Q1 2021 Magnite Inc Earnings Call
After today's presentation there'll be an opportunity to ask questions. Please note that this event is being recorded I would now like to turn the conference over to Nick from Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone. Welcome to back Nice first quarter 2021 earnings Conference call. As a reminder, the comparisons you will see in the 10-Q as reported include the financial results of Florida for the first quarter of 2021 for the first quarter of 2020. The results do not include target given the merger day to April one.
2020.
During the course of this call when we 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-Q.
Comments, referring to pro forma comparisons, we are including Florida for the first quarter of 2020 in order to provide additional detailed insights that management also use to evaluate our business performance when discussing pro forma information as it result, as it relates to the spot ex acquisition. We are also including the preliminary and unaudited results from spot ex for the relevant period.
The closing date of our slot ex acquisition was April 32021, as a result, please keep in mind that our reported results for Q2 2021 will only include two out of three months for the quarter.
I'll be referencing revenue results for spot ex for Q1 2021. These results are preliminary and unaudited and are subject to change.
As a reminder, this conference call is being reported joining me on the call today are Michael Barrett CEO and David Day, our CFO I would 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'll 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 acquisition of spots and potential benefits 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 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.
These and other risks uncertainties and assumptions is set forth in the company's periodic reports filed with the SEC, including our 2020 annual report on form 10-K, and our 10-Q for Q1 2021, we undertake no obligation to update forward looking statements or relevant risks. Our commentary today will include non-GAAP financial measures, including adjusted EBITDA.
Non-GAAP income per share.
And with respect to pro forma comparisons that include spot ex results and our expectations for Q2 2021 revenue excluding traffic acquisition costs also referred to revenue ex Tac. We have previously used the term non-GAAP net revenue for this metric, but we'll be using revenue ex Tac going forward to standardized.
It's more commonly used terminology reconciliations between GAAP and non-GAAP metrics for all our reported results and the preliminary another despotic results can be found in our earnings press release and in the financial highlights deck that is posted on our Investor Relations website.
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 maybe onetime in nature, and we may or may not provide an update on these on the future and in 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 of today's call to learn more about Mcknight I will now turn the call over to Michael Michael. Please go ahead.
Thank you Nick.
You've heard us talk in the past about the attractive CTV opportunity.
Following the very recent close of our spot ex acquisition. This gets even more exciting as we believe we are clearly the leading independent CTV platform.
Prior to spud ex I was very pleased with our CTV teen business traction with customers and technology prowess to serve industry, leading customers like Disney.
But adding spot ex to our business as transformational and immediately gives us much greater scale with a broadened offering specifically in additional software capabilities and in a very attractive and strategic managed service business.
We believe the combination is transformative because it immediately gives us critical mass and scale in CTV and more than doubles the size of our CTV business, which would have represented 35% of revenue ex Tac in Q1 on a combined pro forma basis.
It brings us direct relationships with clients like Roku and deeper relationships with Samsung Viacom CBS NBC discovery, Scripps Turbo, Pluto Vizio and others.
And more than triples, our Dev team in CTV, giving us tremendous resources to support customers and accelerate technology development.
It gives us a managed services capability, which serves as a very powerful onboarding ramp to move AD dollars from linear TV to CTV.
And it creates access to a larger pool of data to help accelerate our best in class identity solutions for CTV and OLED ecosystems.
Let's now shift gears and dig into Q1 revenue results for both companies.
First magnate.
Magnate Standalone results for for Q1 included revenue of $60 7 million for Q1, 2021 up 67% from Q1 2020 on an as reported basis and up 18% on a pro forma basis inclusive of the tortilla.
CTV revenue and $12 million, representing an increase of 32% year over year on a pro forma basis.
Despite ex is preliminary and unaudited standalone results for Q1 included.
Revenue ex Tac of $31 2 million up 45% year over year of which $19 7 million was attributable to CTV up 70% year over year.
At a high level of combined on a pro forma basis, including spot ex Q1, 2021, we would have had $91 million in total revenue ex Tac, representing 58% year over year growth and $32 million in CTV revenue ex Tac Rep.
Presenting 53% year over year growth.
Our results reflected strong growth in core programmatic business across channels with high profitability and margin expansion.
<unk> results far exceeded our expectations and showed clear signs that they are executing well on their strategy, especially in CTV.
Linear TV AD dollars through their managed service business.
Healthy contribution from software services.
These results help show the financial power of the combined company and highlight CTV revenue growth momentum.
We have line of sight for total revenue ex Tac of well over half a billion dollars in 2022 with feature adjusted EBIT margins in the thirties.
Our strategy for CTV doesn't change with spat ex us pairing only amplifies our execution will surety.
Kale and future industry leadership.
Our strategy to grow CTV revenue is two fold first part.
Is to convert direct CTV deals that are currently being sold by in house reps into programmatic channels.
Second is to facilitate and accelerate linear TV AD dollars moving over to CTV.
As he programmatic first platform our success in CCD has largely come from winning additional programmatic share within the CTV bucket for step one of our strategy.
This has been particularly effective with digital for CTV publishers like Pluto, Hulu and tubing.
With our acquisition of spat ex we now have more powerful tools for the second prong of the strategy accelerating the shift from linear TV AD dollars to programmatic CTV.
Spot ex brings a very robust managed service offering that is directly aimed at capturing these linear ad dollars.
It provides traditional television advertisers that are used to transacting through insertion orders and purchasing within the upfront and scatter market with it comfortable on ramp into digital T V.
Together, we are the clear independent industry leader have much greater scale more inventory much much more efficient development roadmap greater support resources product and partner diversity, giving us the opportunity to drive accelerated industry growth.
On the identity front, we feel we're very well prepared for the future. The elimination of third party cookies makes our role significantly more important than in the past. Most importantly, our pub side solution or audience marketplace, which relies on consented first party identifiers managed by publishers.
<unk> continues to grow as a percent of our business and dovetails perfectly with our strategy for CTV.
We also saw a DSA restrictions come into play just a couple of weeks ago. This.
This change is very new and we've not observed any discernible impact yet, but we are well positioned to help the AD community pivot to a new identity framework.
Our business is largely tied to the broader economic recovery in the U S and globally.
<unk> AD budgets are typically deployed to stimulate demand when marketers are convinced there is customer engagement and follow through.
The longer weighted recovery and very large key sectors of AD spend has begun this.
This is evident in the following sectors as seen in recent ad spend.
Travel has experienced a strong resurgence as seen in spend travel bookings theme park reopening and recent commentary from multiple airlines with a lot of room to continue to grow.
Entertainment is staging a comeback with audience is coming back to why sports concerts Broadway and movie theaters, all looking to sell seats after a very long drought.
And auto has also shown improvement relative to prior trends.
There is a lot to unpack this quarter as it relates to our Q2 guidance David will cover this in more detail, but I wanted to make a few things very clear.
On a combined pro forma basis.
<unk> was 35% of our business and growing in excess of 50% year over year in Q1.
Although the magnate CTV growth rate Standalone was a bit softer than that we've seen material acceleration in Q2.
Yes to raise our expectations for the second quarter.
We continue to be on track to exceed industry growth rates for CTV for the full year.
In spite ex CTV is seeing continued strength as well.
Lastly, as you might expect with sporadic suggests closing we have a lot of work ahead of us and integrating two very strong and high performing teams to now serve a broader set of customers.
The results of these efforts will be a more scaled and powerful company that can help accelerate the growth of programmatic within the already attractive and fast growing CTV market and further separate us from the competition.
With that I will hand things over to David who will go into greater detail regarding financial performance and expectations David.
Thanks, Michael.
We're pleased to announce a very solid Q1, an update on accelerating business trends since then.
Details on spot ex performance and an overview on financing for the spot ex acquisition.
As Michael mentioned for Q1, we delivered revenue of $60 7 million up 67% from Q1 2020 on an as reported basis and up 18% on a pro forma basis.
Growth was led by a C. T V at 32% with O L V growing at 13% year over year pulp on a pro forma basis.
While flat ex had a very robust CTV growth. This quarter, we're cognizant that our Q1 CTV performance was lighter in March than we would've liked and we've seen a noticeable trend improvement as we've moved into Q2. This is reflected in our guidance and our full year outlook continues to outpace the market.
Q1 revenue for mobile increased 20% and desktop grew 10% on a pro forma basis with mobile growth driven by mobile App supply in particular from OLED and audio ad formats.
Our revenue mix for Q1, 2021 was 20% CTV 46 per cent mobile and 34% desktop.
Operating expenses, which in our case includes cost of revenue for the first quarter were $74 $5 million versus $47 million in it.
The same period a year ago.
Creases, where primarily driven by the inclusion of chlorine operating expenses and some relative increases in cost of revenue due to increased amortization, resulting from the <unk> merger and from flat ex the acquisition related expenses.
On an adjusted EBITDA basis operating expenses, including cost of revenue for the first quarter for $51 $4 million as compared to $33 5 million. In Q1 2020 also driven primarily by the addition of the costs, resulting from the flurry of merger.
Adjusted EBITDA operating expenses were similar to the 52 million level in Q4 2020.
Our GAAP based gross margin for the first quarter was 66% up from 61% in Q1 2020 on an as reported basis.
Net loss was $12 $9 million from the first quarter of 2021, thats compared to a net loss of $9 $7 million in the first quarter of 2020.
Adjusted EBITDA was $9 $4 million, resulting in a margin of 15%.
The higher than originally expected due to benefits on both the revenue and expense side.
GAAP loss per share was <unk> 11 for the first quarter of 2021 compared to GAAP loss per share of 18 in the same period in 2020 non.
Non-GAAP income per share in the first quarter was of 2021 was <unk>.
Compared to non-GAAP loss per share of <unk> reported for the same period in 2020.
There were $115 3 million weighted average basic and diluted shares outstanding for the first quarter of 2021.
The additional shares that were not counted for anti dilutive calculation purposes. In Q1 was approximately $13 2 million shares.
Capital expenditures for purchases of property and equipment and capitalized internal use software development costs for.
For $9 $3 million for the first quarter of 2021 in line with our expectations.
Free cash flow was slightly positive in the quarter, which we define as adjusted EBITDA less capex.
Our acquisition of spot ex closed on April 30th.
Consideration consisted of $640 million in cash and approximately $12 three 7 million shares for a total value of 1.14 billion based on the value of our stock on the day to closing.
Our financing for the acquisition consisted of the issuance of 400 million in convertible senior notes.
And the issuance of $360 million of 80 $360 million senior secured term loan.
We completed the 400 million convertible senior notes offering prior to the end of Q1.
We received net proceeds from this transaction of $389 million. After operating expenses 80 million other proceeds as per our spot ex purchase agreement were used to increase the cash component of the purchase price and a correspondingly reduce the number of shares issued.
The notes are due in 2026 and bear interest of 25 basis points payable semi annually in arrears.
We also utilized $39 million of the proceeds to purchase a capped call effectively increasing the conversion premium on the convertible senior notes to 100% or $91.26 per share.
Subsequently subsequent to the end of the quarter and concurrent with the close of the acquisition. We also closed a $360 million seven year senior secured term loan facility.
Term loan bears interest at LIBOR with a floor of 75 basis points, plus 500 basis points.
The loan also requires 1% annual principal payments payable quarterly.
As part of the financing. We also replaced our current SUV line of credit with a five year $52 $5 million senior secured revolving credit facility.
Additional details related to our convertible notes and senior secured facilities can be found in our 8-K and 10-Q filings.
Our financing resulted in an overall blended interest rate of three 7%, including the amortization of financing fees at.
At current interest interest rates, we expect quarterly total interest expense of approximately $7 1 million.
Which on average $5 4 million would be the cash interest component.
Nearly interest.
Quarterly principal payments will be $900000.
At the end of Q1, we had $469 million in cash and cash equivalents on the balance sheet as noted the increase from year end was driven by the convertible note financing.
We expect cash used for the for deal related expenses in Q2, 2021 to equal approximately $54 million.
15 of $21 million in banking fees $29 million in debt financing costs and $4 million in legal and other related expenses.
We expect our cash balance at the end of Q1 2021, when accounting for the term loan payment for spot ex deal fees operating expenses and including Capex for the combined company to be in the range of $125 million to $150 million.
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.
Primarily on a net basis and even more so with higher revenues with spot ex going forward.
As Michael briefly covered on a standalone basis for Q1 2021 slot ex generated revenue ex Tac of $31 2 million up 45 per cent year over year of which $19 7 million was a true attributable to CTV up 70% year over year.
We continue to target an 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.
I will now share expectations for our second quarter, which includes only may and June for spot ex since the acquisition closed on April 30th.
Due to the complexities caused by a mid quarter close we will be providing additional details regarding CTV revenue expectations for Q2.
We will also be providing certain growth rate expectations on a pro forma basis that just flat ex had closed on April 1st at the start of the quarter to provide even more insight on performance we do.
Not anticipate that we will provide forward looking CTV specific revenue expectations in the future.
We expect revenue ex Tac for the second quarter to be in the range of $92 million to $96 million.
We expect revenue ex Tac attributable to CTV for the second quarter to be in the range of $30 million to $34 million.
We expect revenue ex Tac attributable to CTV to grow greater than 90% year over year for a pro forma full quarter Q2 2021.
That is as if the flat ex acquisition occurred on April one 2021.
We expect that adjusted EBITDA operating expenses in Q2, including cost of revenue will be $68 million to $70 million.
Given the many moving parts in our cost base for Q3, including the mid quarter slot ex acquisition close increasing costs related to COVID-19 recovery, consisting of some additional office event and travel costs and our spot ex acquisition related cost synergy initiatives.
Also providing adjusted EBITDA operating expense expectations for Q3.
We expect that adjusted EBITDA operating expenses in Q3, including cost of revenue will be in the range of $76 million to $79 million.
Shifting now to our long term financial targets, we're raising our long term annual revenue ex Tac growth target from 20% to 25% based on a greater CTV mix now that we've closed the slot ex acquisition.
On our last call we raised our long term adjusted EBITDA margin targets to 30 to 35 per cent and are keeping those targets as is driven by continued financial leverage profitability of CTV. The addition of the high margin <unk> business and our targeted $35 million plus of synergy savings.
We are thrilled to have closed the slot ex acquisition and look forward to working with our new teammates from spot ex and executing on our integration plans.
We also look forward to the acceleration of our CTV business entity increased and sustainable margins that it will bring and to sharing our first quarterly financial results as a combined company in Q2.
With that let's open the line for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up the handset before pressing that Keith talked about.
Your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Our first question from Laura Martin from Needham go ahead.
Hi, there.
Thanks, very much for taking the question Michael I would be interested in your thoughts about why CTV growth is different on a pro forma basis.
Stop at 70%.
Jonathan 32% level on a pro forma basis, and if you care to comment why Roku is at 100 per cent year over year growth with so much higher thank you.
Yeah, Hey, Laura Thanks for the question.
Yes, So I think you know.
March was a bit of a disappointment for us at magnate.
I think if you look at the combined company going forward, you're just going to have a greater line of CTV products on debt each kind of address the different sliver of the marketplace, we talked a bit about the spat ex managed service business, which was able to extract.
Linear dollars into CTV.
Capability that we did not build out at magnate.
But.
It is something that is incredibly attractive it.
It's Fedex.
Along with a few other products, but as we said.
Severe acceleration.
In Q2 for Magnetics business and if you look at the two combined you know you're 90% plus growth range for Q2. So so all is well there.
And as far as Roku is concerned.
I think you know.
Those owned and operated.
Okay.
Platforms have kind of a different business model different our business metrics. So it's tough to.
Compare compare us directly to roku.
Obviously, you know same category, but I think that.
We feel really good about our long term position as this leading platform independent.
For the open web and I think the numbers that David shared reflect that in the.
The margins in the business.
<unk> debt as well.
Great and then my follow up would be.
Youre doing a lot of business with like Samsung and just gotten for but these are really high quality names for their CTV opportunity could you talk about whether you continue to see consolidation in FSP behind my guidance.
Thank you.
Yeah. Thanks, Larry Yeah, I do think that.
Certainly on the broader scale.
Legacy Rubicon, the the more of the display world.
Do you have it.
Our header bidder header bidding.
The.
Popularity that will necessarily keep a handful of ssp's them in business.
But if you go when you would go into the CTV business, you're starting to see that ssp's are much less frequently used by platforms and the ones that are used have outsized share of wallet and inventory.
So we're going to I think that we've built a company now with Spanish it really separates us from anyone else in the in the industry.
We think it creates that separation in acceleration and we are.
We feel very good about our market position vis vis the competition.
Thank you very much Michael.
Thanks for.
Our next question is from Jason Cryo from Craig and Hallum go ahead.
Alright, thanks for taking the questions guys. Michael just wanted to get your view of your major debt for differentiation with competitors you folded in to Laurie and products in the past year. One other things Ive discussed with you guys has been the engineering talent just curious at how you turn you know.
There's this massive network of development teams and engineers into a wider competitive advantage.
Yeah, Great question, Jason Thanks for asking.
You know I think debt.
Engineering talent is prized by any technology company, a walk of life, but I would say that day.
As it relates to CTV, specifically, we view that and we've talked about this from the past we view that much more as a software first world, whereas if our job in the display World was just the heart harness demand for publishers, it's going to be a lot more nuance from the CTV World. This is highly value.
But with inventory it traditionally sold direct by publisher buyers want to buy programmatically for buyers so publishers or are.
Meeting that demand in the marketplace, but they're gonna want much greater control over it they're going to want it software to be able to do it themselves and we will get paid appropriately for that and so I think that when you look at the laundry list that roadmap that we had as Magnus Standalone and you look at spot ex us roadmap.
And you combine the talent of both those teams and the sheer numbers as I stated.
Tripling in size that will be able to start to pound out software innovation. Unlike anyone else from the industry and that really will create separation and.
Oftentimes in the other in the display.
SSP World.
There's a lot of you know well our al goes or better we can bring you an extra nickel I think in this world, there's tangible benefits to working with us than other folks can't replicate as it relates to software in the product development cycle that we're going to be able to accelerate so really really excited about that.
Perfect.
On the privacy I know, it's early days on idea for a we still haven't seen anything that cookie deprecation, but just wondering if you can give us a feel for commentary with publishers and buyers.
We've stopped that you've been in an enviable position there, but just curious like is that being shared to you with with people that you talked to you and is that translating into you winning more business right now.
Yes, I think Jason it's just still too early to tell.
You know in terms of percentage.
Pos for teen Dot O I think is the.
14th at one the operating system.
We're in we're in the.
Single digits in terms of folks that have downloaded the operating system or bought a new device that has the operating system installed. So it's just it's just it's too early to tell I mean, I do think that the marketplace is pretty prepared for it.
The things we've been doing in audience marketplace on our side working with publishers of course, as you well know our exposure to <unk>.
Fay.
Has it been all that great and.
Obviously in the CTV business, that's not germane. So so we feel confident that our predictions that the idea for a.
We will not have a material impact to any of our revenue forecast that we put out there exist.
And I wanted to go back to Lauren's question on the Q1, the lighter CTV revenue that you guys had commented on too.
I mean.
I think you alluded to kind of increasing the organic Q2 CTV growth. So I'm just wondering like is there any way to parse out your guidance for Q2 on connected TV in terms of what what you expect spot ex to contribute versus what you know legacy magnate is contributing to that.
Yeah.
You know I'll kick it to David.
Some of the specifics there, but suffice to say.
Magnate is growing you know in terms of its back to where we always thought it would be and then some so I.
I think that this isn't a case of.
In Q2, particularly spot ex coming in and saving the day show. If you will I think both are growing exceptionally well and any kind of slowdown that we witnessed in magna in March has been more than made up for it but David do you have any more color to bring to that.
No I think that covers it.
Thank you gentlemen.
Thanks, Jason.
Our next question is from <unk> Patel from Susquehanna go ahead.
Thanks, guys.
I had a couple of questions on CTV.
Michael I know you've talked about the the margin trends I was just wondering if you could maybe elaborate on some specifics on what you think kind of caused the trends in margin I know things have accelerated nicely. Since then in April and so far in May could you talk about what's driving that acceleration and I know it seems like it's more than just the comps can you just talk about.
What's driving that acceleration.
Yeah. Thanks for the question I So you.
You know I think that there is in any kind of nascent.
Marketplace in CTV is certainly nascent theres going to be.
Aberrational blips.
And then.
Three months cycle.
We obviously torn apart to really look at it and in some instances you are you finding that more.
More of the inventory is sold direct outside of the programmatic channel programmatic is nascent for some of these publishers as I stated before.
Our line of products in the programmatic CTV business.
It wasn't as didn't have as many.
<unk> to them as the tillery of folks I mean, I'm, sorry, as a spot ex did so it's part of the thesis here.
Acquiring spartacist increase our capabilities in those areas for more revenue opportunities.
You know I would think that debt again as you go forward.
Strengthening ad market overall.
Some of those key categories that were lagging because of the pandemic are kicking back in in Q2, and CTV is certainly being the beneficiary of that so you know I would say that the Q.
Q2 is behaving what you know are in excess of what we would've thought.
Going into it and that Q1 was strong going in and then had a weaker March and again, probably a handful of reasons, there, but nothing systemic or anything that takes the bloom off the rose in terms of our position in CTV or the attractiveness of that marketplace.
Great and then just a follow up.
Just wanted to just wanted to clarify I think you've already kind of hinted at it but.
You know in the past you've kind of talked about growing CTV.
You know kind of in the 50% range.
For or higher when you look out and is there anything kind of changed your view on on your ability to do that.
No no nothing at all I think that day.
You look at the.
You know it's the two companies are combined.
In Q1, you would have had it.
Excess of 50% growth rate there acceleration in Q2, so no we feel we feel good about that.
Great. Thank you guys.
Thank you. Our next question is from net Vangala from Stephens go ahead.
Hey, guys. Thanks for taking the question I'm really interested in the future potential of utilizing first party data I think you guys have previously stated debt around 10% of revenues are effectively sourced by utilizing first party data from publishers and this would be expected to grow given idea at bay and the.
Future elimination of cookies in chrome I'm wondering if there's any way you could size up this opportunity as we push forward and maybe comment on what future penetration could be and then with that you know given the rising value of first party data within the over overall AD Tech ecosystem. Your close relationship with publishers can you just talk about how big.
Nike value within the overall AD exchange improves.
Given how close you are to publishers and what that might mean for customer stickiness take rates et cetera. Thanks.
Yes, all good questions I'll hit some of them in a.
David can chime in as well.
You know it.
I don't think when we broke out the number a couple of quarters ago.
One I think it was.
And attempt to give sizing to it.
It has since increased but I don't think we're going to be in a cadence of quoting a specific number every quarter.
David is there any more color as it relates to what it is.
It means for our share in terms of revenue.
Yeah. So we talked about it we talked about a few quarters ago of being 10% of our revenue with you.
That growing to 20% or greater in 2021, and so we continue to steadily grow and I think now that opportunity certainly accelerates.
In 2022, you know, we're still a ways away from Google.
Google, We're moving support of third party cookies.
And so when that occurs.
It'll it'll it'll accelerate rapidly beyond that.
Awesome and then in terms of value for magnate.
I think you touched on a really important point, there Nick and that is.
I think that generally speaking before this.
Whole addressed the ability and identity.
The COVID-19 crisis.
Certainly.
Exacerbated by.
For the.
Deprecation for third party cookies and ideas.
I think debt.
We were never thought of as a category the supply side.
Is strategic as perhaps the demand side, because the demand side.
It was.
Closer to the data.
Implementation for the advice from their clients and we are just the aggregator of inventory and so I think that generally speaking people viewed that as a more strategic piece of the marketplace and I think there is a growing understanding that.
If that was indeed, the case if that was a.
Value is being attributed to DSP because of their role in being able to make this AD buying smarter will then.
You certainly can see that in the SSP World now where no matter what the solution is whether it's apple whether it's Google if youre consented and you get the consent to the individual.
Then you are able to use first party cookies and the only person that can do that really is the publishers day of the relationship and they need an SSP to help them normalize that information put it in taxonomies that's understood by buyers.
Create secure level, so that only buyers can do certain things with it all those things fall to the ER.
SSP to help the publishing partner so we feel as though we're in a terrific crossroads here for the industry and for Magna and in particular, just given the evolution of the shift from third party to first party.
That's super helpful. I think that's still pretty underappreciated in the market.
And then just to close here obviously.
There just seems to be a lot more premium CTV inventory coming to market within the last quarter, We've had discovery plus paramount what they've come out.
As more of a premium inventory has come into the market just what what's the overall been be impact the business debt Mag Knight and <unk>.
Are you winning some of this new inventory that's out there and are you seeing any impact on tpm's towards existing inventory as the supply has seemingly materially increase thanks a lot.
Yeah no. Thanks.
So you can know declination.
Cpm's at all.
It still remains relatively speaking.
Scarce, you know high value inventory so.
Even with additional supply coming from market, we haven't seen.
This degradation.
You know I think a lot of the launch strategies of these plus services are.
Send it around.
Direct sold sponsorship in nature.
And so the inventory doesn't instantly become programmatic ready.
But I think after you know got initial phase occurs.
Just going to be able to have the opportunity to.
<unk> access to more supply.
The.
Top tier supply and that obviously will be a question for our business model.
Great. Thank you.
Our next question is from Vasili Collaros himself from Cannonball Research go ahead.
Thank you good afternoon I wanted to follow up Michael on your remarks about increased business up at United with Roku now that spot ex is integrated so in terms of how that need to agree to works can you give us a little more detail why you're getting more a why you're getting more access.
The roku inventories because it just because part of spot ex has relationships with more apps and then the second one is.
I'm sure you know that brokers are talking a lot on pushing.
Is there one view platform and I was wondering if that's if.
If that makes your life easier harder ore makes no difference whatsoever. So if you could help us understand that.
Sure.
Great question, So I <unk>.
As it relates to guidance.
Specific spot ex initiatives implementations products that.
Given that we just closed the deal.
That we owe you and the rest of the community.
Deeper dive into the spud ex business and product lines et cetera, but I'm going to defer that for another call.
<unk> next quarter.
Just given the recency of the close.
And as it relates to instill in in.
To your question the specifics of mentioning Roku in the script, yes in answer to that question.
We mentioned it because.
The spot ex team has it.
<unk> shipped with Roku.
Again to be define greater going forward and as it relates to Roku as business. You know there is a push and pull.
Certainly done a very very good job in terms of measurement they've done a very good job in terms of.
The products like one view.
But there is kind of a.
Where we get involved and helpful is the idea that you know.
A discovery, who distributes their programming in a number of different platforms, including Roku.
Their goal is to try to aggregate all their inventory in one location and sell it to one advertiser and not have advertisers buying their inventory outside of them.
It occurs but their stated.
<unk> would be to try to bring it all into one place one view on their side and so that's where an SSP adds a tremendous amount of value and I think we will just see this evolve over time, but.
The premium content channels on a roku debt, we have relationships with really desire aggregating that inventory along with their Amazon inventory along with there.
All sorts of other distributed inventory and Vizio are Samsung and tried to bring it in one location to make it easier for buyers to buy all of that inventory.
Okay. Thank you very much.
Youre welcome.
Our next question is from Matthew Thornton from true with Security go ahead.
Hey, good afternoon, guys, maybe one for Michael one for David if I could.
Michael can you just walk us through how you're thinking about that.
Operating the business going forward here.
As adjusted our CTV versus non CTV aggregates about branding, how youre thinking about integration timeline with spot ex and then ultimately to kind of go to market strategy. There do you think you can drive revenue synergies and kind of what that what that go to market looks like and then just for for David David I think you gave a number.
For cash $125 million to $150 million.
That's kind of the attempt at the pro forma number exiting <unk> for all the deal costs.
Out of the way I want to make sure that I heard that right and when you think about the combined business outage, maybe it's too early but I'm curious if you have any thoughts as to what free cash flow conversion might look like meaning you know EBITDA conversion to true free cash flow what that might look like for the for the combined business going forward any color there would be great. Thanks, guys.
Yeah, Hey, Matt obviously, a lot to come in terms of.
Integration planning just kicked off.
High level we.
Completely expect to be one company in market as one company for the second half for the year. So starting in July.
It will be magnate.
For the spot ex brand.
<unk> or <unk>.
Does it become.
Our product is it.
Using some other fashion to be determined.
But yeah, a lot of Devils in the detail I mean, eventually we will combine.
One platform as well.
And as we've talked about our CTV platform is different than the AD engine that does the display and so there is no need to do that final.
The integration because they are both highly specific for what they do.
And none of that will be friction for R.
Our clients or customers.
Our integrated there'll be a unified.
Dashboard, whether or not theres two platforms three platforms behind it.
It will be immaterial to our buyers and our and our sellers.
And so we're really looking for it to that first milestone which is that in July going is when go to market company.
Yes, Matt.
Yes, you've got that pegged right from a cash perspective that that range is once the dust settles.
At the end of the quarter, that's the net level or range that are that we're targeting.
And from a free cash flow flow through perspective.
I think if you just step back we talked about.
Reaching over $500 billion in revenue.
30%.
Plus adjusted EBITDA margin. So you can kind of order of magnitude.
Take that cash.
Elevate our growth from from here to there to give you some from.
High level perspective on what the flow through looks like.
As far as pegging that more specifically, it's a little bit early we're just.
Still determining the exact timing of some of our cost synergies there are some.
A lot of work to do with.
Getting our go forward structure in place and so we will be able to provide more detailed color on that in the quarter.
<unk> to come.
Our next question is from Shar Dubey, who Ria from Evercore go ahead.
Okay. Thank you let me try two please.
Could you. Please talk about why split ex CTV revenue growth yes.
So much faster or was so much faster than that now.
And organic basis, and what is really driving spot items.
Great.
And then the second is could.
Could you please comment on OLED growth it was very healthy in the fourth quarter anything in particular other than the March commentary.
You don't want to call out.
Yeah no. Thank you yeah. So we touched upon it briefly and as I said before we.
We owe the community a deeper dive into the product lineup of spot ex and.
It never having been a public entity before and being a division of a public company not a ton is known on the street or in the community about sporadic. So we definitely owe that to you and so some of that will become evident in terms of.
That's where the growth came we did mention their capabilities as it relates to managed services and that is the extraction of lake linear dollars.
Bringing it into CTV and an easy on ramp.
You can find in these developing markets that some folks have the desire to want to buy CTV, but not the capabilities and if you provide that to them. It's a great business to get them acclimated to CTV and then continue to buy programmatically from there so literally grabbing linear dollars and bring them in.
For the CTV.
That's a big piece of the.
The growth rate differential along with some other.
Products, one on the margins and as it relates to OLED.
Kind of set in Q4, we saw an amazing I'd take a little it'll be towards the end of the quarter.
Which was kind of unprecedented at that juncture, so we feel as though the.
Comparing the two rates.
It presents some.
So comparisons because of the unusual nature of it but I don't know David if you have anything else to share as it relates to that.
No nothing to add I think that that.
That growth.
Okay. Thank you Michael.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Michael Barrett for closing remarks.
Thank you operator, we are really pleased with the high growth profile magnate has with a revenue concentration and 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 now be the clear independent omni channel market leader with the majority of revenue post closing of the spat ex deal coming from CTV NOL day.
The integration work begins now and I feel more bullish than ever about the future of magnate.
Thank you for joining us for our Q1 results call. We look forward to talking to many of you through virtual investor meetings and conferences hosted by Cannonball Research Needham Craig Hallum, Evercore and F. G R.
Our sensor content in the next month and half.
Have a good evening.
The conference has now concluded.
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