Q4 2021 Magnite Inc Earnings Call
[music].
Thanks.
Good day and welcome to magnates fourth quarter 2021 earnings Conference call.
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After todays presentation, there will be an opportunity to ask questions.
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I would now like to turn the conference over to Nick Caramel Luke.
Senior Vice President Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to magnates fourth quarter 2021 earnings Conference call. As a reminder, the comparisons you will see in the 10-K as reported include the financial results of <unk> and spring Sir for Q4 2021, but for the periods part of the date of acquisition and the results do not include spot X, where spring serve which were acquired in April 32002.
One in July one 2021, respectively.
During the course of this call when we refer to the results and associated year over year comparisons with the phrase as reported we are referring to the basis as reported in our 10-K, when we make comments reform, referring to pro forma comparisons were including Florida spot X and spring Sir for the relevant pre acquisition period in order to provide a like to like comparison. Please keep in mind as it relates to the.
Spot X and spring sort of acquisitions prior quarterly results are estimated and unaudited.
As a reminder, this conference call is being recorded 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 highlight 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.
<unk>, including but not limited to statements concerning our anticipated financial performance and strategic objectives, including the potential impacts of COVID-19 on our business. These statements are not guarantees of future performance. They reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks uncertainties and other.
Factors that may cause our actual results performance or achievements to be materially different from expectations or results projected or implied by forward looking statements.
These and other risks uncertainties and assumptions is set forth in the company's periodic reports filed with the SEC, including our 2021 annual report on Form 10-K , we undertake no obligation to update forward looking statements or relevant risks. Our commentary today will include non-GAAP financial measures, including revenue ex Tac or less traffic acquisition costs adjust.
Good 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 the financial highlights deck that is posted on our Investor Relations website at times in response to your questions. Let me offer incremental metrics to provide greater insights into the dynamics of our business. Please be advised that this.
I'll detail, maybe onetime in nature, and we may or may not provide an update on the future of these metrics.
I encourage you to visit our Investor Relations website and 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. Please go ahead Michael.
Thank you Nick 2021 was a transformational year for magnet.
We are now the largest and leading independent sell side platform across all programmatic channels and specifically in CTV.
Through organic growth of over 50% in CTV into very strategic acquisition spot X and spring, Sir we've vaulted magnate to become the clear leader in CTV among independent Ssds.
We posted a strong Q4 and have started this year with similar growth rates in CTV and improved growth rates in D V plus and we are optimistic about 2022.
In addition.
And we believe that our quarterly year over year growth rates will improve as year progresses.
And as we stated previously we continue to expect full year 2022 revenue ex Tac to come in well over $500 million and we continue to maintain our adjusted EBITDA margin target of 35% to 40%.
Let me cover some quick 2021 full year stats that highlight the scope of our transformation.
Total revenue ex Tac as reported came in at $416 million versus 220 $220 million in the prior year.
For full year 2021 revenue ex Tac from CTV as reported was $143 million versus $34 million in 2022, I'm sorry in 2020.
On a pro forma basis, CTV grew 52% and accounted for close to 40% of our total revenue ex Tac.
And TV plus grew 20% on a pro forma basis year over year, demonstrating strong growth.
Now I will dive deeper into the state of our CTV business.
AD supported CTV is in its early days and like any developing market revenue growth measured on a quarterly basis can be choppy.
Why is that.
In addition to being an early stage fast developing market. It helps to understand magnates major buckets are seeking revenue by product the.
The majority of our CTV revenue is generated by three buckets, all three have different take rates and AD spend growth expectations and often spend can shift intra quarter between these buckets, depending on seller and buyer desires.
The first bucket consists of AD serving fees and publisher so deals that run through our platform.
Ed serving and publisher so deals represent the largest portion of AD spend but also carry the lowest take rate for magnet.
This product represented over 40% of our CTV revenue ex Tac.
As we've discussed on many occasions.
The largest CTV publishers have established direct sales teams and predominantly transact with trusted buyers through reserve options, where they can exert take control over their inventory.
AD serving software software may carry a low CPM based fee.
However is the essential software for publisher.
And allows us to establish a stickier relationship.
Which we believe leads to additional AD spend through our SSP.
This bucket is highly differentiated and has very strong potential for growth.
Our second bucket of revenue consists of deals sold through the magnate CTV marketplace today.
These magnate led deals comprised over 40% of revenue.
We believe this bucket also has very strong potential growth because.
First published your sales teams are largely focused on the top 200 linear TV advertisers.
Television will significantly expand the universe of T V buyers to thousands of advertisers never advertised how many are public.
Publishers will rely on magnate to access this new pool of advertisers.
Second.
CTV first AD supported streaming services are continuing to gain traction. These services do not have a history of legacy sales teams and rely and magnate as a primary source of demand.
And third.
Live stream programming.
Every major sports League, it's getting until ice jamming visa.
These <unk> are much more difficult to forecast for directly sold campaigns and often lead to more opportunities for programmatic ads just yesterday, we announced the launch of livestream acceleration or LSA, a technology designed to help CTV publishers optimize their lives.
Tori programmatically.
This is an industry, leading innovation, which is being used by sling TV for its live sports inventory.
While using LSA.
<unk> saw a 47% lift in AD conversions compared to the previous five weeks.
Our last bucket of revenue comes from our managed service insertion order business.
Managed service accounts for approximately 15% of our CTV revenue ex Tac and carries the highest take rate.
It's also by nature, the most volatile piece of our business because it relies on direct sales efforts with brands and agencies.
We believe it's an important differentiator for magnate as it allows us to capture video dollars that have yet to make their way to programmatic CTV and thus.
Bring fresh demand to our publishers.
Because managed service is often an entry point to programmatic, we do see a shift from this bucket to a programmatic buckets, which can result in short term hit to revenue due to the lower associated take rates.
However, we.
We generally find that once we land in managed service client.
We are able to migrate them through our ecosystem and keep them as a programmatic client, which in the long term will drive more consistent spend and growth through our platform.
We believe this is a validation of our technology and the value that programmatic brings to advertisers.
Overall I feel very good about how we position our CTV business.
On the sales side, we work with nearly all of the largest programmers and broadcasters virtual Mvpds digital first streaming services and device manufacturers.
On the buy side, we work very closely with the largest agencies, such as group and avast and omnicom in deploying their upfront and programmatic buys.
We also work directly with brands, such as bare Activision and HP as they grow and expand their CTV advertising efforts.
We reach over 80 million households every month.
And we believe we have more than 20% market share as measured by Ad spend.
Shifting gears, our D V plus business performed well in 2021, and we've doubled down here to drive growth going forward.
We continue to focus on the high end reserve market, but also have renewed attention on expanding our share in open auction as well.
An open auction, we are onboarding inventory more quickly to.
Tuning our systems for speed.
Improving our auction mechanics, and providing our DSP partners with new bid signals to improve their efficiency.
Finally, our commercial work with the buyers and publishers to deepen our already strong supply path optimization partnerships is setting the table for a strong year.
Now I'd like to talk about some recent industry news related to our D V Quest business, starting with the trade desk announcement that they will stop spending on google's up in bidding service and separately.
Once this service called open path that lets publishers connect to them directly to monetize display and online video inventory.
Let's take these one at a time, though magnate will continue to support Google's open bidding, we think thats the trade desk shift away from it is good for the ecosystem.
Good for pretty bad.
Good for us.
There are many other SSP that our over reliance on open bidding and.
And generally don't add much value.
We believe this move will lead the trade desk to readjust their AD spend on to platforms like magnate.
We're open bidding represents a very small portion of their business with us today.
Regarding open past those.
The name is new we've been seeing the trade desk and other demand sources offer direct connections to publishers for some time.
In the end.
Most publishers find it insufficient to rely solely on a direct connection versus the breadth and depth of what a full featured SSP like magnate offers.
I'm not just talking about capabilities like yield management.
Inventory curation.
I'd quality tools billing and reconciliation or access to season monetization experts do all of that has critical mass.
Magnate also facilitates demand for publishers across all formats, and many cases directly from brands and agencies.
This really shared by many of magnates keep publishing partners, including Paul Banister, Chief Strategy Officer Cafe Media Paul.
Who is also included in last week's announcement from the trade desk had this to say about open path.
And I quote for Cafe media open path and other direct connections to buyers are part of a holistic approach to monetization that includes the unified auction.
We see magnate as a critical and growing part of that strategy, helping us to oversee and yield at the mines across a range of wire demand.
For select publishers that want a direct connection to buyers the approach can be additive to the unified auction potentially lifting of publishers revenue.
Demand manager our header bidding software based on pre bid makes it easy for publishes to activate direct connections to buyers such as the trade desk.
And lastly, I want to provide an update on our audience strategy increasingly the role of audience creation is moving to the sell side because publishers have direct relationships with consumers.
This is true for web publishers that will be most impacted by the deprecation of third party cookies and other identifiers as well as CTV media owners for which first party data has always been an integral part of address ability.
You saw that we completed a small deal in December and party, which added talent intact to speed up our ability to bring audience creation solutions for the sell side to market.
We will continue to make investments in this area and play an increasingly important role in identity targeting by offering scaled solutions that create value.
For publishers and bus CTV and D requests.
Look forward to updating you on this critical market need in the months ahead.
If you look at the year, we've posted from a top line bottom line cash flow and strategic M&A perspective, I am very very proud of what we've accomplished in addition, I'm very excited about our long term growth profile and the durability of our model.
To be the top source of publisher monetization as the leading and largest independent omni channel sell side platforms.
With that I will hand things over to David who will go into greater detail regarding financial performance and expectations David.
Thanks, Michael.
We are pleased to close a record year for magnet, we posted $416 million in revenue ex Tac for the year on total AD spend of roughly $3 5 billion.
We also posted an adjusted EBITDA margin of 35, 7% for the year.
This resulted in non-GAAP EPS of <unk> 55 for the full year 2021.
Q4 revenue had a solid finish in line with our guide.
Q4, adjusted EBITDA came in well above guidance, which resulted in strong earnings per share.
Total revenue for Q4 was $161 3 million revenue ex Tac was $142 1 million up 76% from Q4 2020 on an as reported basis and up 10% on a pro forma basis.
CTV revenue ex Tac was $54 million in Q4, 2021 up more than three times from $15 3 million last year on an as reported basis and was up 23% on a pro forma basis.
Mobile revenue ex Tac grew 6% in desktop revenue ex Tac grew 1% year over year, both on a pro forma basis.
Our revenue ex Tac mix for Q4 of 2021, it was 38% CTV, 36% mobile and 26% desktop.
Operating expenses, which in our case includes cost of revenue for the fourth quarter were $157 $7 million.
Versus $74 million in the same period, a year ago increase.
Increases were primarily driven by the inclusion of <unk> adjusted.
Adjusted EBITDA operating expenses, which represents the difference between revenue ex Tac and adjusted EBITDA were $74 6 million for Q4 close to flat sequentially and up versus the $50 $9 million. In Q4 2020 also driven primarily by the addition of spot X.
Costs were lower than expected in the quarter driven by postponement of our return to office.
Than anticipated marketing event spend and reduced travel and entertainment costs.
In addition, hiring challenges continue to persist.
Consistent with the overall labor market.
Net income was <unk> $5 million in the fourth quarter of 2021 as compared to net income of $5 9 million in the fourth quarter of 2020.
The decrease in net income was primarily attributable to an increase in amortization of acquired intangibles related to the <unk> acquisition.
Adjusted EBITDA was $67 $5 million, resulting in a margin of 48% as compared to an adjusted EBITDA of $30 million or margin of 37% in the fourth quarter of 2020, driven by continued organic growth and by the addition of spartech.
We calculate our adjusted EBITDA margin as a percentage of revenue ex Tac.
GAAP income per share was breakeven for the fourth quarter of 2021 compared to GAAP income per share of <unk> in the same period in 2020.
non-GAAP income per share in the fourth quarter of 2021, it was 26.
Which was up 37% versus non-GAAP income per share of 19.
Reported in the same period in 2020.
There were $132 million 1 million weighted average basic shares.
And $139 5 million weighted average diluted shares outstanding for the fourth quarter of 2021.
Capital expenditures, including both purchases of property and equipment and capitalized internal use software development costs were.
Were $7 $3 million for the fourth quarter of 2021 in line with our expectations.
Operating cash flow was $62 million in the quarter, which we define as adjusted EBITDA less capex.
Our interest expense for Q4, 2021, it was $7 $3 million of which roughly $5 2 million was cash.
At the end of Q4, we had $230 million in cash on the balance sheet, which represented a $42 million increase from Q3.
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.
In 2022, we expect to generate over $100 million and free cash flow, which we define as operating cash flow less cash interest payments.
And I'd like to make a few comments on our priorities and potential deployment of capital.
Guarding M&A opportunities, we believe that we have the core assets that we need at this point in time.
Although we always consider tuck ins or small M&A activity that would expand our talent pool or accelerate our product features and functionality.
On the debt front, we have an objective to reduce our net leverage ratio.
That ratio has been reduced significantly to slightly above <unk> at year end.
This represents strong progress towards our ultimate goal of <unk>.
With respect to share repurchases. We believe there is a significant return opportunity for shareholders.
Our current share price compared to our intrinsic value expectations.
As a result in mid December we announced a program to repurchase common stock with an aggregate value of $50 million through mid December of 2022.
Under the program in Q4, we repurchased almost 350000 shares for $6 million, leaving $44 million remaining in the program at December 31.
In addition for our regular <unk> vesting during the quarter, we utilize the withhold to cover method to cover employee taxes owed essentially retiring an additional approximately 290000 shares for $6 $5 million or a total retirement of about 640000 shares during the quarter.
We expect to continue our balanced approach to these objectives in 2022.
I will now share our future expectations.
To really reiterate what Michael said earlier, we expect 2022 revenue ex Tac to be well above $500 million.
We expect revenue ex Tac for the first quarter to be in the range of $105 million to $109 million.
An improved pro forma growth rate from Q4.
We expect revenue ex Tac attributable to CTV for the first quarter to be in the range of $40 million to $42 million.
Representing a smaller a similar year over year growth rate versus Q4.
We expect adjusted EBITDA operating expenses in Q1 will be <unk> $83 million to $85 million, representing an adjusted EBITDA margin in the low twenties.
The sequential increase in adjusted EBITDA operating expenses is primarily driven by our decision to move our annual compensation cycle from April one to January one.
From some higher than normal wage increases for market and retention reasons.
And from the normal Q1 return of corporate matching payroll taxes.
The remainder of the increase is due to the return of some marketing expenses and new office lease costs.
For the remainder of 2022, we expect quarterly adjusted EBITDA operating expenses to increase roughly $3 million to $4 million each quarter.
These increases increases are primarily the result of return to office costs and.
Increased head count and other technology operating cost to support our growing business.
We expect that Capex for 2020 to be between 40 and $45 million.
And as I stated earlier in 2022, we expect to generate over $100 million in free cash flow after capex and cash interest payments.
We continue to target annual revenue ex Tac growth of 25% and adjusted EBITDA over revenue ex Tac margins of 35% to 40%.
We are very pleased with our results in 2021 and optimistic for continued growth in 2022.
Our financial model remains very attractive as he moved down our P&L and ultimately to free cash flow.
We expect that our adjusted EBITDA will grow faster than revenue due to long term margin expansion. We also expect that our free cash flow will grow faster than adjusted EBITDA based on financial leverage and a positive cash conversion cycle.
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 telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your.
Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Sam Potts alone with S. G. Please go ahead.
Hey, guys a charm.
I had a couple of questions.
First on CTV Michael can.
Can you talk a little bit a little bit more about just what youre seeing there.
Especially with managed services and then how youre, how youre thinking about growth in the second half and long term I know you guys have said.
Many times over the past that growth can be volatile.
But just curious kind of when you look out in time, just what kind of growth rate do you think is reasonable for CTV and then second question on open path.
When do you when do you think you start to see the benefit of that and how have you reflected that in your in your outlook.
Thank you.
Both great questions.
So what are we seeing in CTV.
You know as we talked about it a CTV was high.
Perform.
We saw extraordinarily well in 2021 and as.
As we exited the year, we saw some weakness.
Did in.
B.
Certain sectors advertising sectors for us it was auto and travel and unlike the general platform, where that probably made up in an open auction environment in CTV, it's a little less fluid and its insertion order driven in our mid market team.
Is there is a high dependency upon those two categories. So we had kind of signaled coming out of Q4.
You know, we thought we're gonna be battling those headwinds as long as supply chain and the only crime existed and it seems like from what we're seeing is that as you look ahead and you see bookings.
Things are turning.
I'm much more positive.
And I think that the worst is behind us and many of those issues and so.
I think that you know CTV will be another great performer for us this year.
The we talked about the buckets of business I, you know an magnate sold deals publisher sold deals AD, serving and if you look at those buckets and they are performing.
At or above expectation.
And so it really has been a bit of a drag to the overall growth rate from that one segment the mid market and now that we see that freshening.
We feel good about.
Exceeding market growth rates in.
The next question is what's the market growth rate and you know you hear anything from you know, 30% to 50% and so.
I don't know take a midpoint if you want.
That's exactly what we completely believe that what we've built here should grow above market rate.
And as far as open path is concerned.
You know I think we've seen.
One of the things we had mentioned is that a trade desk depends very little through West Shine open bidding and that's by design the trade desk as you know.
They've optimize their pathways to publishers over the course of the last six to eight months.
And they really started to work with us more in pre bid than they were in open bidding and so I don't think there's going to be this whoosh of dollars that are going to come.
From that piece of it right to say that the switch from no will be to go into pre bid I think what we might see is an increase of spend because there is.
Hundreds of platforms and it'll be there ssp's did provide zero value there just there to arbitrage.
The publisher in the buyer.
Open bidding and so when you take those out of the equation and those budgets aren't going to be cut those dollars have to flow somewhere and we think we're well positioned to grab those and so that's kind of a combination of them pulling out of open bidding open path.
You know I don't think we've.
Factored that into any kind of increase in guidance or numbers, but you know I think we're we're watching it closely and these things take a while to evolve you don't you know.
As a signal that they're not turning it off until April and so we'll see how it plays out.
Great. Thank you Michael.
You bet.
The next question comes from Laura Martin with Needham. Please go ahead.
Hi, guys I have two so thank you so much for breaking out the CTV buckets I'm going to push you on take rate.
So until I used to have about an 8% take rate so I'm sort of assuming that's the bucket number two.
And then that the restaurant, assuming it's about half about 4% and then the high end bucket, which is managed service of about 12% I'd Love you to comment on sort of the take rate.
If I'm close off I'm really far off on one of those buckets.
And then on operating expense outlook I get you that hiring CTV engineers. It's nearly impossible. My question is can you really grow operating expenses at three to 4 million a quarter. It head count so hard to acquire or might we get sort of an upside surprise on margins. This year.
There's a labor shortage, especially for CTV engineers about really across the board cost us.
Thank you Laurent.
Much as I like talking with you you sound very much like David questions.
Okay fair enough.
[laughter] alright so.
Yeah.
So Laura.
The take rates again.
We for important competitive reasons, we don't you know, we don't share our take rates publicly.
You know that the ranges that you mentioned.
As an average if you average those together thats not not.
Yes, not too far off but.
So I guess, we're getting on to.
We will refrain from commenting commenting too much on the low side of the high side.
On the Opex front.
We think that we can achieve our hiring plans.
That are embedded in those cost estimates, but.
You know you're right if it if it is a challenging market and if things.
You know get worse than what we're seeing today you know there there could be a little headroom there but.
But overall, it's important for us to get those resources in an and where we're going after it from a recruiting perspective in a very very heavy way.
Thank you very much.
The next question comes from.
Jason prior with Craig Hallum. Please go ahead.
Thank you guys wanted to stick with the theme on the CTV buckets, Michael I wanted to see if you can maybe provide a snapshot of <unk>.
If we look out one or two years down the road if if you've got any projections on how you expect that mix shift to change and then maybe even a little bit more near terms are you hearing anything as you have conversations with partners about you know maybe some more near term changes in those buckets as we go into this year.
Front cycle, maybe where theres more scenarios, where you could bring in demand.
Yes, Hey, Jason Great question Yeah.
Yes, so I think that.
Our belief is that the role of an SSP in the CTV environment.
And you in you have to keep in mind, it's a segmented market right. We have the broadcasters at the top with their legacy teams and then yeah.
You have the need for the medium guys and the device manufacturers and the virtual <unk>.
The Tvs I think that each one is a different segment a different category, but generally speaking I think that over time, if you're looking at two to three year horizon that for some of those reasons that we spoke about whether it's an explosion of non PV tight linear buyers advertisers rather lie.
Live sports programming now, becoming a staple of streaming and the needs to fill AD slots because of things like time out and.
Reviewing the call and overtime games, and you know something like our LSA that we built is perfect for that so I do think that bucket number two then the magnate.
Led deals the traditional SSP function is the one that benefits the most from that.
And I think that that's a.
Good for the business because it carries a a.
A very decent take rate and it also is.
<unk> kind of core to what we do right and so we have the software business both string.
The AD serving piece of it the pub so deals and then in the Middle you have the.
The growing you know traditional SSD roll a magnate sourcing demand and then on the far right I still think you have a managed service business, but I do think that over time that that's a more of a shrinking business because keep in mind, we're chasing dollars that aren't programmatic, yet and once they become programmatically kind of feed them.
Into the ecosystem.
And I think that that's.
Probably how it plays out in the next several years as it relates to this year is that the friends you hit the nail on the head and we've never been more involved in discussions with our agency partners the big agencies.
About assisting them when they go to publishers.
CTV platforms to say to them Hey, I'm.
Okay, Here's our commitment of spend blank million.
We would like a 40% of it to go through these rails, because we wanted to programmatic and we want the advanced targeting that comes with it. So yeah. This is a real seminal year it'll be interesting how it plays out but we're deeply involved in discussions across the breadth of the holding companies.
With the holding company is going to our publishing partners.
And it's a market changed from years prior.
You say that.
And one follow up for me on connected TV. So it seems like we started to see some interesting new announcements from you guys, where you're winning some more like exclusive or preferred deals I know you had announcements with Samsung in football recently, but.
I'm just curious are you seeing more activity within connected TV of a formal RFP process and just curious.
When when you come out with with better relationships on the other hand, when you're seeing these wins what are the key components that are allowing you to get these wins.
Okay.
Yeah, another good win.
Again, they're all day.
They all are slightly different but I will say one thing that the changes in our product suite.
To be able to strike. These types of deals is the increased breadth of it.
Specifically we survey.
The.
Talking about spring serve.
You know kind of by definition AD serving is exclusive and if you are able to bundle AD serving along with the other services.
That that's that's the whole goal right to be able to put the whole product portfolio in front and I think that that's where.
Where are you seeing an uptick on that it might not necessarily.
Kind of an RFP led.
<unk> as it is.
You know.
<unk>.
Generated from.
Our going forward to these clients with that suite of products that we hadn't had before putting them together and showing them what it would look like to work with this leading independent CTV focused.
SSP and you know I think we're gaining traction on that front.
Alright, perfect. Thank you.
Thanks Lynn.
The next question comes from Schweitzer, Julia with Evercore ISI. Please go ahead.
Okay. Thank you let me try two please on open path could you please Michael I E.
You talked a little bit about it could you. Please give a little more color on why a brand, but excuse me why a publisher would want to go directly to the trade desk and work with an agency buses and SSD and even consider that option and also why an advertiser.
What is your question list from trade desk to have this direct relationship understood that SSP easily they important role, but where do you think that would trend over time.
And what's what's the.
What's in it for each of those to publishers and agencies and advertisers. That's the first one and then the second one could you. Please talk about just the puts and takes you you mentioned your you reiterated your long term EBITDA margin, 35% to 40%. This year could you. Please help us with what the puts and takes are for EBITDA.
Thank you.
Thanks for that I'll jump on the open past them, then I'll, let David talk about the puts and takes on EBITDA.
So on open path then obviously, we are intimately familiar with the publisher world than the advertising World. If you will.
So from a publisher perspective, I think it's it's pretty simple.
You're a sophisticated publisher.
And you are approached by trade desk that says.
Nothing's going to change I'm going to continue to bid through.
The supply sources that you have in the head. So you have magnate there yet put mantic. There you have index et cetera, et cetera trade desk is going to continue to.
<unk>.
Participate in those auctions nothing's changed.
But I'm also going to move.
The move outside that auction with a direct connection and compete against those auction sometimes compete against ourselves.
And in a publisher's way of thinking is you.
You know that could just be increased bid density and it could lift it could lift yield and so therefore, the only reason why I wouldn't want to do is if.
Trade desk came and said I don't want to participate in a unified auction I Wanna be put you know as a tag in the server and I Wanna be first look on everything and then everyone else gets to look at everything.
That's the world of non header bidding.
You used to exist in the SSP world and so so publishers are spoken they wanted as part of a unified process.
Interestingly enough.
Lot of publishers as you know through our demand manager project.
I don't have the wherewithal to even manage a unified auction in pretty bad and so in a weird way economically trade desk moving outside of moving is it another source of demand in the head.
Helps us economically from demand manager because as you know we get paid on every successful auction, whether its a magnate auction or not and so if it's more demand inside the header and it's going through demand manager it actually it works out well for us. So I think from a publisher standpoint, they just view it as a possibility if someone can make it easy.
For them as a possibility to increase yield from an advertiser's standpoint, I think it falls underneath and whether or not open path accomplishes. This is not a parking lot that I think advertisers are looking for clean pads. The supply they want fewer touch points. They want to have a closer relationship with the supply.
And we are seeing this.
Play itself out with advertisers.
Advertisers coming directly to us agencies coming directly to us and so extra essentially speaking.
You know on some occasions. They can go round of DSP and go right to the SSP on other occasions, it looks like theyre going around the SSP directly to supply but.
But I think that generally speaking its all underneath the heading of a fewer.
Fewer touch points, a more streamlined supply more streamlined access to supply.
And David if you wanted to.
Yes talk about puts and takes on EBITDA.
Yes.
Yeah, so from them regarding our margin targets.
There are a few factors that are impacting kind of the pace of our margin growth. So if you think about 2021.
Those margins were slightly benefited from work from home. So we had lower office costs marketing and events. There was no travel going on and so.
And so some of those costs as we now move into 2022 some of those costs are going to return in.
In addition, as I mentioned, we moved forward or.
Annual raise cycle from April 1st of January 1st So on an annual basis, you've got an extra quarters worth of cost in there.
And we've got some incrementally higher personnel costs, which include some some additional head count so stepping back I think that will slow the pace of our margin growth.
This year, a little bit but.
No real changes to the core leverage that we have.
And we don't see any changes in that in the long term trajectory.
35% to 40%.
Margin targets.
Okay. Thank you Michael.
Yes.
The next question comes from Nick Zingler Wood Stephens, Inc. Please go ahead.
Yeah, Hey, guys, great quarter lots of good details on the call.
Google announced some Android privacy changes to comment above in our blog post.
Last week the move obviously it looks similar to what Apple has done with iOS ATT changes I imagine that such a change will have minimal impact magnate.
Obviously, it's not the case with these iOS changes, but I'm interested just to hear your thoughts on Google's enough and if you feel there's any potential impact to magnate.
Yeah, Hey, Nik.
I think that it's it's a little different than Apple's approach Apple was a kind of hey in four weeks or it's it's going away and puff. It went away in four weeks and there was no real thoughtful alternative they came up with kind of an audience product, but that didn't meet the needs of a J.
About any marketer right.
And so therefore, I think Google learned from that that the injury team probably feels as though from a privacy standpoint, deprecating device IV makes sense, but.
They're going to do it very thoughtfully, it's over the course of two years, they're doing it in concert with the ecosystem, they're getting feedback there they're actively looking for advice.
Little like the deprecation of cookies, even though its gone on intermittently long it has been a relatively thoughtful process, where they're trying to come up with an alternative it may not be perfect, but it's a lot better than what Apple did as it relates to magnate. We don't like any of these changes that we've talked about it Nick.
Whether it's deprecation of cookies in or I'd say, our exposure is somewhat limited and if someone were to be able to you know if budgets don't get cut.
They don't from the types of advertisers, we work with you see that happening and you know the eh.
Folks like you know.
Facebook ecosystem, where budgets have been cut and shifted.
Generally speaking, we're dealing with more upper funnel advertisers and these folks are looking for targeting parameters aren't nearly as you know cost per acquisition focused as an app download guy. So so we're we're we're somewhat insulated and we don't view this as a threat to the business.
That's very helpful. That's what I expected and quickly one more you know you mentioned it but obviously you know verticals like for instance on a retail you know that that AD spend run through the managed service offering for Magna and I know that's been soft.
Due to supply constraints was that.
$3 million to $4 million headwind in the quarter. As you guys had originally expected and you're not mentioning any ongoing headwind there into <unk> or at least you're not calling it out like you did last quarter. So curious just thoughts there.
If you were able to convert any new managed service clients in the quarter. It is resources diverted from that sector or worse, specifically within that sector underlying trends have significantly improved.
Just looking for some clarity there thanks.
Yeah, Nick in a lean and David for a little bit more color, but the other thing we had setting you accurately pointed out it's through the managed service group. So you know what.
An insertion order it gets cancelled on disc.
December 15th for I don't know it make up the number of $500000. If that was open auction you know dollars just flooding in that inventory.
It might not be the same value of $500000, but you'd sell it no matter what.
And Sir Cerner business is a little bit longer longer lead times. It cancels, it's harder to fill and so I think what we're seeing is as the quarter progressed the ability for the teams to find you know.
Different types of advertisers fulfill what would traditionally be auto bucket or travel bucket, maybe nowhere close to be exact amount, but at least there's there's progress being made there and then of course things do seem to be getting.
Getting better in that sector, and multiple folks who kind of comedy that Q2 might be a more.
<unk> returned to spend in those verticals and not to mention that we also know that political is going to start to heat up in that quarter, and we feel as though we're well positioned and that team, particularly is well positioned to capitalize on those dollars, but David I don't know if we're attributing a specific number or anything like that too early.
No I guess the takeaway is as you mentioned Michael.
Nick that the Q, what we did there is no significant uplift from a revenue run rate perspective in Q1 versus Q4 of last year and so it's still you know.
In the doldrums, but as Michael mentioned, we're seeing on the horizon. Some increased bookings have these longer run rates and so that's where we're getting some of our.
Hopefulness.
As we look forward to future quarters, but not a lot left in Q1.
Got it great. Thanks, guys I appreciate it.
Okay. The next question comes from Matt Thornton with <unk> Securities. Please go ahead.
Hey, good afternoon, guys, maybe a couple of quick number number questions for Rob for David and then one for Michael David When we think about political and how much of a headwind it was year on year in in 'twenty. One wondering if you can quantify that and is that a reasonable way to think about.
What type of dollars come back in in 2022.
That's the first question second question can you just remind us currency for you guys I don't think it's material, but maybe you can remind us of.
Any any meaningful headwind from from currency and then Michael I think you guys have talked about.
The CTV 2.0 platform, you know kind of bringing the best of tilapia with the best of spot actually I think you've talked about launching that maybe <unk> 20 to <unk> 23 time frame I wanted to see if that was still the right way to think about that and could we see any incremental synergies once that platform is actually launch that I'm not sure if theres any.
Cost.
That perhaps go go away when that platform does launch thanks guys.
Sure I'll hit the first two so on political we talked about for the for the impacted quarters.
Sort of the mid to high.
A low to mid single digit impact.
Impact from political and if you recall political was primarily connected TV and our online video and so from a quantification perspective.
That that was that was the <unk>.
Level of headwinds there from a currency perspective.
Over 90% of our activity.
Almost 95% of our activity is transacted in U S dollars and so we.
We have very little.
Exposure on the currency front.
Okay.
Yeah, Matt and then the <unk>.
CTV platform front on.
We you're right about the timing although throughout the.
Throughout the year.
Clients will be shifted over to the new platform and then find out migration and some of the more intricate.
Implementation will take place as the year winds down and.
Now if the clock runs out because of code freezes in Q4, it could bleed to Q1.
And as far as it relates to synergies I think.
Most of that's been captured in the the cost synergies that we've shared I think what we're really focusing on is the revenue synergy piece of it the idea that you.
You take a pretty sophisticated audience engine, that's running on the you know legacy spot X platform and that now washes all the inventory on the new platform I think we can see you know with there. So so we're super excited about the state of the art.
Platform and the implications can have on the revenue side of things.
Okay. That's helpful and then maybe I'll just throw one other quick one.
I guess, just maybe any any thoughts on the the Xander Microsoft kind of coming together just kind of thoughts on the implications for the market. Thanks again guys.
Yeah, No I think that it's becoming clearer and clearer I think when it was first announced we kind of collectively all kind of scratch your head a little bit, but you know they've had a long time history at Microsoft was it very early investor and gender and Xanders monetize some Microsoft inventory since then.
Dan.
So if they were ever going to get bigger in that attack Zander it would be a logical acquisition for them and it appears that they are getting bigger into advertising as a whole with the proposed that purchase.
In terms of the.
The whole gaming area and so yeah.
Yeah, I think it's going to be an attempt by Microsoft to try to organize all of their inventory.
Have kind of end to end solutions.
For advertisers and you know.
I think that Xander is a viable third party.
S P.
Probably isn't.
Top of their list in terms of priorities and so I guess net net.
It's a positive from that respect but you.
You know it remains to be seen it's obviously still.
Wet clay and it has a multi jet.
And was there a follow up Sir.
That's it for me Thanks, No I think that's a yes.
Thank you. The next question comes from Tim Nolan with Macquarie. Please go ahead.
Hi can you hear me okay.
Yes, you bet.
Great. Thanks, most of my questions have been taken but I have one other one which is fairly broad and I'm, hoping you can help us understand about the subject of media measurement you know given the role that you play in how much television viewership in and and AD delivery and therefore tracking.
Tracking of AD delivery is changing and given all the changes coming about in the measurement landscape I just wonder if you could help us understand from your perspective.
What this all might mean for the market and what it might mean for you given all of this move away from a Nielsen standard to lots of other things potentially thanks.
Yeah, Tim it's fascinating times right.
I guess at the highest level.
I think it's our belief that the industry our clients don't want us grew.
Grading our own homework, so to speak and so the idea of you know.
Magnate entering into the measurement space with the proprietary measurement system is just not on the not in the cards for us and I know you weren't intimating that but you know just take that off as magnate as a primary. So then our role is to work with every measurement company out there if a buyer.
Once you use that type of measurement, if a seller wants to use a different type of measurement, we need to have the API. So we need to have to work with them, we need to have a formal agreements with them.
Where we can play a role in helping is to our AD server because we'll see not just.
<unk> on platform inventory for certain publisher, but we'll also be able to see their distributed inventory and so from a simple kind of reach and frequency.
Balancing which is the you know the bread and butter of measurement. If you will we can assist there so our plumbing or our platform are serving will be able to assist the industry and helping get cleaner signals and then I think it'll be up to buyers and sellers should agree that this is the new standard. This is how it's going.
Go I think that you know for a digital world anything that's not entirely panel based are inherently as it advantage too I think broader adoption and broader.
A broader use so I think that's a good thing for us but you.
You know its evolving and will play a rate rolling that if that.
The answers the question.
Yeah, that's very helpful. Thanks very much.
The next question comes from Matt Swanson with RBC capital markets. Please go ahead.
Alright. Thank you guys you know Michael you mentioned on the call and I think we've talked about this a little bit at the RBC conference was the reinvestment into the D V plus side do you mind, just giving us a little bit more color.
What exactly that means and maybe some of the history of what necessitates the reinvestment and then maybe for Michael or David How do you think this business can affect that guidance for 2022 basically how quickly do you think those investments can start to start to pay off.
Yeah, Matt.
You bet so yeah.
Yeah, I think that you know.
In terms of the broader.
Areas that we discussed in terms of the kind of earnings scripts, that's probably about as far as we want to kind of drill down on that.
Those areas because.
Obviously, you get into competitive [laughter] Chan.
Challenge is talking about your product roadmap in a in a very open.
Getting like that and so I think that I think that you know as it relates to.
The work that we're doing and we've been pretty open about.
Onboarding you know.
The broader swath of inventory and you know then fine tuning it and in an improving auction mechanics, I think that that's a that's as close as we'll get to talking about specifics, although internally we have incredibly detailed road map with you know 30 plus.
In flight.
It takes a while right. It these things you're dealing with a tremendous amount of scale 300 $400 million.
[laughter] auctions, a day and I just think that.
We're getting better at it growth rates, improving its not where we want it to be I think it's gonna be a 2022 project, but I very much I'm confident we exit 2022 in a far better state than we entered into it and you know we've got some real talented engineers.
And a real focus on it from a product standpoint, and feel good about the direction you know less than satisfied about where we are right now in terms of growth, but very good about the plan, we have in place and about our ability to execute on that.
Oh, yes.
I'm sorry, if you can say on the on the guidance side.
The reinvestment.
And so we've talked about there's certainly included in that kind of expanded cost guidance that we gave so we've got some international expansion. We've got some other things going on and those have been.
Factored into the.
The cost guidance that we've given and I think Michael has covered it on the expectation for higher growth rates as we move through the year.
The next question comes from the Sealy currency off with.
With Cannonball research. Please go ahead.
Thank you and good afternoon, Michael I wanted to ask you to talk about how your competitive position.
<unk> last year, and specifically, if you estimate but to gain market share or held at the last open the channels I'm quoting connected to via mobile desktop and in general is the competition getting more intense less intense.
How do you.
Look at that.
Yeah, Hey, Bill Sheley I'm, so I think that time.
Taking CTV first no question.
We.
Created.
Great more deal a separation between us and the competitive set.
If by that we define that to be you know independence SSP, primarily focus on CTV right. There is just nothing out there that looks like what we've been able to put together.
By you know first merging with Korea going into 2021 and then closing the spot X and spring sort of deals we are full service CTV company that.
No one else can offer that other than perhaps as a company called freewheel. So so I think that it makes us very clear about what we need to do where their focus is on.
Freewheel has a dominant AD server in the industry certainly dominant in the broadcast sector and you know we've got you know are the game plan in place the product suite in place and now we're focused on that so I feel very very good about.
Evolution of our market position in CTV and D V plus.
I feel good that we outgrew the market by any market estimate if you bundle in mobile and desktop and you know all the other forms audio all the other forms of what we considered D V plus we.
<unk> market, but nowhere near what I think we can do.
So I think that competition severe fiercer.
Fierce and that it would be just by the nature of header bidding you know most of it is open market. We made a choice to focus a lot of our energy resources and products on the premium side of that the B M. P.
P M P for P. Ge's piece of it we've been quite successful there, but you know you can't do that at the expensive under investing in open auction and so.
Yeah. So you know re doubling down as we said in the script.
Refocusing into.
Internal.
The engineering efforts and product efforts on open auction, coupled that with our demand manager and our premium strategy I think we we exit 2022 in a in a different and more.
Enviable competitive position.
Thank you.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Michael Barrett for any closing remarks.
Thank you so much I am so very proud of how hard our team worked in 2021 to deliver a strong performance, we see clear areas for growth in CTV D V plus an audience and identity.
We've established ourselves as a critical long term partner for many of our publishers and buyers, especially in CTV and believe much of our future success lies in our execution.
We've never been more excited about the opportunity we have ahead of us.
Thank you for joining us for our Q4 results call. We look forward to talking to many of you at virtual Investor meetings hosted by Cannibal Research Tomorrow conferences by Bahrenburg on March 1st and Sig on March 3rd Thanks, again and have a great evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Oh.
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Okay.
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