Q4 2022 Magnite Inc Earnings Call
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Fourth quarter 2022 conference call all participants are in listen only mode.
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I would now like to turn the conference over to Nick <unk> Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone. Welcome to magnets fourth quarter 2022 earnings Conference call. As a reminder, this conference call is being recorded joining me on the call today are Michael Barrett CEO and David Day, our CFO .
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 impacts of.
Macro economic 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 our actual results performance or achievements to be materially different from expectations or results projected or <unk>.
Implied by forward looking statements.
Discussion of these and other risks uncertainties and assumptions is set forth in the Companys periodic reports filed with the SEC, including our 2022 annual report on Form 10-K, we undertake no obligation to update forward looking statements or relevant risks are.
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 in the financial highlights deck that is posted on our Investor Relations website.
At times in response to your questions. We may offer incremental metrics to provide greater insights into the dynamics of our business. Please be advised that this additional detail maybe onetime in nature, and we may or may not provide an update on the future of these metrics.
Courage you to visit our Investor Relations website to access our press release financial highlights deck periodic SEC reports and the webcast replay of today's call to learn more about Mcknight I will now turn the call over to Michael Michael. Please go ahead.
Thank you Nick.
We had a strong finish to the year with Q4 revenue coming in at the high end of our guidance ranges total revenue ex Tac was up 10%.
TV at 20% and TV plus up 4% adjusted EBIT margin also came in strong at 41%.
And for the full year I am happy to report that we achieved revenue ex Tac of $515 million and free cash flow of 106 million both exceeding our targets.
Our outlook on.
2023 is positive despite weakness in the overall AD spend environment that began in late Q4 and continued into Q1.
We are currently seeing stability at these levels and are cautiously optimistic Dave.
David will provide greater detail on our financial results and our Q1 outlook.
Our CTV business continuing to drive our top line with revenue ex Tac growth of 20% year over year, which we believe outpaced industry growth in Q4.
Based on customer feedback and recent industry trends.
Just a couple of weeks ago, we announced magnates streaming our next generation CTV and OTT platform merging the best features functionality and technology from magnate and spot X magnate streaming empowers media owners to maximize advertising yield holistically.
Across live and Vod inventory addressable linear and CTV and OTT environments, while providing insights to more effectively grow their businesses.
It also provides advertisers with unparalleled access to CTV.
OTT inventory.
<unk> is targeting capabilities and.
Real time reporting.
We are excited about our new and expanded CTV partnerships. In addition to further traction with those previously announced.
Key new partners and expanding relationships I'd like to highlight since our last call our Brightcove Globo TV <unk>.
Horizon media radio and last but definitely not least Disney.
First I'd like to highlight the news in late January that we expanded and renewed our agreement as Disney's global programmatic SSP partner.
As you may recall, our relationship with them started with Hulu.
We have since grown the relationship to include the full portfolio of Disney properties in January .
Their annual Tech and data showcase Disney's read of Ferro had a lot to say and articles by variety and tissue day about a full suite of targeting that will be available on Disney Quest in July .
We are thrilled to be a partner with Disney in support of their audience targeting capabilities, which leverage the Disney Select first party data platform with more than 100 million U S household level Ids.
Second with Brightcove, a global leader in secure streaming technology solutions.
Nate will power advertising across the brightcove customer footprint, helping them to improve fill rates and delivery.
To increase revenue for their publishing partners.
Brightcove saw a significant opportunity to help customers better monetize their advertising businesses.
Utilizing magnates platform and capabilities.
Brightcove will also integrate the spring serve AD server.
To provide publishers with greater control insight and transparency into available ad supply.
Adding a strategic opportunity for customers to better monetize their video content.
We also had another client win in spring serve with flu bow choosing to implement our AD server for their entire video business.
This expansion comes to illustrate just how strategic and important to our AD server is to expand and deepen our relationships with our biggest partners.
Live sports is one of the largest and most valuable yet complex opportunities in CTV we.
We continue continue to make this a priority our leading products such as binge watch share in live sports acceleration or LSA provides significant opportunities to build on our success with the sports first live TV streaming platform partner like Fubu.
The opportunity for CTV and live sports is huge.
The creation and need to fill AD side, some real time, coupled with massive spikes in viewership and tremendous engagement, while requiring adherence to complex rules.
Our capability is extremely attractive and needed bypass.
<unk>.
The AD dollars chasing sports in CTV are significant.
In most sports leagues are looking to capitalize on this opportunity having recently separated streaming rights from linear.
We see a bright future for magnet and the world of live sports streaming and will look to build on our success across all sports and leagues.
Retail media networks are another very big opportunity for us increasingly user identity needs are being protected by publishers and retailers and they are looking for a trusted SSP partner to help securely activate audiences on the supply side.
Recent initiatives with both Kroger and <unk> highlight our progress in this area. This quarter, we announced a preferred relationship that will enable <unk> global retail partners to leverage C. T V through magnate.
Through collaboration retailers can drive growth by extending their offsite audiences into addressable CTV environments in turn providing closed loop measurement to their brand and agency partners pretty as an industry leader in this very attractive retail media space and we are thrilled.
To help their 160 retail partners expand audience reach and C. T V.
In addition.
We continue to make progress on supply path optimization or S. P O and announced a multi year S. P O deal with Horizon media, one of the largest U S media agencies.
We also continue to see strong traction with previously announced partnerships with Fox group them Vizio and L. G.
I'd like to specifically discuss the status of our relationships with group and Fox, which we believe will contribute nicely in 2023.
Our preferred partnership with group them is continuing to scale gaining momentum as we move into 2023 and the new season of Upfronts.
Pam has successfully launched 20, plus premium CTV accounts with more to come.
The next phase is launching O L. The into the group and marketplace, which presents an additional expansion opportunity.
We are also very pleased with the progress of our Fox relationship, where we serve as the SSP partner to power programmatic campaigns for one fax video inventory across the company's leading entertainment sports streaming news portfolio.
Launches very successful.
And it is also now a part of the group them premium marketplace.
On the D V plus side, we grew revenue ex Tac, 4% year over year. This growth builds on Q3 progress in spite of a tough AD spend environment.
Our success is attributable to our continued focus on customer based improvements to assist buyers to finding win and publishers to monetize the massive volume of additional impressions you've added since last year.
Some examples of recent customer wins include Buzzfeed who's in the early stages of Onboarding demand manager.
Irina group of Tech powered media company, which includes premier pubs, such as sports illustrated the Street.
Men's journal and prayed has chosen magnate as its preferred pnp partner.
And trusted media brands, which reaches more than 200 million consumers worldwide across every screen selected magnates demand manager solution and has seen approximately an 8% CPM lift when using demand manager.
In closing.
I'd like to address the recent news regarding two fsp's exiting the space.
Next declaring bankruptcy and yahoos shuttering their SSP business some.
Industry pundits have concluded that this might be the beginning of the end for the <unk> industry, we couldn't disagree more.
What we're seeing now isn't the beginning of the end of the SSP, but the death of the undifferentiated SSP per.
For years, the market has borne the weight.
Of a raft of Ssp's with little innovative technology, and little more to offer than recirculating DSP demand match.
Magnate. Meanwhile has been investing in a range of essential sell side technologies demand man here to get the most from the header carbon and Nth party to help publishers take back control of audience and address the ability.
Third party cookies are phased out.
Things are for CTV ad serving.
And demand facilitation team that delivers proprietary demand at global scale.
All of this to the best yield management tools for every media types, including CTV.
The display audio native and digital out of home.
The Yahoo decision underlines, what we have long known.
That is extremely hard for media owners of any size to build and maintain a sell side technology stack that can keep up with the industry's endless stream of evolutions.
Indeed, it's hard enough for dedicated technology companies to stay ahead of the curve.
But no sell side AD Tech company is better positioned than we are to help publishers thrive today and in the future.
As supply path, where S. P O accelerates magnates stands to gain in several ways first as a recipient of additional AD spend when competitive platforms go offline.
As sellers migrate to the partner, that's most differentiated indispensable and likely to bolster their bottom lines and third as buyers consolidate spend on a select list of S. S piece that meet all of their complex criteria.
How does this end for the SST industry.
Well very similar to the winner take most consolidation that we've seen on the DSP side.
We are in the late innings of FSP consolidation and magnate is poised to be that winner take most victor.
With that I'll turn the call over to David.
Great. Thanks, Michael.
We are pleased to report another strong quarter and record year for Matt and I.
Our fourth quarter results for revenue ex Tac or at the high end of our expectations and adjusted EBITDA of $64 million generated a strong margin of 41%.
Our business model continues to generate strong cash flow producing $57 million of operating cash flow for the quarter.
For the full year 2022, we reported revenue ex Tac of $515 million and total AD spend approached $4 5 billion.
We also generated full year, adjusted EBITDA of $179 million up 20% year over year for a margin of 35%.
Total revenue for Q4 was $175 million.
Ex Tac was $157 million up 10% from Q4 of 2021.
Revenue ex Tac attributable to CTV was $65 million up from $54 million or 20% from last year.
TV plus revenue ex Tac was $92 million.
An increase of 4% compared to Q4 last year.
On a sequential basis Q4 total revenue ex Tac grew 23% over Q3 generally in line with historical seasonal patterns.
Political spend represented less than 4% of our revenue ex Tac for the quarter.
Verticals, such as automotive travel and food and beverage proved resilient and where our top growth verticals offsetting weakness in retail technology and health and fitness.
Our revenue ex Tac mix for Q4 was 41% CTV, 39% mobile and 20% desktop.
Total operating expenses, which includes cost of revenue for the fourth quarter increased 29% to $204 million.
Compared to $158 million in the same period a year ago adjust.
Adjusted EBITDA operating expense was $92 million up 11% sequentially from Q3 and up from $75 million from the fourth quarter last year and slightly above our guidance range.
The increases were driven by higher cloud and personnel expenses Teeny and higher engineering team expenses, partially due to lower internally developed capitalized software due to the completion of our new CTV platform.
Net loss was $36 million for the quarter net income for the fourth quarter was of 2021 was <unk> 5 million.
Adjusted EBITDA was $64 million versus $68 million for the same period last year due largely to cost items mentioned above.
Adjusted EBITDA margin was 41% compared to 48% last year.
We calculate our adjusted EBITDA margin as a percentage of revenue ex Tac.
GAAP loss per basic and diluted share was 27 for the fourth quarter of 2022 compared to a breakeven result for the fourth quarter in 2021.
non-GAAP earnings per share in the fourth quarter of 2022 was 20 <unk>.
Compared to 2000 <unk> reported last year.
Our reserve results for the quarter included $35 million in accelerated amortization related to our CTV platform consolidation.
This expense this noncash expense had a negative impact on GAAP loss per share of 27.
And a negative impact on non-GAAP income per share of <unk> <unk> in Q4.
The reconciliations to non-GAAP income and non-GAAP income per share are included with our Q4 results press release.
We expect to recognize additional accelerated amortization expense of $53 million in Q1 $53 million in Q2 and $8 million in Q3 of 2023.
There were 134 million weighted average basic and diluted shares outstanding for the fourth quarter of 2022.
Fully diluted weighted average shares utilized for non-GAAP earnings per share were $143 million for the fourth quarter.
Capital expenditures, including bulk purchases of property and equipment.
And capitalized internal use software development costs were $7 million for the quarter for total capex of $44 million for the year better than our expectations.
Operating cash flow, which we define as adjusted EBITDA less Capex capex was $57 million for the quarter.
Our net interest expense for the quarter was $8 million.
At the end of Q4, our cash on the balance sheet grew to $326 million up $73 million or 29% from Q3.
Moving on to debt, we continue to reduce our net leverage ratio, which was approximately $2 <unk>.
Yeah.
At the end of Q4 as compared to two <unk> at the end of Q3.
This demonstrates further progress towards our ultimate target of two <unk> or less.
We did not repurchase any shares under our share buyback program during Q4.
Earlier this month, our board approved a new repurchase program, which replaces our prior program.
Under the new plan the company is authorized to repurchase a total of $75 million in common shares.
And convertible debt through February of 2025.
In addition to a strong cash position at the end of the year. We also expect to generate significant free cash flow in 2023.
We believe that currently it is prudent to carry more cash on the balance sheet.
<unk> to what we might normally carry.
That said, we have the capacity and plan to give debt reduction a higher priority over share repurchases in the near term. Although we are not ruling out share repurchases in the future.
I will now share our expectations for the first quarter and our view for the year.
Our approach to guidance assumes a continued challenged economic environment.
For the first quarter, we expect revenue ex Tac to be in the range of $109 million to $113 million.
We expect revenue ex Tac attributable to CTV to be in the range of 42, 5% to $44 $5 million.
This slowing of growth is attributable to an industry wide slow start to Q1.
We expect adjusted EBITDA operating expenses to tick up slightly from Q4 to $92 million to $94 million, which implies adjusted EBITDA margin of approximately 16% for Q1 at the midpoint.
For the full year 2023, we continue to expect to grow revenue ex Tac, Despite the global economy and AD spend weakening since our last call.
We are cautiously optimistic that CTV growth will improve both from an industry perspective, and from the new and expanded partners Michael covered earlier.
We continue to focus on managing costs with our January reduction enforced, which impacted approximately 6% of our workforce the.
The majority of the positions eliminated were from duplicative engineering roles across our <unk> platforms.
We expect adjusted EBIT to Opex to be lower in the second half of the year compared to elevated expenses in the first half as we complete client migrations and support one unified magnate streaming platform, which we will continue to optimize.
This coupled with a seasonally stronger top line will result in margins significantly improving throughout the year with the largest gains in the second half.
As we exit 2023, we expect to be back at a run rate in line with our long term target.
Adjusted EBITDA margins in the 35% to 40% range.
We also expect that our capex will be $40 million or less poor full year 2023.
For the full year, while we are not providing specific adjusted EBITDA guidance, we are targeting adjusted EBITDA to be approximately the same as 2022.
We also expect free cash flow to exceed $100 million this year.
Q4 brought a strong finish for magnet as a leader in CTV and TV plus.
We are very pleased with our position as we enter the coming year to grow our business generates strong cash flow and support accelerating growth and margin expansion as the economy recovers.
With that let's open the line for Q&A.
Yes.
Thank you we will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Shyam Patel at Susquehanna. Please go ahead.
Hey, guys. Thank you nice job on the execution I had a couple of questions.
First question.
For <unk>.
As you guys talked about it it seems like things have started off.
A bit slow for the industry in terms of.
AD spend.
Growth I was just wondering.
If you've seen any any improvement or changes in the growth rates as we've kind of gone from early January to late February and then.
Second question, Michael you talked about.
Some of the stuff that's happened in the industry with a couple of players.
Shaking out.
Your focus and strength Spo and then.
A large agency relationship that you guys continue to kind of deepen and I was just curious can you just talk a little bit more about.
Just overall, not just not to CTG, but overall kind of any SSP side.
Ed.
Just how you feel about your ability to kind of gain share, especially from the larger agencies and.
And anything that could be meaningful for this year. Thank.
Thank you.
Yes sure.
I'll start off.
Oh Wow.
David Chime in and Nick.
As far as improvements are concerned I think what has us cautiously optimistic is there hasnt been further decline. So I think what we in especially talking with our big buyers.
These marketers.
Since it seems to be that we have seen the worse and that it should get better from here on out that's not to say, we're starting to see it get better overnight, but it is to say that I think that the notion that.
Late Q4 into Q1, probably is.
We're bouncing along the bottom.
The things.
Fresh and.
As we get into the Q2 in the upfront.
Period of time.
And as far as the SSP side as we kind of said in the script we feel.
Its finally, starting to happen that.
This explosion of SSP that occurred when header bidding first came along and Google's.
B program, where they plugged in hundreds of SSP.
Provided no value other than arbitrage and to recycle the same DSP demand that you find that every other platform.
That's really starting to be shut down you have agencies that are.
Really serious about it and you were talking about we're not talking about <unk>.
<unk> Ssp's that are getting spo doubt we're talking about.
Brands that you've heard of.
And the marketer and the agency feeling as though.
I'm fine with a handful of guys because they've got everything I need and they've got the tools and they're willing to invest in it and they're willing to build so I think youre starting to see this renaissance of the value of the SSP and the ecosystem.
As we said in the call I don't think there's anyone better positioned to take advantage of the change in sentiment that we are a magnet.
Great. Thank you guys.
Thank you.
Our next question comes from Nick <unk> with Stephens. Please go ahead.
Hey, guys great.
Great quarter.
<unk>.
Taking a look at that that <unk> 23 guide again, it looks like Youre guiding CTV.
Think up 3% at the midpoint and actually then I think divi plus would be growing faster than the CTV in the quarter. So maybe if you could just flesh that out a bit it looks like mobiles.
It was strong last quarter I'm curious if that continues into the new year.
Then.
And just as we push out further for the year I mean do you think CTV is still going to lead the segments from a growth perspective, just any thought on like general direction across CTV mobile and desktop given.
So fluctuating trends, we're seeing right now.
Yes, sure Nick listen I think that the divi plus success I think is.
You've been listening to us.
A year and we sound like a broken record about hey, we kind of took our eye off the ball. We're back we're working on it hard we're seeing green shoots you may not see them in the financial results just yet.
Kind of what Youre seeing and it's coming at the expense of others. So so.
We feel that we still have quite a ways to go to get to where we should be on TV pass, but I think the difference that you see in this kind of depressed environment.
Environment is we're playing catch up in TV, plus and doing a good job and it teams doing a great job of as matter of fact.
CTV is 100% macro and Theres no question that CTV will be the fastest growing segment as we exit 2023.
It's just.
Budgets that were more branding oriented that were TV oriented.
<unk> is the first to get paused as opposed to more performance related advertising, which is typically the domain of the TV plus world and so I think that.
When it gets turned back on we are incredibly well positioned with all of the partnerships that we have in place to take full advantage, but obviously, giving our seat in the CTV World. We are connected to every publisher, we see exactly what's happening across the landscape.
And its universal in nature macro in nature and this.
The economy improves so too are our growth.
In outpacing the industry in terms of growth.
Got it that makes sense and the only thing I would add but go ahead I would add one thing on the divi plus switches.
Yes.
That growth is even even be masked a little bit by the strong dollar and the strength in dollar so can you.
Compensate for that DB plus growth is closer to closer to 7%. So we're thrilled with the progress that we're making there.
Yeah.
Got it congrats there and then I did just wanted to touch on sharpening our shopper marketing seems to be all the rage and digital advertising. These days just can you remind us of your role here I know you have a relationship a new relationship with <unk> and when you listen to the trade desk.
Two strong adoption of closed loop feedback.
With advertisers utilizing retailer data to justify CAD pains in AD spend but can you just remind us I guess of your current exposure whether magnet is currently generating incremental revenues attributable to shopper marketing or if this is a tailwind that's yet to play out for you guys.
Yes, Nick I think it's more of the latter yet to play out.
That nascent relationship with Kroger the critical relationships, so think about our role in the ecosystem of retail media networks of the shopper dollars is the partner of the supply and so whether that's owned and operated inventory from a kroger or off site.
Trying to reach Kroger audiences across the open web.
That's what an FSP does right and more and more on.
The folks that have this valuable first party data are feeling more comfortable assembling the data and assembling the audience segments on the supply side to keep it closer more protected.
Two the actual publishers and in this case, a publisher would be Kroger.
And so.
I think it will play a very valuable role, it's not going to be an end to end role.
I don't think youre going to see us anytime soon trying to come up with our own closed loop attribution.
Acknowledged <unk> proprietary technology I think we know what our role is it's a valuable role and will participate in the economics of the arm in space.
Got it. Thanks, so much guys good luck going forward.
Thanks.
Our next question comes from Laura Martin with Needham. Please go ahead.
Hi, guys great numbers too.
I'm just following up on the prior call is your point of view, Michael that retail media networks to be as big a contributor to the top line growth over time as CTV has been are those inherently different total addressable market is one <unk> total addressable market bigger or smaller than the other and then my other question is on the Google Doj.
Litigation.
Our channel checks in D. C tell us that there are minimum Doj wants to force Google to spin off its AD server.
They want to have the answer and that's S T spun off and.
Best of all worlds, they would have them set up everything and third party AD Tech could you walk us through how magnate benefit.
If they just are forced to spin off their AD server or their server and their SSP I'd be interested in the upside for magnet from those activities. Thank you.
Sure Laura good to hear from you, yes, so retail media network incredibly.
Attractive.
We'll see it more in the form of spend right, so whether thats higher CPM.
And obviously, our CTV footprint.
Are these.
Most of the CPG advertisers that participate in the retail media network universe are so used to running ads on television right and so.
Partnering with whomever they want on the buy side to help them create the attribution loop theres still going to need access to this great CTV supply and so I think that's where we come in and we participate in increased AD spend increased.
Yeah.
Increased.
Cpm's and quite possibly perhaps increased take rates depending on the role that we play in the service that we provide so we're very very excited about the ongoing prospects of retail media.
On the Google Litigation.
You guys have done a really good job following it obviously, we have counsel outside counsel to that's part of it and.
Obviously, the department of Justice reaches out to industry actually looks like.
Ourselves too.
Get our opinions.
It's really hard to kind of crystal ball other than the fact that what we've already seen is at Kinder gentler, Google in terms of transparency in terms of willing to to work and I think that.
It only bodes better if.
They are able to figure out a way to not have someone that has a conflict of interest that owns inventory themselves.
Power.
AD serving for the open web across all the publishers and so I think it's heading in the right direction to multiyear journey. Unfortunately. These things generally are in will actually be very.
At close to it but I think we stand.
To gain.
I think we've already seen that with our spring serve success from an AD serving on the connected TV side.
That's an area, where we don't ever really see Google at all and so I think that you're starting to see areas crack open for us that may not have existed two years ago.
Thank you.
Our next question comes from Jason Cryo is great.
Go ahead.
Thank you guys Michael I, just wanted to ask about visibility I mean, it sounds like things kind of decelerated pretty quickly in Q4 have stabilized since but just wanted some color on it.
The visibility has changed or how much visibility you have now into marketers, maybe pulling back on budget to reaccelerate budget or just things like that.
Yeah, you're right Jason sooner.
She and her Dewey we finish our call.
Last go round for the Q3 earnings.
It's universal across the and we're talking to every publisher sometime right around mid December .
Q4 start behaving like Q4, right and it kind of went to cross the finish line in December .
And that kind of headwinds.
Followed into Q1.
Our visibility on generally speaking comes more from the insight of our buyers from agencies.
We do as you know have the demand facilitation team and that's a little bit different features market insertion orders tend to be more of a I'm willing to spend X amount over the next couple of months and those bookings are quite strong and so it leads us to believe and I think this.
Just kind of the industry rhetoric.
We're bouncing along the bottom with the hope that the recovery begins sooner than what some folks are hoping which is second half of the year.
But again.
Our crystal ball is no greater than anyone else is in that respect.
Fair enough.
Maybe two on the updated CTV platform.
I'm just curious if any are important takeaways.
Yeah.
Australia.
As a law.
Talking being lower.
Yeah.
Without the new platforms and I understand that.
Phil.
Jason I don't know if its my connection, but I missed that entire question David did it come across on your line.
No Jason you're cutting out there if you could repeat that.
Okay, sorry about that or are we good now.
Yes that earns much better now Jason.
Okay, sorry about that so the two parts on the magnetic streaming platform. Just first any early takeaways feedback that you've heard and then second for David on cost you talked about lower profitability in the first half of the year, but I know you announced earlier this month that the platform is now available. So I'm just wondering why the higher cost level.
Throughout the first half of the year why wouldn't we maybe see that cost level start to abate heading into Q2.
Yeah, and I think they are kind of linked and what I mean by that is that some early feedback from streaming is quite positive.
We have.
A bunch of our partners around it and using it others had been trained on it and looked at it and it's curious a feature set that was promised and that they are super excited about.
But too early to kind of point to.
Hi.
Performance differences between the two platforms et cetera. So.
You know.
Because we launched we announced the launch of it doesn't necessarily mean that day and date everything else gets shut down and so that probably dovetails nicely into what David just going to tell about costs.
Yeah. So one of the challenges in the migration like this is.
You've got.
You have to run two full platforms platforms as long as we have like one customer still writing on a platform you have to make sure that it works and so you have got teams that have to support that you have.
On Prem.
Cages and minimum commitments on spend and data center lease costs in all kinds of costs.
That it takes to support both both platforms and so and so there is a duplicative cost base. We are scheduled to deprecate early in Q3, the second platform and go to one unified platform.
So.
That's why you will see significant cost decreases in.
In the latter half of the year. The other component is there are certain elements of our unified platform that utilize the cloud a little bit heavier than than we did in the past in some of our lower value lower volume high value elements of our platform and so there is also a.
Unit cost optimization that occurs over time, when you are using the cloud and so we will continue to see.
Benefits.
And reductions in unit costs over the course of this coming year until that will add to some of those cost reductions in the latter half of the year.
Yeah.
Got it thank you guys.
Our next question comes from Dan Brennan.
At the benchmark company. Please go ahead.
Great. Thanks.
Michael.
First obviously you guys have done probably better than expected job birthing sort of organic products, but I do wonder if we can finally get along the way to death on the as you put it a differentiated asset.
Might not get a few panic, they're desperate phone calls and how you might be looking at sort of the marketplace, whether it be from a tech pickup standpoint.
Just filling in a couple of holes and then David brought it out.
Given that the dollar.
You guys have fully unified platforms now internationally you guys continue to kind of talk about it.
An area of opportunity, we hear from our own checks that there is still a lot of distortion disruption out there that someone could step in and take more advantage of so im just curious how youre thinking about kind of attacking the broader marketplace understanding that the macro is super nasty everywhere right now thanks.
Yeah. So.
As it relates to this continuing or accelerating supply path optimization.
Typically speaking where you see it happen first is in.
Kind of the open auction business and so what you see as kind of a dislocation in spend.
The magnetic platform receiving more bids.
From.
Dsp's because their sphere platforms to bid and buy from.
And that doesn't really require anything other than.
Making sure it's toughing going to take advantage of it the second PCC.
The publisher, saying.
Boy, Oh Boy, you know I've been doing this on my own this piece of it on my own and.
It requires two engineers and a whole lot of work on my part.
And.
For a modest cost I can use magnetic technology to help me run my header.
And so then you start to see this kind of second wave, where theyre choosing less partners, but they are really getting back.
To kind of a winner take most SSP relationship where they will give that SSP their deals business, you'll use the technology from that SSP.
Disney is a great example.
We build custom software for them, we've talked about that I think that we are.
Brilliantly positioned given the size of the company the scale, we have and the tools and the products that we have to be able to really start when published you'll start to lean in and said man why did I think it was smart to run this piece of it myself how can you help me.
Fox is a good example of that so I think you're just going to see more and more of that and that's that's all falls under the umbrella of.
This reawakening of a value in that.
And SSP the cyst not an undifferentiated SSP can bring to a publisher.
And.
We're certainly well poised to take advantage of that.
As it relates to the unified platform I wonder.
Then if you could elaborate that a little bit I think I know, what you're asking but I don't want to answer my question.
Well you can answer any question you like Michael but I certainly.
Yeah.
International.
Yeah.
To get more aggressive either in CTV now or obviously, you've made some margin growth path.
I'm trying to get a sense international markets.
<unk>.
Distorted.
I think in like in Europe in particular.
We've heard sort of from our tax that there've been some really good opportunity then you can kind of.
Figure out the right way to attack the market. So I'd just love to hear what you guys are kind of doing now that you have a more unified spots across the business.
Yes no.
It's a really good point because some of the businesses like take spot X for instance.
Had little to no <unk>.
Exposure, along the springs or to Europe , because if you recall they were owned by a German media company RTL and it was kind of like Hey, we got our own in house tools for the German market, we don't need you in Europe guys.
And <unk> was a little bit like that as well just given their resources they didn't really focus on international.
And so now that you're into the magnetic umbrella one platform that has all the features that a Tory had plus all of the features it's Fedex plus some innovation that we've acquired through springs or.
It really does create <unk>.
And new opportunities for magnet that never existed before and I think what we're finding is the same kind of the same kind of trend lines and that is publishers wanting to lean on technology partners. They can SSP to do more not less because that whole era of the publisher taking it in house is definitely sunsetting.
So I think you are right, we're very excited about the opportunities notwithstanding.
They are pretty tough market right now given the strength of the dollar and the.
Weakness of the local economies.
It's probably.
Going to delay any kind of huge acceleration just given the uncertain times there.
Yes, and Dan.
Maybe embedded in your question is is there maybe international M&A opportunities.
And the answer there.
Would be now.
We have the assets we need we have the international.
Team that we want and.
We would expect international growth to be organic.
Got it that's super helpful. Thanks for the color guys.
Our next question comes from Matt Swanson with RBC capital markets. Please go ahead.
Yeah. Thanks.
I think I'll leave off my quarterly television plus question and join Us in TV Bandwagon here.
So how should we think about the partnerships heading into 2023. It seems like every quarter you have to have.
Three more announcements.
Just help us kind of think about both the direct and indirect benefit.
How we should expect these relationships to ramp.
Yes, Matt Great question.
I think we like to describe these partnerships is kind of walk.
Jogging run and I think group them as kind of a really good example of that where I think we've talked about group them, maybe six or seven quarters ago for the first time and the.
The evolution of that partnership with you.
Agreeing on a technology partner like magnate.
Then socializing the concept throughout the group and organization and then turning to their clients and socializing the opportunity and why it's a value to them to buy the premium marketplace and group them. It's a process right as the sales cycle in some of those are in our control magnate and a lot arent.
Soon the publishers control or the agencies control in that case.
I think that the good news is you hear a drumbeat of these things that started off as a trickle and become meaningful.
Some quicker than others, because some are just kind of more.
Hi, Hey, plug and play others require customization, so I think there's a ramp to it.
And it's it's really you got to take it case by case, but.
It beats, having kind of a drumbeat right.
It points to the power of our combination of spring share with magnate streaming as being Super differentiated.
Product and market that is really helping us gain share.
Thanks, that's helpful.
This has to do with partners and maybe it doesn't but as we think about heading into 2023 could you just talk about kind of the market momentum around edible and if youre seeing any increase in the pace of that transition as more CTV inventory comes online.
Then if there's anything kind of around that concept in terms of Directionally your expectation for like blended CTV take rate in 2023, or 2024 that we kind of look out too.
Yes, great question.
These trends are hard to like.
Kind of.
Draw generalization, just given the <unk> nature of the marketplace, but I think that youre going to find going into the upfront.
He kind of record which is.
Little embellish to talk about a record when theres been very little bit.
Biddable inventory in the premium CTV categories, plus services, the broadcasters et cetera, but I think youre going to find a record amount as dictated by the buyers buyers. Every dollar is going to go a lot further in this marketplace and they have demanded for quite some time now the opportunity.
To be able to bring data to the the foray bid openly on it and so I think this concept of the invite only auction that who has been so incredibly well with your I just.
No question that you're going to see the spread of that just given the cloud that the buyer has coming into it.
We're also seeing quite a bit of biddable inventory.
At <unk> that are quite different and perhaps cpm's where in Q3.
In the.
The fast service market and in the OEM market. So.
Yeah.
Bit of is coming it's probably coming faster because of this.
You know.
<unk> economy.
And it does bode well for take rates for sure because of the the amount of value that we contribute to.
Conducting an auction versus just being the technology partner to process pre sold deals by the publisher.
Thank you.
Our next question comes from Matthew Thornton with terrorists. Please go ahead.
Hey, good afternoon guys.
Maybe two questions if I could just a couple of recent events and Michael you alluded to one and that was Yahoo shutting get some SSP how do you think about.
I would assume they probably had some meaningful market share on supply. So I'm kind of curious how you think that market share.
It gets absorbed I would assume that the larger platforms like a magnate should be in a position to absorb some of that share, but I'm curious your thoughts there and how that applies to 'twenty three.
And then secondly.
Roku recently talked about opening up to third party DSP demand I believe spot X was the.
The primary SSP partners I would assume that would bode well for spot X.
As that comes to fruition, but I am curious your thoughts there as well thanks again.
Yeah, Hey, Matt Yes.
Yes so.
No.
I think it's been quoted in the press trade press so.
Most of the majority of Yahoo, simple majority of Yahoos inventory on your exchange was Yahoo O&M.
And so assume that theyre going to figure out a way to monetize that.
Probably head or whatever the case might be so that still is an opportunity for us to gain access to that inventory.
In a slightly cleaner fashion right.
As opposed to a couple of hubs through the multiple exchanges that they kind of had through the acquisitions that they've done. So I think that's probably a net good guy as far as picking up the inventory that they had on the platform.
Most of that we've already had so which is kind of get is not.
Sara-lee, new publisher wins, because it publisher was only using Yahoo, and now they're going to use magnate generally speaking youre, just kind of shutting down another path for DSP dollars to flow to that publisher.
And more of that flow is going to come through the <unk>.
The remaining ssp's, particularly someone is differentiated as magnets. So I think maybe that's the way to think about it.
And the.
The second question you had was related to.
Roku that was on broker Yep Yep.
Yeah.
Still have a deep partnership with them.
Think that.
A little early for us to talk about the nature of the relationship but.
Suffice to say.
A deep partnership with them.
Expanding as well.
Great. Thank you.
Okay.
Our next question comes from <unk> <unk>.
Jerry Yang Evercore ISI. Please go ahead.
Hey, guys. This is Ian Peterson on for <unk>.
Quick question here, focusing on Disney Disney continues to rapidly scale, the programmatic offerings and expects to be 4% to 50% programmatic buy 24 can you help us just quantify the impact of this accelerated shift towards programmatic or magnet and do you anticipate other Avon services to follow a similar true.
<unk> is Disney or Disney really the outlier here in the near term and maybe just lastly can you tie in.
Magna has recently launched a streaming platform and how this comes into play here and maybe can you just highlight its value proposition.
For a broad services. Thanks.
Sure Ian.
So.
As it relates to Disney I think we've been pretty clear that.
You know.
We are working with them, primarily as a technology partner.
That helps facilitate programmatic buys that are sold by Disney.
Belief as it moves to more biddable environment.
With us running the auction piece of it.
The economics increase in terms of take rates and so I think that that plays itself out over time.
And there's no question that.
I think Hulu is shown the efficacy of having biddable inventory going up against what traditionally is upfront inventory guaranteed pricing.
And I think that that's the model that Disney is going to emulate and I don't think they are an outlier by any stretch there just more advanced they have more inventory right. They are global and they and they have Hulu.
He also has the learnings of Hulu being at this for eight 910 years doing programmatic and so I think that that.
Is not at all an outlier and people will be looking at that.
Gary very carefully.
And magnetic streaming I mean.
The way to think about it is.
When spot Xqc compete against malaria before they were both part of magnate.
If it is kind of in a chocolate and vanilla.
There are things that spikes was really good at that.
Hillary wasn't in things that Tori was good at that spot X lag. So now you're taking the best of both platforms, putting them on one and then <unk>.
<unk> some of the learnings that our clients have asked for for other platform and applying those to it.
Things like the specialty stuff that we talked about in live streaming for.
For sports, particularly in.
And you wind up with the best.
<unk> platform out there.
Along with you know having access to an answer of or so.
There's no question I think that it will solidify and expand opportunities that are existing and put us in a wonderful position for whenever anyone decides to change AD servers and ssp's like food voted.
And we've become a different type of opportunity out there than either one of the platforms were before they were merged together.
Great. Thanks.
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 Sir.
For 2023, we continue to expect to grow revenue and generate healthy free cash flow as we judiciously manage expenses evidenced by actions we've taken earlier in the year on head count with platform consolidation, new hiring pause and managing discretion.
Larry expenses we.
We are doing this while also keeping the business poised to capitalize and accelerating growth as the market improves.
Our independent leadership position in the CTV AD supported market and improving and improving growth in D V plus should continue to drive market share gains in the years ahead.
Still just in the earliest days of AD supported CTV as in many of the largest market participants suggest launched and yet to scale the CTV ad businesses.
We will drive growth for many years to come especially for programmatic partners.
I would like to thank our great magnate team for the hard work and focus through a successful comprehensive platform consolidation.
Customer migrations, all while navigating challenging market conditions.
Thank you to our analysts and investors for your continued support and for joining our Q4 results call. Today, we look forward to speaking with many of you at our upcoming Investor events Cannonball, we'll host our post <unk> post Q4 virtual investor meetings Tomorrow, we will be attending the Cig conference in New York on March 2nd in the Truest Conference.
In New York on March 7th we will.
Also be participating in meetings with RBC in Toronto, and Montreal, and then March 8th and ninth in Denver with benchmark.
Sorry in <unk>.
Toronto, Montreal, and March 8th and ninth and in Denver with benchmark on March 14th.
Have a great evening and thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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