Q2 2021 Magnite Inc Earnings Call

August 5, 2021

[music].

Good afternoon, good afternoon, and welcome to the Mack Night second quarter 2021 conference call all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then 1 on your telephone keypad to withdraw your question. Please press Star then 2 please note. This event is being recorded I would now like to turn the conference over to Nick Cormel luck.

Look.

Head of Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone coming back in the second quarter 2021 earnings Conference call. As a reminder of the comparisons you will see in the 10-Q as reported include the financial results of spot X for May and June of 2021, but for the second quarter of 2020 of the results do not include spot X given the acquisition date of April 32021.

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, when we make comments referring to pro forma comparisons we are including spot X for the second quarter of 2020 and the month of April of 2021 in order to provide.

Additional detailed insights of management also uses to evaluate our business performance. Please keep in mind as it relates to the <unk> acquisition prior quarterly results of our estimated in and out of it.

As a reminder of this call. This conference call is being reported joining me on this call 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 <unk> com to accompany today's presentation before.

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 impact of COVID-19 on our business as well as statements concerning the acquisitions of spot X and spring serve.

And potential benefits and 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 of results project.

<unk> or implied by forward looking statements.

A discussion of these and other risks uncertainties and assumptions is set forth on the Companys periodic reports filed with the SEC, including our 2020 annual report on form 10-K, and our 10 Qs for Q1, and Q2.2021, we undertake no obligation to update forward looking statements for relevant risks for.

Our commentary today will include non-GAAP financial measures, including revenue ex Tac for less traffic acquisition costs, adjusted EBITDA and non-GAAP income per share reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release and on the financial highlights deck that is posted on our Investor Relations Web site.

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 on the future of these metrics I encourage you to visit our Investor Relations website to access the press release financial highlights deck periodic SEC reports and the webcast.

<unk> of today's call to learn more about magnet I will now turn the call over to Michael. Please go ahead Michael.

Thank you Nick it's been an exciting 3 months for us since our last call. The digital advertising market has continued its strong recovery from the impacts of Covid.

Recovery is clearly visible in our Q2 revenue ex Tac across all formats and channels, which combined were up 79% on a pro forma basis.

These results are very strong even when considering easier comparisons from Covid in Q2 last year.

I'll first cover some quick performance highlights.

CTV revenue ex Tac grew 108%.

On a pro forma basis, with both legacy magnate and spot X platforms, each delivering growth over 100%.

OLED and display also show very strong revenue ex Tac pro forma with growth of over 60%, each indicating broad strength in our business aided by the strengthening economic recovery.

Adjusted EBITDA margin ex Tac came in at 32% in Q2, and we generated $24 million in operating free cash flow in Q2, which we define as adjusted EBITDA less capex.

This quarter was transformative for magnet specifically with the closing of 2 strategic M&A deals spot X and spring serve which expanded our addressable market.

Added video AD serving to our product offering.

Significantly enhanced our product development and engineering capabilities.

All of which contribute to greater CTV scale and revenue growth expansion.

I wanted to provide some insights on what our combined scale value proposition and growth opportunities look like going forward.

As viewers continue to consume media content by of streaming services and platforms. Many media and content owners are creating content and services for the CTV market.

And we're on a great position to provide them with the only independent end to end monetization platform.

To be clear, we define CTV as large screen immersive TV advertising and do not include streaming television across other devices like mobile tablet and desktop.

We have significantly widened and strengthened the customer segments, we serve.

Across device Oems, such as Roku and Samsung.

Virtual multichannel video programming distributors or mvpds, such as sling and Hulu.

Digital first platform, such as Pluto, and <unk> and of course broadcasters, such as discovery and facts.

We have lots of meaningfully expanded our service offering to touch more inventory and transaction types and our CTV revenue includes not only programmatic auction.

But also of fees for private indirect so deals managed service revenue AD serving fees and value added service fees.

With the traditional TV upfront season recently concluded.

I'd like to clear up confusion regarding how we participate in these upfronts.

Direct sold and upfront, we first of who is doing the selling for.

The direct an upfront deals increasingly include programmatic media spend commitments.

Because buyers and sellers want to realize the workflow efficiencies and targeting gains that programmatic provides.

So how do we participate in the Upfronts and direct sold CTV.

First <unk>.

Through private marketplaces, where our platform serves as the pipes that connect buyers and sellers.

As you May recall, a substantial majority of our CTV revenue comes from <unk>.

And supporting Pnp's, our textures as the self service productivity and workflow tool to efficiently execute CTV campaign.

We also participate in direct sold inventory through our managed service business, which provides demand facilitation and serves as a great onboarding source to get buyers into the programmatic ecosystem.

And finally with CTV AD, serving which comes by way of the spring sort of acquisition.

We now have significant scale in CTV, even in these early days of its adoption as we expect well over $40 million on quarterly CPU CTV revenue ex Tac in Q3.

Which of you step back is greater than what our total company revenue was in Q3.2019.

And we are now enabling every part of the buying process direct upfront and programmatic.

Through our technology solutions and through our managed service offering.

We participate in all growth categories of CTV.

On the identity front, we saw Google push out the elimination of third party cookies in chrome until the end of 2023.

We continue to believe that first party publisher segments collected in the privacy compliant manner will be the future of identity solutions and net SSP will be a driving force behind this transition.

However, the Google decision provides the industry with more time to transition and focus on advancing the advancement and adoption of alternative audience solutions.

We also saw further adoption of IBSA removal.

With iOS updates this quarter.

We observed some ship from iOS, the Android and spend.

Lower.

But better than expected CPM for iOS out debt and limited.

The impact to overall ad spend.

I'll now shift to highlight the strategic value and opportunity created by our addition of an AD server.

This is a very strategic piece for us to better serve current and future customer base.

AD serving in its most basic form is of key utility function for CTV publishers to manage.

Forecasts and execute their campaigns, whether programmatic or direct.

This is of key technology piece debt market leaders like freewheel and Google have bundled with their SSP to create an efficiency advantage and better compete in the market versus the other ssp's or AD server only competitors.

We've talked before about how important it is to be of full stack independent partner to serve the open web and third party of CTV publishers. In this critical piece of Tech allows us to offer a viable independent end to end the solution.

AD serving add significantly to our CTV value proposition spin.

Specifically AD serving as required by all 3 television market participants.

And as broadcasters and OTT only platforms.

For all types of inventory upfront correct or programmatic.

Having a tightly integrated AD server allows for the dynamic allocation of programmatic and non programmatic inventory to.

To provide a holistic deal management solution for publishers.

Addresses a specific set of customers that want an integrated AD server and SSP solution from 1 partner.

Especially new entrants with no legacy tech or desire to build it.

It allows us the cross sell ads to all of our SSP customers.

And from a technical standpoint.

It provides greater efficiency and performance versus third party AD server integrations, which leads to better monetization for publishers.

Switching gears.

Our spot X and spring sort of integration efforts have been progressing well.

Specifically related to the spot X on.

Our senior leadership structure, it's been finalized our go to market teams have been put in place.

The debt and product teams are combined.

And we are ahead of plan for first year of cross synergies.

We are also pleased with plans to consolidate our 2 CTV platforms appropriately.

Under the leadership of Alan R.

Of our Chief Technology Officer, and Adam <unk>, our Chief product Officer.

Lastly, we are excited to serve customers as the more comprehensive scaled independent and powerful company to accelerate the growth of programmatic within the already attractive and rapidly growing CTV market.

We look forward to our Investor Analyst day, which is planned to be virtual on September 15th.

With that I will hand things over to David who will go into greater detail regarding financial performance and expectations.

Thanks, Michael.

We are pleased to announce a strong Q2 to provide some color on areas of strength in the business.

And to provide our outlook for continued growth in Q3.

Total revenue for Q2 was $114 million.

Revenue ex Tac was 104 million for Q2 up of 139% from Q2.2020 on an as reported basis and up 79% on a pro forma basis.

Television revenue ex Tac was $34.3 million and grew a 108% on a pro forma basis as Michael stated earlier.

<unk> and display were up over 60% all on a pro forma basis.

Looking at the CTV business more granularly, both legacy spot X and magnate grew pro forma revenue ex Tac over 100% in Q2.

Since we have now integrated our customer sales support and engineering teams, we're no longer running separate CTV businesses and that's it no longer makes sense to split out CTV result, based on legacy companies.

As a result, we will speak to our combined the CTV business going forward.

Desktop pro forma revenue ex Tac grew 52% and mobile pro forma ex Tac grew 75% or.

Our revenue mix for Q2, 2021 on an ex Tac basis was 34% CTV, 39% mobile and 27% desktop.

Operating expenses, which in our case includes the cost of revenue for the second quarter were $161.5 million versus $82.9 million on the same period a year ago.

Increases were primarily driven by the inclusion of <unk> cost of revenue, including traffic acquisition costs operating expenses and acquisition related expenses.

Adjusted EBITDA operating expenses, which represents the difference between revenue ex Tac and adjusted EBITDA.

For $68.6 million for Q2 as compared to $45.5 million. In Q2, 2020 also driven primarily by the addition of the costs, resulting from the spot X merger.

As Michael mentioned, we have made significant progress on our spot X acquisition related cost synergy goals.

In June we announced our leadership and team reorganization and as part of that process reduced our workforce by roughly 6%.

As a result of this and other actions and our first for months.

<unk> over half of the $35 million in run rate synergies that we targeted which is ahead of our plan.

Net income was $36.8 million from the second quarter of 2021 as compared to a net loss of $39.1 million in the second quarter of 2020 the.

The increase in net income was primarily attributable to an $87.7 million tax benefit recorded in Q2 as a result of the <unk> acquisition.

Adjusted EBITDA was $31.8 million.

The resulting in a margin of 32% as compared to an adjusted EBITDA loss of $3.5 million in the second quarter of 2020, driven by continued revenue growth in our legacy business and by the addition of spot X.

We calculate our adjusted EBITDA margin as a percentage of revenue ex Tac.

GAAP diluted income per share was 26 for the second quarter of 2021 compared to GAAP loss per share of 36 in the same period in 2020.

Non-GAAP diluted income per share in the second quarter of 2021 was 11.

Compared to non-GAAP loss per share of <unk> reported for the same period in 2020.

There were 126 million weighted average basic and 143 million weighted average diluted shares outstanding for the second quarter of 2021, we estimate diluted shares outstanding for the third quarter to be approximately of $152 million.

Capital expenditures, including both purchases of property and equipment and capitalized internal use software development costs for $8 million for the second quarter of 2021 in line with our expectations of.

Operating free cash flow was $24 million for the quarter, which we define as adjusted EBITDA less capex.

As a reminder, our acquisition of <unk> closed on April 30th.

Total consideration consisted of $640 million in cash and approximately $12.4 million shares of magnet for a total value of $1.1 billion.

Based on the value of our stock on the date of closing excluding normal working capital adjustment.

Our financing for the acquisition consisted of the issuance of $400 million in convertible senior notes during Q1, and the issuance of a $360 million 7 year senior secured term loan concurrent with the close of the acquisition.

The term loan bears interest at LIBOR with the floor of 75 basis points, plus 500 basis points.

The loan also requires 1% and annual principal payments payable quarterly which will be $900000 per quarter.

Our interest expense for Q2, 2021 was $5.2 million.

We estimate the full quarter interest expense will be approximately $7.1 million.

Of which $5.5 million will be the cash cost.

At the end of Q2, we had $193 million in cash on the balance sheet.

Just after the quarter closed we used $31 million for the spring sort of acquisition.

As a reminder of our cash balances can swing disproportionately both up and down compared to the run rate of our business since we collect and pay the growth 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 X going forward.

We are excited to add springs or to our business, which is currently generating approximately $3 million in quarterly revenue the majority of which the CTV.

And is roughly EBITDA breakeven.

This is an area we plan to invest in.

I will now share of future expectations, which includes spring Sir.

We expect revenue ex Tac for the third quarter to be in the range of $112 million to $116 million.

We expect revenue ex Tac attributable to CTV for the third quarter to be in the range of 41% to $45 million.

This represents pro forma CTV growth of roughly 50% at the midpoint year over year.

We expect of that adjusted EBITDA operating expenses in Q3 will be $77 million to $79 million.

We expect that total capex for the second half of 2021 will be roughly $16 million.

We continue to target long term annual revenue ex Tac growth of 25%.

And adjusted EBITDA over revenue ex Tac margin of 30% to 35%.

We are thrilled with the progress our teams are making especially considering all of that they've had to accomplish and integrate and of COVID-19 restricted world Q.

Q2 also showed the powerful financial leverage we have on our business model with the strong adjusted EBITDA margin expansion.

Comes with revenue outperformance.

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 1 on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then 2 at this time, we will pause momentarily to assemble our roster.

The first question comes from Xi'an Patel with <unk>.

<unk>. Please go ahead.

It's Ryan on for Sean.

So first you talked at length about spring serve in the prepared remarks.

But can you talk about.

How you think about the spring sort of impacting CTV growth sort of on the long term and it does that accelerate the opportunity there.

And then secondly, we saw you set up the <unk>.

The leadership team in Asia of post the acquisition sort of how do you feel about your expansion of prospects in Asia.

Yeah, Ryan This is Michael Barrett I can.

<unk> often David can jump in yeah, so well.

So prior to the spring sort of acquisition.

We are certainly the leading independent programmatic player in CTV, but we did lack the AD serving capabilities and AD serving isn't just the essential to the whole monetization stack, whether it's CTV or.

The online video display.

On the top players have shown that if you combine an SSP with AD serving.

There are benefits for the publisher from of monetization standpoint, so there's the direct benefits we get from from market expansion, which is AD serving so the publisher where to sell an AD and not run it programmatically. It still has to be served and there is revenue to be generated from that but.

Then there is also the increased opportunity from a programmatic standpoint.

So we're quite excited.

I think that spring service has done a great job.

In the let's say middle market in terms of the customer base.

I think debt.

We will see.

See that segment growing on.

We had mentioned in the prepared remarks about.

The interest on content owners.

And distributors too.

Get into the CTV marketplace, and we think we will have a very exciting role there.

As far as the.

The Asia.

Announcement of our leadership team.

That was done across the board and I think the exciting aspect. There is that we have go to market teams focused on free.

The TV.

And the EV plus so.

We have product teams focus on CTV and D requests and engineering teams focus on CTV and TV plus D V price.

The display video and audio anything Thats non <unk> and I think that allows us the better invest in the areas of the company because you.

You saw the display growth numbers.

They were quite strong for the quarter and then the intimating that display is the up 60% marketplace every quarter for the simple fact is it's a growth business for us it's highly profitable and we're going to we're going to lean into that as well with the appropriate resources and that team is doing a bang up job and I think we have.

Growth, particularly in India in the Asian market, where we're making investments there so yeah I would say.

Very pleased with the team structure of the leadership in place and the prospects for growth in the future.

Great. Thanks, Joe.

The next question is from Jason <unk> with Craig Hallum. Please go ahead.

Thank you guys and congrats on the execution.

Wanted to go back to the spring sort of top top.

Topic, just wondering where that product sits today relative to where you think it needs to be the kind of just serve as the big catalyst as kind of another tool in your toolbox, because we hear a lot of Intrexon and conversations that there is a lot of demand for an alternative AD server relative to what's out there, but curious kind of.

What kind of resources, you need to put behind that to get it ready for a broader go to market.

Yeah, It's a great question, Jason and thanks for the kind of words on the quarter.

I think we will be touching it will be kind of drilling down on this quite a bit more on our.

Analyst day in the September 15th on.

But it's the new acquisition for US right just recently closed on it.

The good news is spot X had been working very closely with the spring serve team for the past year and it was almost a complete validation that if you a couple of AD serving knowledge.

With programmatic monetization debt, it's going to yield.

The greater outcomes for the publishers.

There is definitely a tier of publishers that are ready for the spring sort of product and leaning into it and there is admittedly a tier of.

Publishers.

Bring with it legacy sales in linear sales and that's a far more complicated product.

And.

Probably.

Not the effort that we're going to attack head on as they kind.

The rip and replace.

Of the.

Google or of freewheel, but we see many many opportunities and when is it pretty complex multi server environments to be able to work very closely with those folks into gain more opportunities than we currently had prior to the spring Sir.

But yes again super excited about it and as David mentioned in the area of investment.

But the team has proven for the last year working closely with spring sort of of that there is a real need out there for a coupling of our demand with the spring share of product.

Thank you Michael in regards to integrating its products.

We've spent some time before talking about the managed service offering and I'm curious is there is that part of the integration process to make that product available to the more of legacy may ignite <unk>.

TV customers and if it is is there a timeline of when that becomes available because it seems like that could be a source of revenue synergies over time.

Yeah, no great great call and that's the.

That's 1 of those things were.

The kind of just hit the ground running with it like if you had inventory.

Legacy magnate or the legacy Talaria had inventory that <unk> didn't have access to.

Day in day of the close that goes into the sales persons bag right and so it's just the.

Inventory is used to bolster packages create new packages, but yes.

That's the kind of low hanging go to market stuff that doesn't require a tremendous amount of tech work background wiring et cetera. So yeah.

We see really promising opportunities in the increase of demand facilitation.

Perfect Alright, thank you.

Thanks for the next question is from Nick <unk> with Stephens. Please go ahead.

Hey, guys great quarter.

I'm curious how revenue trended throughout the quarter.

What maybe you might attribute to COVID-19 impacted businesses driving the resurgence and AD demand maybe.

Maybe specifically in seem to be as well I know yourself from oscillation late last quarter, just thoughts on how things trended throughout the quarter.

Well I hate that David Yeah, I think.

So I think across the business we saw the <unk>.

Most part normal seasonal patterns, except that we did see some acceleration I think coming into coming into June and so.

You had a couple of categories.

For the kind of picked up I think travel.

Travel was 1 in particular that over the course of the quarter.

Really really strengthened and I think we also saw slight strengthening in the in CTV as well, but nothing extreme.

Extremely low.

Alex sized I guess.

Yeah.

Great and then I mean, obviously this was a very busy quarter for you guys. So this might be going backwards, but maybe you could talk through some of the advantages of partnering with Iris TV for contextual advertising as well as TV scientific for access to incremental demand.

And do you do you think youre seeing per.

Performance marketers performance advertisers entered this market for CTV.

And maybe you can just talk about the opportunity there. It seems that it's pretty vast I think 134 billion of spend across search and social and they covet.

The measurement and attribution.

Net debt.

Search and social offer.

Now that theoretically is coming to CTV, it's available on CTV. So maybe maybe you can just kind of size up.

That opportunity for incremental demand.

Yes, I mean.

All good questions, Nick I would think debt.

1 of the themes that we've kind of been pushing on.

I think it is.

Big Big opportunity of this democratization of advertising and you know lastly, the 2 partnerships you mentioned on.

R R.

Strong partnerships in 1 of many I think 1 of the things that Ah spots. In particular is an extraordinarily well is the whole onboarding of measurement of attribution of audience segment of packaging they've done a very nice job in terms of of being able to present inventory and of the results of.

The advertising on inventory to marketers and publishers and we're going to continue in that vein with more of partnerships and generally just trying to help the industry with this attribution of measurement conundrum that kind of exist today.

Great. Thank you so much and good luck going forward.

Thanks for Ya.

The next question is from Vaseline Charka Chark of from from Cannon Ball Research. Please go ahead.

[noise]. Thank you very much good afternoon. So on Q1 report you you're you're connected to the revenue were of a little light on 1 of the reasons. You. You cited was that the the inventory of wasn't on there was a shortfall in inventory of due to leave me of ratings. So uhm the of course, I'm concerned but for now but.

You have [noise].

1 of the more stable the projections can become and we now have a portfolio of products that helps safeguard against that.

Thank you.

Yeah.

The next question is from Matt Thornton with Truest. Please go ahead.

Hey, good afternoon, guys, maybe maybe 2 if I could I guess, Michael maybe can you talk a little bit about the the competitive landscape out there maybe on the on the just the display side as well as on the CTV side, just kind of adding incremental since we're on the call last time of 3.3 months ago, our supply path optimization competition pricing just kind of of the the lay of the land and then just.

Secondly, on and I apologize if I missed this but I think last quarter, you talked about being comfortable with north of.

The 1 billion in revenue next next year I just wanted to see if if you're still still comfortable or if there's any update to that to that number. Thanks guys.

Sure Matt.

I'll take the first half of them.

David will stick of neck out from the second half on.

It's just you know what you do do a good CFO right.

The yes listen the competition continues right I think what we're seeing is on it it's really getting consolidated among the top players right.

The magnate or maybe a <unk> on the display side.

For the center of the in the.

Mining sector.

You mentioned that.

She opened actions you know going through a process right now trying to sell themselves.

The index exchange, which was hey, you know.

You know tough.

There are a couple of years back I think as you know I'm fond of step behind and you kind of hear that in the marketplace. So you know I think it was just you know the big are getting bigger.

Market is from feeling more comfortable with a handful of partners and you know when doing that down has occurred in the final steps to supply path optimization will look different in different sectors.

Auction I think the will always be a need for 8 to 10 participants could do it.

A unified auction in the open market header bidding on.

In C T V.

I don't see any momentum for people looking for more demand partners in the P. M. P. World I think they are quite satisfied with the players that are at the exists there and so I think we will benefit from that growth.

So on all I think we stand very well positioned in this marketplace that is consolidate.

The consolidating.

And David on the 'twenty 'twenty forecast of 2072 forecast.

Yeah.

Yeah. We were you know excited this quarter to come in sort of 6 million of so ahead of our midpoint of our guidance and.

We remain bullish about 2022, the kind of certainly certainly not reducing our targets and.

We will continue to lean into our I think we talked about the yeah, well in excess of $500 million in revenue and we're remain super comfortable with that.

Okay.

Again, if you have a question. Please press Star then 1.

For the next question comes from Sweat the carhartt jewelry on <unk> with Evercore ISI. Please go ahead.

Okay. Thank you.

Well I'm sorry, if I missed this but is there Michael is that way.

Over the long term I think.

Okay. So 18 per cent of the come back like pro forma you take spot S plus that night Alright <unk>.

<unk>.

Is that right is managed services.

The 2% of the C. T V number correct yeah. Okay.

Alright.

Go ahead.

Sorry, I was going to say.

It's actually it's 18% of of of our total of of total revenue. It's the let's talk about revenue X package 7 per cent.

Of our total revenue and so it's still a minority of our of our CVV business.

Okay.

And then the guidance that you gave where it accounts called for 50 per cent, you'll be against the law and C. T V revenue is.

Is it fair to assume it's 50 per cent for both the July art as well the spot X.

Well we've.

We've combined our teams and so there really is no such thing going forward as.

A legacy what legacy business vs versus the other business so.

In the second quarter.

We did <unk> did have that differentiation all C. T V. The T C television businesses grew it basically the the same rate and so now we've combined and we're going forward and there's no. There's no. There's no drag you know on any of the legacy clients that we.

That we brought together.

And we'll be talking about that business on on on a combined basis going forward.

Okay. So then when you report the third quarter should we not expect you to give us the break I would like the does the standard was hundred per cent each.

That's correct.

Okay sounds good well, thank you very much.

Okay sure.

For the next question is from Matt Swanson with our B C capital markets. Please go ahead.

Yeah. Thank you guys. So much for taking my questions.

So I'll kind of follow up on the previous Matthew going down competition show on me with the acquisition of spot X amount of spring serve you truly kind of established your place from the C. P V market. So thinking competitively how do you build a defensible boat around the market share kind of acknowledging that this is.

Bill of Nathan market, Yeah on we're looking 5 years from now with a much larger town you know how how old are you thinking about kind of sticking to the areas that you're excelling in right now.

Yeah, a great question, Matt and thanks for the question Uhm you know the for.

Funny thing is you know you can certainly.

You can certainly look at.

Competitors coming up you know general display.

Exchanges, Michael problematic crashing the party and wanting to get into the C. T V and God knows why we know why they would want to give them on the exciting tan growth rates et cetera, but we really do feel it is going to play on quite differently and as you pointed out we now have a question of of assets that on.

Or on rival and in order to really compete against us as the new entrant.

You really are going to ask the bring a lot of tech and a lot of experience and a lot of accounts and engineers and so we don't think of we don't see this is something where you know it erupts into open auction header bidding with 10 exchanges competing for inventory debt.

Day, well occur at a segment of the market, but that would be kind of of the longer tail and it wouldn't necessarily at all look like the upper top of the pyramid bake broadcasters et cetera.

The way we look at it Mad is that this is a defensive move back to to maintain what we have the vast majority of the revenue dominated in the space right now is by freewheel on Google and that's who we're going after so it's a lot less about being concerned about creating of modes to protect what we have then it is about.

Expansion of opportunities to get business, that's already there in the hands of the non independent more walled garden guys.

And that cash is the stuff that has really driven the question of assets that we have the people that we have in our or go to the market strategy.

Yeah, and that's Super helpful. Michael and then if I could just kind of add on to that collection of assets idea you know Bernie on spring. Sir can you talk about kind of how you see the whole mess of your value proposition. Now you know are there any other clear of Jason fees or capabilities, either I'm, a day or internal development either.

Assets or even thinking about like what is the build out some of those strategic managed services the kind of build up you know.

I know, we're not saying the fencible I wanted to say on transposition with your customers because of the cement the value creation that you have for publishers.

Yeah, I mean listen I think we have the big pieces in place and I think we are very satisfied if we never get another M&A deal that we have.

Gotten in the guest that was out there the best talent and now we're all set to run a unified company magnate that said, that's probably not realistic for the flavor of the M&A is going for a little more than likely be springing serve sized as opposed to spot exercise just simply because that's.

What exists from the market and you know with the AD server, it's about executing of scaling.

The spring sort of product. So what are adjacent areas. You know I don't think we'd ever get into as the principal on the measurement business. Because you know a lot of marketers or publishers don't like the grading your own homework [laughter]. So there are a great measurement companies that day, it will work with and help unify I think the audience.

The packaging the audience segmentation business day.

Our research this quarter have a great evening.

Yeah.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.

[music].

Good off of good afternoon, and welcome to the Mad 9 second quarter 2021 conference call all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Luke.

Head of Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone from the magnate second quarter 2021 earnings Conference call. As a reminder of the comparisons you will see in the 10-Q as reported include the financial results of spot X for May and June of 2021, but for the <unk>.

Second quarter of 2020 of the results do not include spot X given the acquisition date of April 32021 day.

And of course of this call when we reported results and associated year over year comparisons with the phrase as reported we are referring to the basis as reported in our 10-Q, when we make comments referring to pro forma comparisons we are including spot X for the second quarter of 2020 and the month of April of 2021 in order to provide additional.

Detailed insights the management also uses to evaluate our business performance. Please keep in mind as it relates to the spot X acquisition prior quarterly results of our estimated in on all of it.

As a reminder of this call. This conference call is being reported joining me on this call are Michael Barrett CEO and day to day, our CFO I would like to point out that we have posted financial highlights slides to our Investor Relations website <unk> com 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 impact of COVID-19 on our business as well of statements concerning the acquisitions of spot X and spring serve.

<unk> or implied by forward looking statements.

Session of these and other risks uncertainties and assumptions of set forth on the Companys periodic reports filed with the SEC, including our 2020 annual report on form 10-K, and our 10 Qs for Q1, and Q2.2021, we undertake no obligation to update forward looking statements for relevant risks our commentary today will include non-GAAP financial measures include.

Revenue ex Tac for less traffic acquisition costs, adjusted EBITDA and non-GAAP income per share reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release and on the financial highlights deck that is posted on our Investor Relations website.

<unk> of today's call to learn more about magnet I will now turn the call over to Michael. Please go ahead Michael.

Thank you Nick it's been an exciting 3 months for us since our last call.

Little advertising market has continued its strong recovery from the impacts of Covid.

Recovery is clearly visible in our Q2 revenue ex Tac across all formats and channels, which combined were up 79% on a pro forma basis.

These results are very strong even when considering easier comparisons from Covid in Q2 last year.

I'll first cover some quick performance highlights.

CTV revenue ex Tac grew 108%.

On a pro forma basis, with both legacy magnate and spot FX platforms, each delivering growth over 100%.

OLED and display also show very strong revenue ex Tac pro forma with growth of over 60%, each indicating broad strength in our business aided by a strengthening economic recovery.

Adjusted EBITDA margin ex Tac came in at 32% in Q2, and we generated $24 million in operating free cash flow in Q2, which we define as adjusted EBITDA less capex.

This quarter was transformative for Magna specifically with the closing of 2 strategic M&A deals spot X and spring serve which expanded our addressable market.

Added video AD serving to our product offering.

Significantly enhanced our product development and engineering capabilities.

All of which contribute to greater CTV scale and revenue growth expansion.

I wanted to provide some insights on what our combined scale value proposition and growth opportunities look like going forward.

As viewers continue to consume media content by of streaming services and platforms. Many media and content owners are creating content and services for the CTV market.

And we're on a great position to provide them with the only independent end to end monetization platform.

To be clear, we define CTV as large screen immersive TV advertising and do not include streaming TV across the other devices like mobile tablet and desktop.

We have significantly widened and strengthened the customer segments, we serve.

Across device Oems, such as Roku and Samsung.

Virtual multichannel video programming distributors or mvpds, such as sling and Hulu.

Digital first platform, such as <unk>, and <unk> and of course broadcasters, such as discovery and facts.

We have lots of meaningfully expanded our service offering to touch more inventory and transaction tapes and our CTV revenue includes not only programmatic auction.

But also of fees for private indirect sales deals managed service revenue AD serving fees and value added service fees.

With the traditional TV upfront season recently concluded.

I'd like to clear up confusion regarding how we participate in these upfronts.

Direct sold and upfront, we first day, who is doing the selling for.

The direct an upfront deals increasingly include programmatic media spend commitments, because buyers and sellers want to realize the workflow efficiencies and targeting gains that programmatic provides.

So how do we participate in the Upfronts and direct sold CTV.

First <unk>.

Through private marketplaces, where our platform services, the pipes that connect buyers and sellers.

As you May recall, a substantial majority of our CTV revenue comes from <unk>.

In support of Pnp's R Tech serves as the self service productivity and workflow tool to efficiently execute CTV campaign.

We also participate in direct sold inventories through our managed service business, which provides demand facilitation and serves as a great on boarding source to get buyers into the programmatic ecosystem.

And finally with CTV AD, serving which comes by way of the spring sort of acquisition.

We now have significant scale in CTV, even in these early days of its adoption as we expect well over $40 million on quarterly CPU CTV revenue ex Tac in Q3.

Which of you step back is greater than what our total company revenue was in Q3.2019.

And we are now enabling every part of the buying process direct upfront and programmatic.

Through our technology solutions into our managed service offering.

We participate in all growth categories of CTV.

On the identity front, we saw Google push out the elimination of third party cookies in chrome until the end of 2023.

We continue to believe that first party publisher segments collected in the privacy compliant manner will be the future of identity solutions and net ssp's will be a driving force behind this transition.

However, the Google decision provides the industry with more time to transition and focus on advancing the advancement and adoption of alternative audience solutions.

We also saw further adoption of IBSA removal.

With iOS updates this quarter.

We observed some shift from iOS, the Android and spend.

Lower.

But better than expected CPM for iOS assets and limited impact to overall ad spend.

I'll now shift to highlight the strategic value and opportunity created by our addition of an AD server.

This is a very strategic piece for us to better serve current and future customers.

AD serving in its most basic form is of key utility function for CTV publishers to manage for.

For cash and execute their campaigns, whether programmatic or direct.

AD serving add significantly to our CTV value proposition.

Specifically AD serving as required by all 3 television market participants.

And broadcasters and OTT only platforms and for.

For all types of inventory upfront direct or programmatic.

Having a tightly integrated AD server allows for the dynamic allocation of programmatic and non programmatic inventory to provide a holistic deal management solution for publishers.

It addresses a specific set of customers that want an integrated AD server and SSP solution from 1 partner.

Especially new entrants with no legacy tech or desire to build it.

It allows us the cross sell ads to all of our SSP customers.

And from a technical standpoint.

It provides greater efficiency and performance versus third party AD server integrations, which leads to better monetization for publishers.

Switching gears.

On a spot X and spring sort of integration efforts have been progressing well.

Specifically related to the spot X.

Our senior leadership structure, it's been finalized our go to market teams have been put in place.

The debt and product teams are combined.

And we are ahead of plan for first year of cross synergies.

We are also pleased with plans to consolidate our 2 CTV platforms appropriately.

Under the leadership of Alan R.

Of our Chief Technology Officer, and Adam Syroka, our Chief product Officer.

We look forward to our investor the analyst day, which is planned to be virtual on September 15th.

With that I will hand things over to David who will go into greater detail regarding financial performance and expectations.

Thanks, Michael.

We are pleased to announce a strong Q2 to provide some color on areas of strength in the business.

And to provide our outlook for continued growth in Q3.

Total revenue for Q2 was $114 million.

Revenue ex Tac was $104 million for Q2 up 139% from Q2.2020 on an as reported basis and up 79% on a pro forma basis.

Television revenue ex Tac was $34.3 million and grew 108% on a pro forma basis as Michael stated earlier.

<unk> and display were up over 60% all on a pro forma basis.

Looking at the CTV business more granularly, both legacy spot X and magnate grew pro forma revenue ex Tac over a 100% in Q2.

As a result, we will speak to our combined the CTV business going forward.

Desktop pro forma revenue ex Tac grew 52% and mobile pro forma ex Tac grew 75% or.

Our revenue mix for Q2, 2021 on an ex Tac basis was 34% CTV, 39% mobile and 27% desktop.

Operating expenses, which in our case includes cost of revenue for the second quarter were $161.5 million versus $82.9 million on the same period a year ago.

Increases were primarily driven by the inclusion of <unk> cost of revenue, including traffic acquisition costs operating expenses and acquisition related expenses.

Adjusted EBITDA operating expenses, which represents the difference between revenue ex Tac and adjusted EBITDA.

For $68.6 million for Q2 as compared to $45.5 million. In Q2, 2020 also driven primarily by the addition of the costs, resulting from the spot X merger.

As Michael mentioned, we have made significant progress on our spot X acquisition related cost synergy goals.

In June we announced our leadership and team reorganization and as part of that process reduced our workforce by roughly 6%.

As a result of this and other actions in our first 4 months.

<unk> over half of the $35 million in run rate synergies that we targeted which is ahead of our plan.

Net income was $36.8 million from the second quarter of 2021 as compared to a net loss of $39.1 million in the second quarter of 2020 the.

The increase in net income was primarily attributable to an $87.7 million tax benefit recorded in Q2 as a result of the <unk> acquisition.

Adjusted EBITDA was $31.8 million.

We calculate our adjusted EBITDA margin as a percentage of revenue ex Tac.

GAAP diluted income per share was <unk> 26 for the second quarter of 2021 compared to GAAP loss per share of <unk> 36, and the <unk>.

Ain't period in 2020.

Non-GAAP diluted income per share in the second quarter of 2021 was 11 <unk>.

Compared to non-GAAP loss per share of <unk> reported for the same period in 2020.

Operating free cash flow was $24 million for the quarter, which we define as adjusted EBITDA less capex.

As a reminder, our acquisition of <unk> closed on April 30th total.

Total consideration consisted of $640 million in cash and approximately $12.4 million shares of magnet for a total value of $1.1 billion.

Based on the value of our stock on the date of closing excluding normal working capital adjustment our.

For financing for the acquisition consisted of the issuance of $400 million in convertible senior notes during Q1, and the issuance of a $360 million 7 year senior secured term loan concurrent with the close of the acquisition.

The term loan bears interest at LIBOR with the floor of 75 basis points on a 500 basis points.

The loan also requires 1% annual principal payments payable quarterly which will be $900000 per quarter.

Our interest expense for Q2, 2021 was $5.2 million we.

We estimate the full quarter interest expense will be approximately $7.1 million.

Of which $5.5 million will be the cash cost.

At the end of Q2, we had $193 million in cash on the balance sheet.

Just after the quarter closed we used $31 million for the spring sort of acquisition.

And even more so with higher revenues with spot X going forward.

We are excited to add spring sort of to our business, which is currently generating approximately $3 million in quarterly revenue the majority of which the CTV and is roughly EBITDA breakeven.

This is an area we plan to invest in.

I will now share of future expectations, which includes spring Sir.

We expect revenue ex Tac for the third quarter to be in the range of $112 million to $116 million.

We expect the revenue ex Tac attributable to CTV for the third quarter to be in the range of 41% of $45 million.

This represents pro forma CTV growth of roughly 50% at the midpoint year over year.

We expect of that adjusted EBITDA operating expenses in Q3 will be $77 million to $79 million.

We expect that total capex for the second half of 2021 will be roughly $16 million.

We continue to target long term annual revenue ex Tac growth of 25%.

And adjusted EBITDA over revenue ex Tac margin of 30% to 35%.

We are thrilled with the progress our teams are making especially considering all of that they've had to accomplish and integrate and of COVID-19 restricted world Q.

Q2 also showed the powerful financial leverage we have in our business model with the strong adjusted EBITDA margin expansion.

Comes with revenue outperformance.

With that let's open the line for Q&A.

To withdraw your question. Please press Star then 2 at this time, we will pause momentarily to assemble our roster.

The first question comes from Shinhan Patel with <unk>.

<unk>. Please go ahead.

It's Ryan on for Sean.

So first you talked at length about strength serve in the prepared remarks.

But can you talk about.

Do you think about the spring sort of impacting CTV growth sort of in the long term and does that accelerate the opportunity there.

And then secondly, we saw you set up the new.

The leadership team in Asia of post the acquisition sort of how do you feel about your expansion of prospects in Asia.

Yes, Ryan this is Michael Barrett I can start it off and David can jump in yeah, so well.

So prior to the spring sort of acquisition.

We are certainly the leading independent programmatic player in CTV, but we did lack the AD serving capabilities.

And AD serving isn't just the essential to the whole monetization stack, whether it's CTV or.

The online video display.

On the top players have shown that if you combine an SSP with AD survey.

There are benefits for the publisher from a monetization standpoint, so there's the direct benefits we get from from <unk>.

Market expansion, which is AD serving so the publisher where the sell in AD and not run. It programmatically. It's still has to be served and there is revenue to be generated from that.

But then there's also the increased opportunity from a programmatic standpoint.

So we're quite excited.

I think that spring service has done a great job.

In the let's say middle market in terms of the customer base on.

I think debt.

We see that segment growing on.

We had mentioned in the prepared remarks about the.

Interest on content owners.

And distributors too.

Get into the city of new marketplace and.

We think we'll have a very exciting role there.

As far as.

On the Asia.

Announcement of our leadership team.

That was done across the board and I think the exciting aspect. There is that we have go to market teams focused on.

CTV.

And by the PV plus so.

We have product teams focus on CTV and DVA of question engineering teams focus on CTV, and TV, plus and Dv price displays.

The display video audio anything Thats on <unk>, and I think that allows us to better invest in the areas of the company because.

You saw the display growth numbers they were quite strong for the quarter and then the intimating that display is the up 60% marketplace every quarter, but the simple fact is it's a growth business for us it's highly profitable and we're going to we're going to lean into that as well with the appropriate resources and that team is doing a bang up job.

We have.

Particularly in India in the Asian market, where we're making investments there so yes, I would say.

Very pleased with the team structure of the leadership in place and the prospects for growth in the future.

Great. Thanks, Scott.

The next question is from Jason <unk> with Craig Hallum. Please go ahead.

Thank you guys and congrats on the execution.

Wanted to go back to the spring sort of topic.

Just wondering where that product fits today relative to where you think it needs to be the kind of does serve as the big catalyst as kind of another tool in your toolbox, because we hear a lot of injection and conversations that there is a lot of demand for an alternative AD server relative to what's out there, but curious kind of.

What kind of of resources, you need to put behind that to get it ready for a broader go to market.

Yeah, It's a great question, Jason and thanks for the kind of words on the quarter.

Yeah.

I think we will be touching it will be kind of drilling down on this quite a bit more on our.

Analyst day in the September 15th on.

But it's a new acquisition for US right just recently closed on it.

The good news is spot X has been working very closely with the spring serve team for the past year and it was almost the complete validation debt. If you a couple of AD serving knowledge.

With programmatic monetization debt.

It's going to yield.

The greater outcomes for the publishers.

There is definitely a tier of publishers that are ready for the spring sort of product and leaning into it and there is admittedly a tier of.

The publishers that bring with it legacy sales in linear sales and that's a far more complicated product.

And.

Probably.

Not the effort that we're going to attack head on as it kind of rip and replace.

Of the.

Google or free will but we see many many opportunities and when is it pretty complex multi server environment to be able to work very closely with those folks into gain more opportunities than we currently had prior to spring Sir.

But yes again super excited about it and as David mentioned in the area of investment.

But the team has proven for the last year working closely with spring sort of that there is a real need out there for a coupling of our demand with the spring sort of product.

Thank you Michael in regards to integrating its products.

We've spent some time before talking about the managed service offering and I'm curious is there is that part of the integration process to make that product available to the more legacy may ignite <unk>.

TV customers and if it is is there a timeline when that becomes available because it seems like that could be a source of revenue synergies over time.

Yes, no great great call and the.

It's 1 of those things were.

The kind of just hit the ground running with it like if you had inventory.

Legacy magnate legs.

Legacy of Hillary had inventory of that spot X could have access to.

Day and day of the close that goes into the sales persons bag right.

So it's just those that's inventory is used to bolster packages create new packages, but yes.

That's the kind of low hanging go to market stuff that doesn't require a tremendous amount of tech work background wiring et cetera. So yeah, we see we see really promising opportunities in the increase of demand facilitation.

Perfect Alright, thank you.

Thanks.

The next question is from Nick <unk> with Stephens. Please go ahead.

Hey, guys great quarter.

I'm curious how revenue trended throughout the quarter.

What maybe you might attribute to COVID-19 impacted businesses driving a resurgence of demand.

Maybe specifically in CTV as well I know you saw some operations late last quarter, just thoughts on on how things trended throughout the quarter.

Go ahead David.

Yeah I think.

So I think across the business, we saw for the most part normal seasonal patterns, except that we did see some acceleration I think coming into the coming into June and so.

You had a couple of categories the kind.

Picked up I think.

Travel was 1 in particular that over the course of the quarter.

Really really strengthened and I think we also saw slight strengthening in the.

And CTV as well, but nothing.

Extremely.

Outsized I guess.

And do you do you think youre seeing.

Performance marketers performance advertisers entered this market for CTV.

And maybe you can just talk about the opportunity there. It seems that it's pretty vast I think of 134 billion of spend across search and social and they covet.

The measurement and attribution.

The search and social.

The offer.

Now that theoretically is coming to CTV, it's available on CTV. So maybe maybe you can just kind of size up.

That opportunity for incremental demand.

Yes.

<unk>.

All good questions, Nick I would think debt.

1 of the themes that we've kind of been pushing on.

As it relates to the programmatic opportunity on market size for.

CTV is kind of the democratization of advertisers.

If you look at linear TV, given the sophistication of.

The media buying the.

The expense of the media buying and the quality of the advertising that has to be produced it's not surprising that the linear world from the national TV standpoint.

There's a couple of hundred advertisers rate represents the bulk of it where we believe firmly.

In programmatic CTV youre going to be towards the 10000 advertisers and we've already saw that throughout the.

Covid when a lot of direct to consumer brands started testing.

On CTV and had a very positive experience with it.

Pricing was right.

On Instagram.

Facebook could kind of gotten very expensive for them and so they already have the creative from those video units and we're able to repurpose. It. So we're at the very early stages, but on.

Sure.

I think.

The big Big opportunity of this democratization of advertising.

And lastly, the 2 partnerships you mentioned on our.

The strong partnerships in 1 of many I think 1 of the things that spot X in particular, it's been extraordinarily well is the <unk>.

Hold on boarding of measurement of attribution of audience segment of packaging they've done a very nice job.

In terms of being able to present inventory into the results of the advertising on the inventory to marketers and publishers and we're going to continue in that vein with more partnerships and.

Generally just trying to help the industry with this attribution and measurement conundrum that kind of exists today.

Yes.

Great. Thank you so much and good luck going forward.

Thanks, Dan.

The next question is from Vasily <unk> of Tau from Cannonball Research. Please go ahead.

Thank you very much good afternoon, so on Q1 report.

Europe connected Covid revenue were a little light on 1 of the reasons.

You cited was that the inventory of <unk>.

Other than there was a shortfall in inventory due to the linear ratings.

The of course, some concerns from now but you have.

Closed on the spot X and the spring service.

Going to be required for them to can you tell us how these transactions to mitigate the risk of that happening again.

You very much.

Yes, that's true.

Thanks for the question I think thats going on.

In the.

In our high growth nascent marketplace.

I think it's hard to.

Bullet proof.

Projections and.

Your your your baseline of performance quarter to quarter.

Isn't all that great in terms of years of.

The practice and so I think we're going to have.

Choppiness, but I think we still stick with.

Our longer term view of the marketplace that we're going to outpace the growth in the marketplace.

And as it relates to the safe guarding against inventory shortfalls.

Those kind of fall out of our control of by and large because of <unk>.

Publishers, and Theyre going to market efforts et cetera, but I can say, what spring sort of does and certainly spot X.

It absolutely broadens.

Absolutely broadens.

The product set that we can go to market with which creates a larger tam which creates stability.

And so yes, there will always be blips here there is an online video.

<unk> been at debt for 15 years.

So in programmatic.

It's technical things happen and there is.

Pushes and pulls but.

Long story short I think that the larger of our base becomes the more stable the projections can become and we now have a portfolio of products that helps safeguard against that.

Thank you.

Yes.

The next question is from Matt Thornton with truest.

Go ahead.

Hey, good afternoon, guys, maybe maybe 2 if I could I guess, Michael maybe can you talk a little bit about the the competitive landscape out there maybe on the on the display side as well as on the CTV side, just kind of adding incremental.

Since we're on the call last time of <unk> 3 months ago, our supply path optimization competition pricing just kind of the the lay of the land.

And then just secondly on and I apologize if I missed this but I think last quarter, you talked about being comfortable with north of.

Hum.

The 1 billion of revenue next next year I, just wanted to see if youre still still comfortable or if there's any update to that of that number. Thanks guys.

Sure Matt.

I'll take the first half in the.

David will stick of neck out for the second half.

It's just what you do to a good CFO right.

The yes listen the competition continues right I think what we're seeing is on.

It's really getting consolidated among the top players right.

Ah magnate or maybe a <unk> on the display side.

The folks that are the in the private sector.

Venture backed EDC.

The C open actually is going through a process right now trying to sell themselves.

Index exchange, which was a.

Hi.

Tough.

There are a couple of years back I think is the.

Paul on the step behind and you kind of hear that in the marketplace. So I think there is just the big are getting bigger.

Marketers are feeling more comfortable with a handful of partners and.

We're doing that down.

<unk> and the final steps to supply path optimization will look different in different sectors open auction I think there will always be a need for 8 to 10 participants.

A unified auction in the open market header bidding.

In CTV.

See any momentum for people looking for more demand partners in the <unk> World I think they are quite satisfied with the players that are at the exists there and so I think we will benefit from that growth.

So on all I think we stand very well positioned in this marketplace that is.

The consolidating.

And David on the 2020 forecast 2022 forecast.

Yeah.

Yes, we were.

We're excited this quarter to come in sort of $6 million or so ahead of our midpoint of guidance.

I remain bullish about 2022 of the trial, certainly certainly not reducing our targets and.

We will continue to lean into.

I think we talked about the.

Well in excess of $500 million in revenue.

We remain super comfortable with that.

Okay.

Again, if you have a question. Please press Star then 1.

The next question comes from Sweater carhartt jewelry of with Evercore ISI. Please go ahead.

Okay. Thank you.

I'm sorry, if I missed this but is there Michael is that way.

Is there a structural difference in growth rates. So you mentioned, 100% year over year growth on CTV revenue for the magnet.

As well as spot ads.

I guess the question is.

For managed services versus the rest deals putting into programmatic sort of still growth.

Different batch.

Are you seeing trends, where 1 is growing faster than the other.

Okay.

David is that something we've ever broken out.

We havent really on the question of Sweat I don't know, if we've ever broken that out of them.

Okay, we haven't broken out growth rates.

I would say is they're both.

They are both growing strongly and so theyre going to.

The an important part of our business the.

The the managed service or demand facilitation part of our business.

The represented about 18% of our total GAAP revenue so.

It will be an important part of our business, but it's.

The primary part of our CTV business.

It's the.

It's still.

Programmatic.

It will be the biggest driver over the long term I think.

Okay, so 18% of the combined pro forma for that plus that night alright.

July.

Is that right is not interest payments.

18% of the CTV number correct, yes, okay alright.

I'm sorry.

Go ahead.

Sorry, I was going to say.

It's actually it's 18% of our of our total.

Of our total revenue.

But let's talk about revenue ex Tac at 7% of our total revenue and so it's still a minority of our of our CBD business.

Okay.

And then the guidance that you gave where it accounts for.

For 50% year over year low since the TV revenue.

Is it fair to assume it's 50% for both the delay.

Part of spot X.

Okay.

Well we've.

We've combined our teams and so there really is no such thing going forward as.

Our legacy what legacy business vs versus the other business so.

In the second quarter, we did have that differentiation for CTV. The CCTV businesses grew at basically the the same rate and so now we've combined and we are going forward and.

There is no.

No Theres no drag.

On any of the legacy clients that we that we brought together and we'll be talking about that business on a on a combined basis going forward.

Okay. So then when you report the third quarter should we not expect you to give us a breakout of like it does assume debt was 100 percentage.

That's correct.

Okay sounds good well, thank you very much.

Thanks, Sean.

The next question is from Matt Swanson with RBC capital markets. Please go ahead.

Yes. Thank you guys. So much for taking my question.

So I'll kind of follow up on the previous mapping.

Matthew going down competition, so I mean with the acquisition of spot X and now of spring serve you know you've really kind of established your place in the CTV market. So thinking competitively how do you build a defensible moat around the market share kind of acknowledging that this is still a nascent market and we're looking 5 years for.

Now with a much larger Tam.

How are you thinking about kind of.

Sticking to the areas that youre accelerating right now.

Yes, Great question, Matt and thanks for the question.

The funny thing is on.

You can certainly.

You can certainly look at.

Yes.

Competitors coming up.

General display.

The exchanges like a pub matic crashing the party and wanting to get into the CTV and God knows why we know why they would want to given the exciting tam growth rates et cetera.

But we really do feel that's going to play out quite differently and as you pointed out we now have a collection of assets that are unrivaled and in order to really compete against us as the new entrant.

You really are going to have to bring a lot of tech and a lot of experience and a lot of talented engineers and so we don't think we don't see this as something where.

And of reps into open auction header bidding with 10 exchanges competing for inventory that may well occur at a segment of the market, but that would be kind of the longer tail and it wouldn't necessarily at all look like the upper top of the pyramid like broadcasters et cetera.

The way, we look at it Matt is that.

This isn't a defensive move by us to maintain what we have the.

Vast majority of the revenue dominated in the space right now is by Freewheel and Google and that's who we're going after so it's a lot less about being concerned about creating a mode to protect what we have then it is about expansion opportunities to get business.

Already there in the hands of the non independent more wall the garden guys.

And that cash is the stuff that has really driven the collection of assets that we have the people that we have in our go to market strategy.

Yeah, and that's Super helpful. Michael and then if I could just kind of add on to that collection of assets like the.

Britney on spring serve can you talk about kind of how you see the who.

So of your value proposition now are there any other clear adjacencies, there capabilities, either M&A or internal development.

Either assets or even thinking about like ways to build out some of those strategic managed services the kind of build.

I know, we're not saying defensible I wanted to say entrenched position with your customers because of the cement the value creation that you have for publishers.

Yeah, I mean listen I think we have the big pieces in place and I think we are very satisfied that we never did another M&A deal that we have.

<unk> gotten the best net was out there the best talent and now we're all set to run a unified company magnet that said, that's probably not realistic for the <unk>.

Flavor of the M&A is going forward, we're more than likely be springing served sized as opposed to spot X side, just simply because thats what exists from the market.

And with.

With the AD server, it's about executing of scaling.

The spring show product. So what are the adjacent areas I don't think we'd ever get into is the principal on the measurement business.

Because of lot of marketers or published you don't like the grading your own homework. So.

They're a great measurement companies outside of it we'll work with and help.

Unify I think the audience packaging the audience segmentation business that has some interesting areas.

Of opportunity for Us we're already.

Head down doing a great job on in CTV, and divi, plus but there's probably opportunities there, particularly as we get closer to the deprecation of the cookies in chrome.

But yes, I think generally speaking the way you should think of at it Matt is that you've got the pieces in place it's about execution at this juncture.

Fantastic. Thank you for the time.

Alright, Thanks man.

This concludes our question and answer session I would like to turn the conference back over to Michael Barrett for any closing remarks.

This concludes our.

Question and answer.

I am sorry, Debbie I was on mute.

Okay.

More time.

We are excited about the what the future holds for magnet and how we're positioned in the CTV OLED and display markets Magna.

Magnate is the industry's leading independent Omnichannel SSP and we could not have achieved that position without all of the hard work from our close to the 1000 magnates.

Thank you all for your commitment and passion.

We've accomplished a lot in a very short time from a strategic perspective, the investments we've made the offerings and talent. We now possess gives us the opportunity to play an ever more strategic role in serving open web and CTV publishers.

We are very excited about the industry and magnates future.

Thank you for joining us for our Q2 results call. We look forward to talking to many of you at of virtual analyst day on September 15th or through virtual investor meetings hosted by Craig Hallum Cannonball Research this quarter have of.

A great evening.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Q2 2021 Magnite Inc Earnings Call

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