Q2 2022 Magnite Inc Earnings Call
Good morning afternoon evening and welcome to the Magna in second quarter 2022 conference call all participants will be in listen only mode.
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I'd now like to turn the conference over to Nick head of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone. Welcome to <unk> second quarter 2022 earnings Conference call. As a reminder, the comparisons you will see in the 10-Q as reported include the financial results of spotting and spring serve for Q2 2022, but do not include April 'twenty, one spot X results or Q2, 'twenty, one spring sort of results because those businesses were acquired.
On April 32021 in July one 2021, respectively. 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 and spring Sir for the relevant pre acquisition period in order to provide a like.
Like comparison.
Please keep in mind as it relates to its products in spring sort of acquisitions. Prior quarterly results are estimated.
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 highlights slides on our Investor Relations website to accompany today's presentation before we get started I'll remind you that our prepared remarks and answers to questions will include information that might be considered to be forward looking statements, including but not limited to statements concerning our anticipated financial performance and strategic objectives, including the potential impact.
A macroeconomic factors 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 actual results performance or achievements to be materially different from expectations or results projected or implied by forward looking statements a discussion of these and other risks uncertainties and assumptions is set forth in the company's periodic reports filed with the SEC, including our second quarter 2022 quarterly report.
<unk> on Form 10-Q, and our 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, 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.
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 the future of these metrics I encourage you to visit our Investor Relations website to access our press release financial highlights deck periodic SEC reports and webcast replay of this.
<unk> call to learn more about bag night I will now turn the call over to Michael Michael. Please go ahead.
Thank you Nick.
In a more challenging AD spending environment I'm pleased with our team's ability to deliver revenue new revenue and EBITDA in line.
With what we communicated to you three months ago.
CTV finished at the midpoint of our guide and we achieved strong adjusted EBITDA growth of 30% year over year with a margin of 34% also at the midpoint of our implied guidance.
David will provide greater detail on Q2 results and Q3 outlook.
Like others in our sector, we are not immune to the impacts of macroeconomic challenges and we did experienced softening as the quarter progressed, especially in EMEA and APAC in the DB Quest business.
The strong U S. Dollar also pressured overall AD spend in these geographies.
And TV plus the U S proved more resilient than did the rest of the world. These trends and TV plus have continued into Q3 and are reflected in our expectations.
Given market conditions, we are very pleased that our CTV business continued to be a growth driver in the quarter as revenue ex Tac grew 52% year over year on an as reported basis or 19% pro forma.
Q3 has started even stronger and we are optimistic that our CTV business will see improving growth rates in the back half of the year.
We are seeing great traction in CTV, and specifically our AD server business spring Sir.
The integration between our AD server in the FSP is incredibly powerful and reduces complexity improves inventory management between multiple parties.
Enhancing functionality and most importantly drive yield for customers that have both a direct sales force and our programmatic sales channel.
We're continuously introducing new features into this integrated solution such as AD titles, which are the native AD units presented on the home screen and connected Tvs.
Solutions, such as these have put us in a great position to capture share with one of the fastest growing groups in the CTV market the TV Oems.
They have quickly scaled and we will continue to further strengthen as key players in the market for years to come.
The legacy video Samsung and LG continue to invest aggressively in their advertising businesses as more viewers rely on their TV operating system to access digital content.
This quarter, we announced a multiyear deal with LG Ad solutions.
We will have access to their automatic content recognition or ACR data for planning activation and measurement and advanced analytics across our platforms.
Through the agreement ACR data from opted in LG Smart Tvs in the U S will be made available across our U S inventory footprint this year and will expand to other countries starting in 2023.
Simply put this is technology built into connected Tvs, which captures everything that is years, both content and ads and regardless of source, whether linear or screened.
It is extremely valuable and unlocks unique capabilities, such as targeting around content viewership Inc.
Incremental reach and frequency and management across across both linear and streaming environments within the household.
Through this partnership we have also renewed our relationship with LG, which spans AD serving programmatic execution and demand generation.
This landmark deal also highlights the unique positioning magnate has established in market around data enablement.
While most major players in this category have reserve the use of their first party data assets against only their own inventory.
It's added to partner with magnate and leverage the scale and secure data enablement infrastructure, we have spent years developing across our broader inventory footprint.
This enhances <unk> ability to scale their advertising business, while protecting this incredibly valuable data asset.
Other CTV growth drivers that keep us optimistic our Disney plus is AD supported tier.
Our strategic relationship with group and continuing to scale.
In the 2022 mid term election season, which is just starting to emerge in August and is likely to accelerate through early November .
We are extremely well positioned to capture political dollars with our managed service team as well as with partners such as the scripts political consortium, where we are the exclusive SSP.
Scripps is leading a group of premium publishers, including Cox Media Group Capital Broadcasting Company Graham Media group and other broadcasters to provide billions of monthly CTV impressions to magnate available to political advertisers.
On the plus side, we have identified key initiatives for growth and are working and delivering against them in the coming months and.
In the first half of the year, we've nearly doubled AD request volumes compared to last year.
This is a key first step to driving higher conversion of these AD requests to ad spend.
We have done this with tremendous efficiency and continuously lowering cost per ad request.
Our omnichannel or army.
Sorry, our omnichannel scale ability to serve all types of publisher inventories in Nast among independent SSP and is a key differentiator for magnate.
Our demand manager business continues to perform well.
We've had very good traction recently with a number of large notable publishing wins, such as Disney time and by the SEC.
Our expected to onboard over the next several quarters.
We are pleased to see larger and more complex publishers, increasing their adoption of demand manager and lean heavily on magnate for yield optimization and monetization.
Looking ahead to the second half of the year, our overall growth rate could be tempered by a macro environment that is challenging.
However, we believe that we have unique drivers that will support further growth and prudent investments.
We continue to hire key talent investment our CTV platform build out more capabilities on the audience and identity front.
Produced new AD server functionality and optimized the divi plus business for better growth and market share gains.
We believe we have all the key strategic pieces that we need across these areas.
Additionally, our platform integration is progressing well with functionality expected to be completed this year and migration of customers beginning next year.
I'm pleased that the strength in our business allows us even in challenging times to balance growth investments, while continuing to deliver strong and improving financial results.
Before turning the call over I wanted to step back from the short term to provide some comments on magnetek and our position in the market.
And the last two to three years, we have transformed magnate into half of $1 billion revenue company aiming at 1 billion as our next milestone for.
It is strategic and durable market position and a business model with a very attractive earnings and cash flow profile.
It has been done through the combination of strategic M&A as well as internal investment inorganic growth.
Most importantly, we have grown as CTV business that now represents 42% of our total revenue ex Tac up from zero percent in 2019.
With customers like Disney Warner Brothers Discovery, Paramount, Samsung Vizio, LG, Roku, Directv swing and many more.
I'm incredibly proud of what we've accomplished and built for the long term.
With that I'll turn the call over to David David.
Thanks, Michael.
Overall, we had a solid quarter in the context of macroeconomic challenges.
Revenue ex Tac finished within our guidance range with revenue at the midpoint.
Expenses came in lower than our guide, which resulted in adjusted EBITDA at the midpoint of our implied guidance range.
This demonstrates the benefit of our revenue diversity positioning with within CTV and the leverage of our business model we.
We continue to be cautiously optimistic as we look at the back half of 2022.
Total revenue for Q2 was $138 million.
Revenue ex Tac was $123 million up.
Up 23% from 2021 on an as reported basis and up 7% on a pro forma basis.
CTV revenue ex Tac was $52 million.
Up from $34 million.
Or 52% from last year on an as reported basis and up 19% on a pro forma basis.
<unk> plus revenue ex Tac was flat versus prior year on a pro forma basis.
Mobile revenue ex Tac grew 6% on desktop revenue ex Tac declined 8% year over year, both on a pro forma basis.
It is important to note that these results were achieved while cycling very strong growth in the second quarter of last year.
Our revenue ex Tac mix for Q2, 2022 was 42% CTV, 36% mobile and 22% desktop.
On a sequential basis Q2, 2022 total revenue ex Tac grew 15% over Q1 2022.
CTV revenue ex Tac grew 23% and BB plus Greek 1%.
Total operating expenses, which in our case includes cost of revenue for the second quarter increased slightly to $161 million versus $162 million in the same period a year ago.
Operating expenses included year over year increases in amortization of acquired intangibles and personnel related expenses from products, which were more than offset by a decrease in merger acquisition and restructuring costs compared to last year.
Adjusted EBITDA operating expense was $82 million, an increase of 4 million sequentially and up $13 million. In Q2, 2021 also driven by primarily by the acquisition of <unk> on a year over year comparison.
Costs for the second quarter were lower than expected, primarily due to slower hiring lower office and facilities costs, lower technology, and cloud costs and delayed marketing events.
Net loss was $25 million for the quarter as compared to net income of $37 million in 2021 the.
The decrease in net income was primarily attributable to a onetime $88 million tax benefit recorded in Q2 of 2021 as a result of the <unk> acquisition.
Adjusted EBITDA was $41 million, an increase of 30% versus prior year, resulting in a margin of 34%.
Turning to adjusted EBITDA of $32 million or a margin of 32% in the second quarter of 2021.
This was driven by continued revenue growth and cost synergies from the acquisition of Florida.
Note that we calculate our adjusted EBITDA margin as a percent.
On page of revenue ex Tac.
GAAP loss per basic and diluted share was <unk> 19 for the second quarter of 2022 compared to GAAP earnings per diluted share of <unk> 26 in the same period in 2021 <unk>.
This decrease is a result of the tax benefit mentioned above.
non-GAAP earnings per share in the second quarter of 2022 was 14.
Which was up compared to non-GAAP earnings per share of <unk> 11 reported in the same period in 2021.
They were 132 million weighted average basic and diluted shares outstanding for the second quarter of 2022.
Fully diluted weighted average shares utilized for non-GAAP earnings per share were 142 million for the second quarter of 2022.
Capital expenditure, including bulk purchases of property and equipment and capitalized internal use software development costs.
Were $12 million $12 million for the quarter in line with our expectations.
Operating cash flow, which we define as adjusted EBITDA less capex with $29 million.
Our interest expense for the quarter was $7 million of which roughly $6 million with cash.
At the end of Q2, we had $233 million in cash on the balance sheet.
Regarding debt, we continued to reduce our net leverage ratio, which was approximately $2 eight at the end of Q2.
<unk> two six points to act at the time, we close product at the end of April last year.
This represents further progress towards our ultimate goal.
<unk> or less.
Yeah.
As an update on our 50 million share buyback program announced in December we repurchased 312000 shares for approximately $4 million in Q2, leaving $28 million in the program as we ended the quarter.
In addition for our regular RFP that during the quarter, we utilize the withhold to cover method to cover employee taxes with holding 462000 shares for approximately $5 million.
We started the year with a balanced goal between share buyback and debt reduction.
Going forward, we plan to lean more to cash accumulation to maximize flexibility and with the goal of reducing our net leverage ratio.
Being said, we continue to believe that repurchases at our current share price represents an attractive use of capital to buy our shares at a discount to intrinsic value.
I will now share our future expectation.
Our approach to guidance is conservative and does not anticipate broad economic improvement through the end of the year.
For the third quarter, we expect revenue ex Tac to be in the range of $122 million to $126 million.
We expect revenue ex Tac attributable to CTV to be in the range of $52 million to $54 million.
We expect adjusted EBITDA operating expenses to be $85 million to $87 million.
Implying an adjusted EBITDA margin of 31% at the midpoint.
For Q4 currently expect quarterly adjusted EBITDA operating expenses to increase roughly $5 million.
This increase would primarily be driven by technology operating costs and increased head count to support our ground business.
For the full year, we expect revenue ex Tac to be above $500 million.
We expect capex to be approximately $45 million.
Of which approximately $80 million will be in Q3, and we maintain our expectation that we will generate over $100 million in free cash flow.
We define free cash flow as adjusted EBITDA, less capex and net cash interest payments.
We are hard at work to deliver across all opportunities we have.
Second half <unk>.
Managing our expenses and continuing to prudently invest in strategic growth areas.
Our model continues to show strong EBITDA and cash flow generation, even with slower revenue growth driven by macroeconomic pressures.
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.
Youre using a speakerphone please pick up your headset before personally Keith.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question comes from Shyam Patel with <unk>. Please go ahead.
Yeah.
Hey, guys good afternoon.
Couple of questions.
Michael.
Can you talk a little bit more about.
Outlook in some of the puts and takes.
And.
Maybe in addition to that just.
How you continue to see our CTV opportunity in kind of growth over time, I know, you've talked about kind of better than market growth rate.
People would peg at around 30%.
Just kind of curious if you could just kind of walk through those and I have a follow up.
Yes sure.
So.
Our crystal ball is as good as anyone else's.
But we spent a lot of time to market with buyers at agencies.
And at marketer level.
And I think there's a general.
Obviously, depending on the advertising vertical, but there is a general feeling that.
Hey, there.
But that had been cut.
I haven't really.
Been paused then taken off the table and so there is a hope across the board that as we get into the late second half of the year.
To be able to see resumption of that.
And so that gives us.
Some confidence the other piece about our CTV business precisely is that we.
We often talk about the <unk>.
Competition quote unquote.
With Magna.
Magnate really as a direct sales by.
Sales folks at these large broadcasters and or CTV programmers and in markets like these.
Youll find publishers more willing to work with.
With programmatic inventory in your programmatic partners and so we certainly benefit from that as well as well as you know our managed services team.
Which is picking up steam.
We're seeing the rebound of regional travel, which is a big category for them still softness in tier two automotive, but we talked about political in the script and we think that that.
It can be.
Very nice driver in political inventory.
It goes at a high price in terms of CPM. So it has a kind of a rising tide effect.
The whole publishers monetization so.
That's kind of the.
In a nutshell what were seeing for the second half of the year.
Got it. Thank you and then just a quick follow up.
We get a lot of questions around.
Hulu and Disney and I know the contract is on an evergreen basis now.
Wondering if you could maybe talk a little bit more about that in just.
You are.
The relationship and the ability to extend their relationship and economics over time.
Thank you.
Yes.
Okay.
Classify the contract is evergreen, but I would say that.
I feel we're in a terrific position with our partner Disney.
Over the course of this contract our relationship has expanded into other areas of course, there is the launch of Disney plus that wasn't really.
On an AD supported tier that wasn't really anticipated <unk> factored in to the original.
Contract and so that's accretive and we talked about.
Disney adapting demand manager so now you're starting to see kind of this omnichannel story play out that we felt was something that was going to benefit us in the market and it's starting to pay dividends there.
So I would say a very.
Strong relationship with Disney.
Very intertwined from a technology build standpoint.
And Phil feel good about where we're heading and the continuation of a relationship.
Great. Thank you guys.
Our next question comes from Laura Martin with Magna and <unk>. Please go ahead.
Hi, there so stepping up to 3000 feet, Michael I'm really interested in Netflix choice of Microsoft and whether you think this adds Microsoft.
As a meaningful competitor.
Two other SSP is does it sort of reinvigorate sander, which to date has been sort of a weak competitor in the hands of AT&T. That's my first question.
Yeah, Hey, Laura.
I would say that.
It certainly.
It doesn't hurt.
Microsoft.
Ed.
Credibility.
But I would emphasize that the Netflix has been reported.
I don't have any blinding insight there that was quite a different process than what the normal publisher would go through rate.
Yeah.
Talk of.
Pieces of the cloud deal revenue guarantees all that and that is not what a normal publisher goes through a publisher goes through testing.
The technology capabilities, whether or not it can meet their needs almost all of these publishers have large sales teams. So they are starting from zero.
And so I would say that.
Yeah.
They haven't really proven an ability to compete on that level.
In a normal RFP driven level, so I think I feel really comfortable where we stand in the pieces that we put together, but it would be silly to discount Microsoft and the resources that they have as someone who doesn't have aspiration to ultimately be a player in this space.
Super Helpful. And then my other one is also macro wildcard in sources open internet sort of strategic thinking so.
Free walled gardens that reported earlier hadn't really at the small numbers you to about 2% search up 14, roku guiding to 3% revenue growth in Facebook matter.
<unk> revenue, 1%, whereas you and you just reported 23% growth biggest open Internet SSD trade desk, just reported 36% revenue growth.
Internet DSD or are we getting a shift from walled gardens to the open internet and if so why now why now.
Well I think you bring up a really interesting point, where and I think it's something that we've always lean into and that is AD buyers want choice they want us to be able to use their data.
Wanted to have.
<unk>.
There are choices as it relates to what data they want to bring into the mix and lastly, they want to be able to track their results learn from their spending and be able to apply that learning onto other buys and as you know in a walled garden situation all of that data and all that.
Information stays within the walled garden and it doesn't make a big big market or any smarter on their next pie across the.
Web.
We've also been very clear that in CTV particular, it's very very difficult to.
Run the table and create a monopoly like Google has done in search like Facebook has done in social.
Premium video content is available in many places and it's only increasing our Netflix and Disney now coming to the market with AD supported.
Hi.
Vehicles, and so I think that what you are finding here is that for the first time marketers agencies have a true choice of real choice.
Youre getting every bit as good targeting youre getting every bid is.
Good.
Effects from the advertising and Youre not being held captive because someone has.
Run the table on a certain type of inventory you need to buy from them and so I think you might be seeing some of that play through.
That's super helpful. Thank you for letting me borrow your IQ I appreciate it a lot.
Thanks, Laura.
Yeah.
Our next question comes from Jason <unk> with Adi Hallam.
Okay.
Jason prior from Craig Hallum.
Right.
Michael just wanted to see if you can maybe talk a little bit more about the trends youre seeing in DB, plus and maybe the opportunity for magnate in DB plus I.
I think you alluded to a little bit.
Some strategic changes or things that you're going to be doing a little bit differently. There. So wanted to hear a little bit more on what strategy is there.
Yes, Jason.
Good question.
Listen, we're certainly not where we want to be in D V class and.
I certainly don't feel good.
With the numbers that we've put up what I do feel good about is the progress that we've made behind the scenes.
It's a very complicated business global obviously huge scale youre talking hundreds of billions of AD requests a day instead of the.
A modest tweak here or there.
Can we go a long distance just given the scale.
So I think you would've seen much more attractive green shoots in key two hadn't things for the economic headwinds that we saw in EMEA and APAC. So.
Cpm's became quite depressed throughout the quarter.
And kind of continue to be so although it's built into the guide that David shared with you.
But we feel I feel good Jason are going into the second half of the year, we've got some.
<unk>.
Auction mechanics that we've implemented that have promising early results that we're now splitting out to a larger sample set.
As we said we on boarded a lot more inventory.
And with S. T O gains like the group deal.
I think that it's setting us up to return that business to.
Walk first and then run second and.
I don't think I could have felt.
It feels good about the business a couple of quarters ago.
It's been a longer cycle than I anticipated in terms of.
Getting to where we are now, but I think from here on out.
It's going to be.
Much more positive story for DB, plus thanks to the hard work of the team.
Okay and Ken.
Make it through a conference call without talking about cookies.
So obviously two goals kind of kicked out that deadline once again, but we've spent a lot of time talking about how deprecation of the third party cookie is going to yield more usage of first party data and that's going to be a benefit to you guys. I mean, the more we get these delays and I think a lot of people feel like.
<unk>, not even going to be the answer but.
Do you think that creates a little bit of a vacuum or as the industry move beyond that and elsewhere or first party data is going to start to maybe appeal as a targeting mechanism more so that third party data.
Yeah.
I think unfortunately as long as third party cookies are around kind of easy button.
And.
The published.
Forward thinking publishers that.
It had been dependent historically on third party cookies.
Putting a lot of energy and effort into.
Creating their own.
Odeon segment in <unk>.
Working with us to help them try to merchandise. It I just don't think you're going to see a rabid appetite on the buyer side as long as there is third party cookies and it's what they've been used to so I do think that some of our ambitions in the identity and audience management space.
It had been pushed out largely because of the cookies that being deprecated, but as I say that let's take a look at the world that has never had cookies, which is the CTV world and look at our LG deal and I think that that is perfectly emblematic of what we envision and that is LG and their choice they could have gone to.
DSP.
And made a deal with them for the data they could have gone to a data company like alive ramp they could have or they could have gone to an SSP.
Chose magnetic given our tools and given their level of comfort that they could still run a thriving AD business themselves. While we helped accelerated through the use of our.
Identity like tools et cetera. So so I do believe in the thesis I just think in the third party Cookie World Youre going to see a delay in that as long as they still exist in the chrome environment.
Always appreciate the color Michael Thank you. Thanks.
Thanks, Jason.
Our next question comes from Matt Swanson with RBC capital markets.
Yes. Thanks for taking my question, if I could actually pick up at the end of <unk> Quest.
Question was on T V.
And you kind of touched on this the idea that between Netflix HBO Warner coming together.
Going to see a lot of AD supported content coming into inventory unless next year here. So could you just talk about how that inventory is going to impact how advertisers approach.
And then also how existing publishers might lead to adapt to that competition. So there'll be a little more high level, then look at individual partnerships, but just thinking about how much supply is going to come on and how thats going to maybe impact ecosystem.
Yeah, Hey, Matt.
Great question.
To be played out but.
Our sense in talking to the big buyers is.
When there were rumors of the Netflix.
Perhaps coming online this year.
Purposely.
Left money out of the upfronts into the spot market to have.
Have optionality and I think that Thats, probably how it is going to play out and where is that money going to come from.
I think it just really comes down to.
We've already crossed that tipping point in terms of.
The larger audience being on streaming products, they're more desirable they're younger they're harder to reach and ergo I think that youre, just going to find more and more dollars I don't think it gets cannibalistic added the gates I don't think Disney pluses gain is.
Warner.
Discovery presses HBO Max's loss.
It's really.
The dollar he said he was getting up for grab or more linear dollars being pulled into the streaming environment. So I see it as an expansion of our Sam as opposed to.
Cannibalizing, each other and price erosion because.
Premium services are still holding a high premium.
In terms of CPM.
I don't think Thats going to also occur also reached a kind of a bottom in Japan, and a finite pool of dollars to fight over.
That's super helpful context, and then David you mentioned at the beginning of your prepared remarks, the cautious optimism into the second half and then we've also talked a lot about some of the conservatism. That's built into guidance. So could you maybe just kind of like separate and double click on both of those.
And if there would be helpful. Like on a month over month basis, just kind of thinking how trends progressed through Q2.
Maybe changes or anything you've noticed going into Q3.
And then if I can put it on one last just any assumptions around political benefit to Q3 I don't know if it comes.
It comes with September so that's kind of how youre thinking about the seasonality of political comp.
Yeah sure Alright.
Pack a few of those.
Let's start with the guidance and Thats absolutely correct.
Sure.
We're seeing a lot there's a lot of uncertainty and kind of mixed signals and so we have taken a conservative approach to that.
There are two.
Primary components of that conservatism. So first our guidance does have some room.
For further deterioration of the macro environment, so not that we absolutely expect that but.
It does have room for that and then second as you highlighted on the political side.
Political spend.
Sure.
Grow in September and obviously October yeah.
The more significant.
We don't have significant visibility into that at this point.
In the midterm election.
And so.
We've taken a pretty conservative approach on political we built in some current political in September but.
Haven't over index on that.
We actually see.
Yes.
So.
From an overall trend perspective I think.
You know we saw.
Saw a little bit of weakness continued weakening I think in the latter half of the second quarter.
Kind of continuing challenges.
The strengthening dollar.
Acted in.
In particular.
Our plus business.
And.
And so so.
We're sort of seeing that trend.
<unk>.
There's a lot of wariness.
Michael highlighted with with with buyers.
Some of the big agencies.
Talked about some spend increases.
Everyone is just sort of worry and seeing where things will go and so we're just kind of feeling that with that topic.
Yes.
Spending levels.
I appreciate the time.
Great.
Our next question comes from San Carlos with.
Benchmark company.
Great. Thanks, good afternoon.
Maybe just a follow up on both of those and Michael you gave sort of Tam expansion.
Around sort of.
The incremental supply, but I think the bigger.
Other alternative question, we've heard from sort of Hulu Disney around.
Programmatically.
Executable inventory in four years and I know, we all don't know exactly what Netflix is planning on doing with Microsoft.
In your prepared remarks, and talking about direct relationships.
How are you thinking about.
What Netflix <unk> Disney going.
Good means from the acceleration of programmatic adoption rather than direct sales.
Yeah, Hey, Dan could you talk to you.
Yeah, Great question, and I think you know who is really instructive in terms of being kind of Doj.
Streaming.
AD supported rate and.
If you look at how the.
They balance their go to market.
They have a healthy amount of biddable inventory.
That they use to help drive pricing against direct sold inventory and.
What they have found and others, so not just to the billable.
It can help rise.
Increased overall monetization.
And Biddable for the premium services is very much an invite only auction rate. So it's not open header bidding.
They don't know who the advertiser is.
This is very much.
An auction, where they know who all the participants are in the participants no with the price floors are and utilizing that against the mixture of upfront direct sold.
Yields the highest amount of CPM and so what I think youre going to see is this expansion of biddable inventory in the top tiers most of it will be through the form of invite only auctions.
But that's.
Good news for a player like magnate because it has to run through someone who can conducted auction and that's what kind of what we're good at.
So.
I see that as the first step.
Two.
A true programmatic utilization of the premium services.
And then after that I think you get an appetite for well boy. If you can bring me a thousand advertisers I've never called on.
And they can help even round out further this kind of portfolio approach and how I go to market.
I'll, let you bring them on all day long.
And we see that with others.
Our partners in this space and so then you act as that FSP. The scientists running an auction that's an invite only auction youre running a true option that is opening it up to.
Class of advertisers that are traditionally not TV advertising and or called upon by the big direct sales teams.
Got it that's Super helpful. And then just also just touch on sort of the political commentary.
I have sort of a unique view covering for broadcasters every single one of them was announced that political is going to be a record even greater than 2020.
I know David in your response prior you mentioned sort of some conservatism baked in to your numbers and I guess my question is just more around the tax I know the partnership with Scripps is unique we're starting to see a lot more of those types of deals.
But a lot of the issue is being able to actually code the inventory and expand from a natural built out and if you ask like a roku or video.
Challenges on their part in terms of maybe being under index from a sales perspective. So I guess the question is.
Obviously early innings, but 15% I think it's kind of 15% to 20% of.
Political goes to CTV.
How much over how much of our time does that you think you end up capturing and how much do you have to either educate or continue to expand the attack in order to.
Grow what is obviously, a very nascent category.
Yes, great question.
I'll attempt to answer some of it and maybe David you can embellish and.
Some more of it but the.
This is where the investment that we've made in building out this.
Middle market managed service team comes into play because these are regionally located in individuals that have a deep relationship with all the agencies and marketers in the area and so they are poised to be able to take advantage of this new category of spend and have done so historically very well.
Our legacy products, so a lot of experience in doing it and as you know as it gets bigger and it.
Senate race or sometimes those dollars flow through to <unk>.
D C based agencies that are specialized in political advertising and having a relationship with them a year round, which we do with folks on the ground in that market.
It helps us greatly so I think that we're well positioned from a tech standpoint, I think some of the biggest challenges from Teck has always been able to scale, particularly in CTV and that's where an FSP really comes involved because we with all the relationships. We have if you take the DMA.
Our IP targeted inventory.
It may not be enough from one service like a Pluto, but if you add glitter with Hulu.
All of sudden now have a huge footprint to be able to activate and thats kind of along the flavor of scripts get together always competing broadcasters.
That now can be able to bundle together.
All this inventory to make it more meaningful so.
I think we're in a really good position to benefit from it.
Definitely don't have as much experience as the local folks in terms of history.
Critical is pretty nascent for streaming streaming is pretty nascent itself.
But we fared well David could share the numbers, what we did in the general election last in 2020.
And perhaps.
You can extrapolate from there or do you think that it's going to be.
Same size or bigger.
Yeah, and just to add onto that.
That presidential cycle that at its peak.
Political was mid single digits.
<unk> of our total revenue so.
Yeah.
If we can hit those levels.
Execute on everything that we've talked about certainly some upside there.
Got it that's great color. Thanks.
Thanks very much.
Yeah.
Our next question comes from Nick <unk> with Stephens. Please go ahead.
Hey, guys.
How about an update on the managed services business are you seeing some improvement there or are we still limited by that.
It was $3 million to $4 million a quarter in this segment at one point I think that's still kind of the headwind, but any update there.
Yeah, Hey, Nik.
David can you give a little bit more specifics, if we're going to actually break them out I'm not sure. If we are not but it's.
It's definitely improved but theres no question that.
We still.
Again.
Business over indexed versus the general exchange over index to add categories automotive, which is typically the dealer.
Advertising tier two and regional travel and regional travel definitely kick back in automotive is still lagging, but there has been breaks signs of other categories.
Emerging in <unk>.
Furthermore, we've also talked about the mix of.
Business.
In their portfolios.
<unk>.
It's trending towards more of the higher margin business now and so therefore, we think of.
Whereas it managed services has been a bit of a slog because of the.
Macro.
We see a freshening and again there'll be the biggest.
Beneficiary of the political spend that will be the group that captures most of the spend and so therefore that will give them a good guy as well.
Okay.
Yes, and then Oh go ahead.
One of the strongest growing areas.
The company sequentially Q1 to Q2.
Oh Wow great great.
And then just the other question.
On the desktop side within BB plus is I think it was obviously down year over year in the quarter.
Outside of macro is there anything more specific to call out there I'm kind of wondering if this segment is just falling out of favor with advertisers in growth, maybe just hard to come by as we continue to push forward.
It's really going to be.
CTV and mobile.
Advertisers are really attracted to but maybe just your thoughts on that segment.
Yeah, I can start with Dave.
David Katz good yeah.
If you look at.
Prognosticators E marketer of Magna.
If we look at multi year CAGR on desktop.
It's low single digits and so what I think you saw for us.
We've got some improvements we need to make in our DB plus business. We've made some of those improvements as Michael highlighted but it's.
It's masked a little bit by the macro environment. So I think I think your overall comment is.
Generally true I think we'll have opportunity.
We continue to make progress.
With the TV plus business.
Desktop is 12.
20% of our total business.
We can take some of that share from that from those low single digit growth over time, but it won't be.
Major driver for us in the future.
Got it helpful guys. Thank you.
Yes.
Our next question comes from Matt Thornton.
With tourists securities.
Hey, good afternoon, guys. Thanks for sneaking me in.
David I guess, maybe one housekeeping for you you called out currency currency was called out.
Prepared remarks does not usually something we think of you guys as having much.
Exposure to but if you'd be willing to quantify kind of what that headwind is versus maybe what it was three months ago that'd be that'd be helpful.
And then Michael.
Over at Warner Brothers, obviously, a lot going on there.
Having a part of ways with with Santander.
More recently, obviously started emerge there to Vod services and my question. There is if you think there is incremental opportunity incremental risk.
Just how youre, how youre viewing that that potential opportunity. Thanks, guys.
Sure so on the current any front.
We.
We don't some companies record their.
Their results internationally and foreign currency.
Translation impacted it's very easy to quantify in our case.
Our system is U S based and so.
And.
Foreign currency budget get get translated at the input stage into U S dollars and so.
It's a little hard to quantify but it manifests itself typically in dpm's and so we've seen CPM drops in Europe in particular in the 10 or 15% range.
And so.
We think that correlate to the currency impact to some degree.
Yes, Matt on the <unk>.
Yeah.
At discovery.
We have a long history of working with discovery.
And with Warners.
Obviously, it was a bit tempered when they were part of the AT&T family in the acquired Zander for Avnet.
<unk> became as Andrew but.
Now that there.
Back in the fold of the discovery team and the discovery team is kind of running the operations there.
We feel really good about that relationship the expansion of that and obviously, they along with a lot of others have announced the launch of an adhered free service.
Complement there.
Merger of discovery, plus an HBO Max so even more inventory opportunities more valves and we feel really good tradition to work closely with that partner.
Okay. That's helpful. Maybe I can slide one more in.
<unk>.
You guys have called out a couple of different opportunities that kind of helped drive the back half of the year I mean political.
LG ACR relationship the Disney plus you know Avon.
Launch here in the U S as well as just the <unk> relationship in General Spo I guess.
Any way to size kind of what the biggest driver is or give us any kind of sense of what's more material and some of those actually may be more 'twenty three drivers in the 'twenty two drivers of that kind of color would be would be helpful. As well and then I'll jump back in the queue. Thanks guys.
Yeah, Great question, Matt I think.
I'll, let David chime in as well.
Certainly the most discrete.
Seasonal opportunity would be political.
The other drivers would help with Q4 can you help us Q3, but not be unique to just Q3 and Q4 view them as more evergreen.
So political I think would be the one that you could quantify or attempt to quantify that.
I don't know if David you have it.
Gearing opinion.
No that's it.
Our next question comes from Shredder Contura with Evercore ISI.
Okay.
Thanks, This is Spencer Ken Entre Schreiner.
Just had a quick question on your industry verticals and kind of the expectation in Q3 outside of political spend I think you.
Pointed to travel and auto as being at different points of strength spectrum.
And so I guess just underlying your assumptions for Q3 growth are there any conservative kind of growth figures that are going into your assumptions around vertical mix.
Thank you so much.
Sure.
David I'll start with that.
Yeah. So as you highlight I think we're seeing some pullback.
Particularly in retail.
Health and fitness.
Home and garden.
Strength in travel is as you highlighted.
Some strength in technology and computing.
And and some some green shoots in auto, particularly in our mid market team managed service. So yes from a guidance perspective again.
No particular.
Lean into those verticals other than.
Assuming those trends continue and having some question in our guidance if general trends.
Deteriorate further over the last half of the year in the third quarter.
Great. Thank you so much.
Thank you.
Our next question comes from Tim Nolan with Macquarie.
Thanks, very much I've got.
One more on CTV, we've covered a lot of ground with CTV today, but my question is about spring serve which I thought was an interesting tag onto the spot X acquisition that you made last year and I'm wondering.
Is it is you sound very optimistic on CTV kind of gaining share from linear and the role that magnet plays in all of that and I'm wondering how the Springer play into that do you need to win.
Counts over to use this spring.
Server.
Is that an extra boost to your business I'm just curious what the status of spring service now thanks.
Yes, great question.
I think we've been pretty clear that the initial goal or the near term goal.
Utilizing spring sort of in combination with magna it wasn't.
Youre going to look for a release a press release that is a rip and replace with like freewheel.
Take the Australian marketplace.
Magnate has a very enviable position powering programmatic for all of the top broadcasters in the Australian market. In every one of those broadcaster uses again is there a Google AD manager as your AD server. So that is a perfect case in point of how we can work.
With an existing AD server and Jeff spring enhanced it.
Advanced.
Programmatic functionality to that AD server that really wasn't built for CTV and so thats the real pitch that.
Even freewheel wasn't built for CTV was built for online video and had to be morphed into CTV shrinks or is built for CTV and with it comes some inherent functionalities that the other.
We just don't have that our clients wished app. So for the meantime, I think D. C is working.
Long side they are existing.
In the top tier plus services call it working alongside their chosen AD server.
Adding that functionality and yield optimization that they desire as you start to work with folks like the Oems or the fast services. There are tailor made for spring serve as their primary AD server.
And it's even more powerful if were the primary adds ever coupled with magnate. So I think that we are elated with the performance of the spring serve.
The team is just crushing it and I think that.
As we start to evolve as a magnet to have this deeply embedded AD serving capabilities in.
Leading CTV SSP is going to really provide us with competitive advantages that are very difficult to replicate.
Great. Thanks, Michael.
Youre welcome.
This concludes our question and answer session I would like to turn the conference back over to Michael for closing remarks.
Thank you Jordan.
We continue to build on our market, leading position and invest in clear areas for growth in CTV divi, plus an audience and identity as we look at the back half of the year, we feel strongly that our our selection by group M. D TV and D V plus in the U S. Disney plus recently announcing an AD supported an alternative.
The return of verticals, such as travel and political spend are tangible examples of growth drivers for the quarters ahead.
I would like to give a huge thank you to all magnetek as around the globe for your hard work and tireless efforts Q2 was a challenging macro environment and thanks to you not only are we weathered the storm, but we enter the second half of the year poised to grow and gain share.
Thank you for joining us for our Q2 results call. We look forward to talking to many of you at virtual investor meetings hosted by RBC Tomorrow, Craig Hallum meetings in New York on August 16th Cannon.
Cannonball on August 18th.
Conferences by Evercore ISI on September 7th and.
And benchmark on September 8th both in New York.
The virtual truest the truest virtual bus tour on September 19th and the European Road show the last week of September Thanks, again and have a great evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.