy to get into it.
There is a paucity of folks so I think unlike the display SSP world. There is an ability here to create moats that didn't exist and again to be clear debt. Just gets you into the game with the Comcast on the googles of the world.
But everyone is asking for an independent company and I think we're well on our way to be being able to offer publishers and buyers that choice.
You also I'm sorry, you also asked about Udi and yeah. So we're very excited about you know the unified.
Decision.
Tool it's on.
On the marketplaces again.
In addition to the competitors that you had in the programmatic space.
In some essence, you compete for inventory with direct sales rate and so on.
Sometimes as we pointed out on the call.
Reising, there is less than what you could get programmatically, but the systems and the tools that are in place right now arent easy to be able to calibrate between the two real time. So that's what we're attempting to do.
With that product and it's early days.
Publishers that are in beta are using it and enjoying it.
There has to be you know there are some of the friction to that is the adoption by the AD server and of course, we're not an AD server. So that requires you know publishers willing to work with.
On their AD serving partner, but to date in the instances, where we've been able to pull it off.
On unified demand is.
<unk> worked extraordinarily well and I think that's kind of where you're going to see the industry going on I think it will take a leading effort there.
Great. Thank you guys.
Thank you Sir.
And the next question will be from the silly terrorists y'all with Cannonball Research. Please go ahead.
Thank you good afternoon, a couple of questions one about the different vertical exposures for Mcknight and spot ex if you could talk about debt not specific to connect it to be at all then what would drive what would be the source of upside to your target EBITDA margin.
If at all.
You talk about how conservative the french's or is it.
Something that.
You're really confident that you'll get to and there's potential upside to it.
Yeah, I agree with total I'll I'll take the.
The vertical exposure and by that I would assume you mean ad verticals.
Yes, correct, sorry, great. Yeah, you know I don't think we have our exposure risk that you wouldn't necessarily see with.
Any premium advertising for players so in other words.
Travel Auto Entertainment sports those are all significant verticals for us in terms of our total mix and we've been operating without those really going you know anything.
Going far less than full steam since the start of Covid, So I E.
I don't see it as exposure risk I see it as upside.
Because we really have been participating in this rebound in this growth without.
A major participation from those categories. So so I think.
As you look at exposure.
We've already weathered a.
The exposure from those categories, you really see those built into the numbers and you know obviously looking forward as you know the new normal occurs.
We certainly anticipate a rebound in those categories.
David did you want to hit the upside for the Ida.
Yeah, So I guess.
It's way to approach that is.
From a baseline perspective and to reiterate our our our new targets are at 30% to 35% adjusted EBITDA margins.
If you think about the impact of the spot ex acquisition. If you just take our combined results from just 2020, which is a COVID-19 year.
And if you if you were to add in our our full achieved cost synergies that out of the gate puts you at a at a 31% adjusted EBITDA gross margin now of course, those cost synergies will take a little while we put in place but at the same time, we're going to be growing.
And you know, adding leverage to our adjusted EBIT margin profile. So we think.
That range is very achievable in the near and medium term and longer term, we'll obviously just dependent on our on our pace of growth.
Discretionary index.
Non decisions engineering investments and so forth.
Thank you very much.
Debt.
And the next question will be from Kyle Evans with Stephens. Please go ahead hi.
Thanks for taking my questions. Michael could you. Please talk about how programmatic CTV market, Okay and.
And how you see that evolving over time and specifically.
You can offer them up any kind of milestones or catalysts that we should be looking for cost.
I can point to and then I've got some follow ups.
Hey, Kyle on.
Yeah, you know I think what it'll be interesting from a near term standpoint is on.
And we've already been talking about some of the.
Biggest marketers out there.
How this year's Upfronts theyre going to play out right and so typically upfronts.
On our <unk> or <unk>.
The message they they had been in an efficient way for the.
TV and cable companies.
To move their inventory in a condensed period of time with.
Upfront commitments from for marketers that had some.
<unk> ability, but you know, sometimes no wiggle room and they were they.
They were on the hook for the inventory.
And and then programmatic was always kind of a spot market, where it would round out the buy for the market or throughout the year on and obviously last year with Covid that kind of change the upfronts were all but canceled and almost all of the transactions were spot, which favors programmatic and.
We're starting to see a hybrid this year, where marketers are.
Are willing to play in the upfront world, but they're also asking for a part of that upfront to be committed to programmatic as opposed to programmatic as an afterthought throughout the year. So I think that might be a interesting.
Signal.
Debt, there's systematic change in the way that TV advertising is bought and sold right now.
And I think over time as you start to see it.
More and more cord cutting occurs and you watch those numbers as a greater adoption of these AD supported services occur and you see the numbers from the.
The content companies debt.
It's just impossible to reach the amount of folks who used to sell a car to open a movie.
To book, a flight without having to advertise on CTV and it'll just become more and more and more of the norm and from a seller standpoint.
No longer will see programmatic is being I think that rounds out.
Programmatic it will be front and center as part of your Decisioning as the housing inventory gets allocated and you'll be doing it much more than an agnostic way.
But is it safe to say that debt CTV is not very open programmatic marketplace. Today first off on the second half how long do you think it takes for that change to two.
Yeah, So good point, Kyle and the difference between open programmatic and just programmatic or the way we referred to it as you know open market or O M T.
Open market programmatic versus P. M P or you know or you know private marketplace for preferred marketplace.
One is you know kind of the wild west that you're seeing display which is you know too.
200 buyers bidding on a piece of inventory highest bid wins add get served that's never going to happen in CTV.
Inventories too precious the ads are too.
Scrutinize the pods have rules with them that highest bidder doesn't always win if there's a.
Honda and Toyota can't advertising, a pod on and the content.
Our producers are way too protective of their inventory and the consumer experience do you have an AD that runs that does not fit with that programming or the value for the programming. So so we do not see we need do not advocate in open world, It's all going to be a private marketplace deals the logo over programmatic.
Sales, but it won't be this open bidding that you see that is developed on the display side.
Got it and then just two more quick ones could you kind of step back on.
Blame you guys for pulling.
Information on that.
Why you gave it on the first place, but just generally speaking.
What's your long term thinking is on take rates and cash.
What drives that.
Yeah, I think we've been consistent about debt even pre tillery.
What kind of pre magnate.
Now with spot on.
We think that.
No. We celebrated 1 billion in AD spend and 2 billion AD spend goes through the platform we see a.
A day not too far out where it does look like small numbers in 10 billions coming through the platform 15 billions coming through the platform and there is no question that our take.
Take rates will.
Drift downwards, however, I think it's been.
I don't view that as an investor risk I don't view that as something that you have to account.
For your modeling because any any decrease will be in the basis points range and it will be more than made up by.
The gain in spend in an addition, particularly in CTV, we're talking very very high value on.
So we're talking C. P and you know we're in banner. She can fight over 20 C. P. M banner, we're talking $15 $20 $40.
AD spots on.
On any any give on take rate is more than made up on the net revenue side. So we don't view that as anything other than the natural <unk>.
Maturation of a marketplace.
But it isn't a concern in and from a competition standpoint.
Google has been out there at <unk> 20 per cent for low forever.
Forever and it Hasnt really moved at all and so we think the marketplace is pretty settled as it relates to take rate and if theres anything that decreases its just simply because of volume.
Great. Thanks, and then one quick one for David David 30 million plus on cost synergies on a business.
$116 million last calendar year, those are pretty eye popping figures and I just wondered if you could break down.
That figure into kind of component parts, so that I understand that a little bit better. Thanks.
Yeah.
Yeah, if you think about it.
We have a I guess.
A majority of that wood over 50% would come from a personnel perspective, we're bringing together two businesses.
We have a lot of the same.
Client relationships.
The other components will come from.
Combining our platforms and so our ultimate goal is to combine platforms take the best products and features from each platform. That's not a quick process, that's along and it's a longer process have to be very careful we don't want to disrupt any business along the way but.
When you're running.
We have two data centers in each part of the World. We have a lot of duplication from a platform perspective and so.
There's significant savings that come from that and then related to that with our vendor relationships with the size that we're growing too we have a lot more cloud for cloud computing and for other.
Vendor relationships.
Thank you.
And the next question will be from Matthew Thornton with true Securities. Please go ahead.
Hey, good afternoon, thanks for taking the question guys.
Maybe a couple of I could but maybe Michael.
If you could talk a little bit about how do you think the average CTV relationship or what the average CTV relationship looks like overtime and really really two parts of that I guess, you know from a revenue model standpoint, do you think that remains a take.
Take rate model or does it move to more of a fee based model I'm just kind of curious what's the thinking there and then just secondarily youll do.
Do you think the typical CTV publisher has maybe to partner as a primary and a secondary and you'll leave it at that.
Just kind of curious your thoughts on that almost two vectors.
And then one for one for David on CTV, you talked about continued strong growth in <unk> I think the pro forma number was 53% in for you if I'm not mistaken is that Oh.
Reasonable kind of bogey to think about for for <unk> and any color. There. Thanks guys.
Hey, Matt Thanks for the questions.
So I think that the it's.
It's a great question about the day the revenue model for C. T V. And then of course it relationship piece of it but from a revenue standpoint Theres no question.
We see this.
Evolving more.
As a software.
Slash take rate business.
As you know you would see in a normal display world where it was.
Almost exclusively take rate driven.
Why is that on.
It's more complex, there's fewer players theres more needs as.
There's more software involved.
And not.
Not.
Not any great capability within the CTV players from a programming standpoint to build it themselves and.
So I think that youre going to see.
Evolve over time more of a hybrid approach, where there may be a fixed fee.
And then on top of that the take rate, if you're bringing demand are allowing demand for the.
On pipes.
And this will evolve over time I don't think anyone should be modeling. This hybrid approach breakeven for this year on an as it relates to partners I think CTV will be much more of a monogamous world from publisher to SSP than you see in the display world where.
It kind of has to their advantage to invite them.
678, ssp's to compete on their header bidding to bring demand and to increase yield that way in an open market as I said before on previous question I don't see this becoming an open market world it'll be private marketplace and when you do a private marketplace.
Deals you tend to do hundreds of deals can you created deal library and buyers get used to where this data library sits and theyre generally not sprinkled around 10, SST players theyre sprinkled around one or two.
There's just no advantage to it because they're not open market pricing has already been agreed upon youre just transacting through pipes.
So keeping the deal libraries.
With one or two players is what's occurring today and I believe is what you're going to see long term. So I don't see this evolving too.
Five ssp's like you would see in the display world.
Yeah.
Great and on a from a CTV growth perspective.
We're not providing specific point specific guidance.
Last quarter, we used the same terminology continued strong growth. So we're not gonna or find out more specifically, but you know obviously that means we expect the similar momentum to what we've seen the last couple of quarters.
All right great maybe I can sneak one more and then for for maybe for Michael Michael away from C. T V. I think for for several years now consolidation amongst the traditional ssp's hasn't maybe never really made sense. When you model about one plus one that didnt get you to two or better I'm. Just curious if we're getting to a point.
And the industry from a consolidation standpoint, where that is starting to change at all or is that view on on.
Changed.
Well, it's funny, we always thought of it. So she answer your question, yes. It definitely has changed I mean, all you'd have to do is ex the trade desk kind of on platforms do they buy from.
On the display side its less than it was two years ago and in next year. It will be probably less than it was this year, but it's not going to get to one it's not going to get to.
It could get below 10, but even then there is so many nuances pieces out there that only do this debt only do that.
So where do we want to compete we want to be that you know independent omni channel with a focus on CTV and we believe that debt separates us.
Distinctly from the rest of the SSP, So and I think what we're seeing is validation of masks on the agency side and you see things like capacity you see deals like Omnicom, and that's where you're starting to see.
Some of the real assets.
S. P O moves play out and that is agencies deciding where their dollars run over what pipes on.
And that will have quite an effect on narrowing the number of competitive ssp's and I think we're very well positioned there not just because of the announcements you've made and some to come but well positioned there because of the resources that we had that becomes a software business as well right building out a price.
Pivot marketplace for all of US are for Omnicom is not you know for the free.
As it relates to technical logical resources engineering resources product resources, and so I think that combining our teams despite ex and magnate.
Well over.
250 engineering product and folks and so we really do think we are extraordinarily well positioned as you start to look to kind of a software first world if that makes sense.
Great very very helpful. Appreciate it guys.
Thanks, Matt.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Michael Barrett for any closing remarks.
Thanks, so much on.
We are really pleased to put up a strong Q4 and continue to more strongly participate in the fastest growth areas of the market CTV and O. L day since December of 2019, we have gone from an SSP without a CTV presence to.
Becoming the clear independent market leader in both TV and OLED with two thirds of our revenue post closing of this Fedex deal coming from video I could not be more proud of the efforts of all of our employees in these challenging circumstances.
Still a lot of work ahead to support our clients grow their business and on the integration front.
But I feel more bullish than ever about the future of magnet.
So thank you all for joining us for our Q4 results call, we look forward to talking.
We look forward to talking to many of you through virtual investor meetings and conferences hosted by Stephen's truest.
G or Cisco on a in the next three weeks.
Have a good evening. Thank you again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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