Q2 2023 Magnite Inc Earnings Call
Good day and welcome to the magnet second quarter 2023 earnings call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.
I would now like to turn the conference over to Nick <unk> of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone. Welcome to magnate second quarter 2023 earnings Conference call. As a reminder, this conference call is being recorded.
Me on the call are Michael Barrett, CEO , and David Day, our CFO I would like to point out 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 may 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 macroeconomic factors on our business. These statements are not guarantees of future performance they reflect our COO.
Current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks uncertainties and other factors that may cause our actual results performance or achievements to be materially different from expectations or results projected or implied by forward looking statements.
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 2023 quarterly report on Form 10-Q, and our 2022 annual report on Form 10-K, we undertake undertakes no obligation to provide forward looking statements or relevant risks our comp.
Untary today will include non-GAAP financial measures, including contribution ex Tac or less traffic acquisition costs to more accurately reflect what we previously referred to as revenue ex Tac 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 the financial highlights.
It is posted on our Investor Relations website.
At times in response to your questions may offer additional 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 the webcast.
Replay of today's call to learn more about Black Knight I will now turn the call over to Michael Michael. Please go ahead. Thank you Nic Q2 was a solid quarter for magnet total revenue grew 11% contribution ex Tac grew 9% in.
And adjusted EBITDA came in at 37 million with a margin of 28% that said EBITDA and margin were negatively impacted by the media math bankruptcy, which David will discuss in more detail.
Once again, our D V plus business was a bright spot as contribution ex Tac grew 10% year over year, despite an industry wide weakness in C. P M showing clear market share gains.
About a year ago.
We refocused on our T V plus business completed a number of technical improvements and consolidated our online video activity. This freed us up to put greater focus on the needs of our partners platform enhancements and optimizations for AD spend performance.
We're now seeing the results of those efforts and we expect more strength in our D V plus business moving forward.
On the CTV front contribution ex Tac grew a healthy 8%.
We continued to execute well against our plan this quarter, while managing through a challenging market that is far from normal.
Yeah.
Starting in June we began to see softness in our managed service business driven by macro challenges at several large managed service campaigns were paused based upon an AD budget pressure, particularly in the auto and media and entertainment verticals.
As we've discussed in previous earning calls our managed service business operates at our highest take rate so that flows through to the financials are significant.
The industry also saw TV upfronts, excluding sports and live events come in weaker than anticipated, which is a good indicator of advertiser sentiment and the current challenge to AD spend environment on a positive note, we would hope that they'll buyers who are cautious in the upfronts.
They get to remain largely intact and that spend can be deployed in the scatter market, which will benefit streaming services and programmatic partner programmatic partners like magnetek.
Several trends also accelerated this quarter into Q3.
Most significant of those trends is that the largest and fastest growing streaming players the broadcasters plus services and TV Oems are all getting truly serious about programmatic and are taking share from smaller CTV publishers.
We're seeing that shift manifest itself in our own partners, including Disney Roku Warner Brothers Discovery, and Vizio, who are moving more inventory towards programmatic transactions and away from traditional direct sold executions.
While we believe this trend is positive for the long term health of the programmatic CTV market and our business. It is negatively impacting our near term financials.
The reason is simple.
As all of those large sellers move direct sold deals to publisher direct programmatic, they're becoming a bigger part of our AD spend mix, but they're relying on services with lower take rates.
Well, it's not showing up in our financials is that we're growing market share at a far greater rate than our revenue would suggest in Q2, our AD spend grew at a significantly higher rate than our revenue and industry forecast.
Yeah.
With that being said, we see a huge long term opportunity here the shift to premium programmatic CTV is in full swing and Netflix hasn't even started its programmatic efforts magnate is winning at the top tier clients and from experience. We know that the more we work with these types of companies.
The closer we get to them.
The more we can move to delivering higher value higher take rate services over time.
So what makes us confident that we can expand our value generation on this growing market share.
It's a combination of continuing to execute on existing industry, leading products and introducing new innovative services.
On the existing front, we're going to upsell higher value SSP services to those clients by running auctions and bring them proprietary demand.
To win new AD, serving clients with spring Sir.
Expand our spring certain titles business and other proprietary formats.
And continue to create direct private marketplaces between agencies and premium publishers further accelerating our S. P O efforts.
Yeah.
On the new and future front this quarter, we introduced two new innovative offerings and one new partnership.
First there's clear line.
The self service direct video buying solution for agencies.
We believe strongly in this product's ability to unlock linear budgets and efficiently bring them to programmatic, which as I mentioned is that a strategic interest to agencies.
In fact, we recently announced that the list of agencies using clear line has expanded beyond our launch partners Camelot group N and M. I Q2 include G. S. D N M Horizon Media Omnicom Media group, Germany, and Stag will brand X performance network.
Clear line has also seen robust momentum on the sell side, where we've added a N. A A&E networks AMC networks, Directv advertising dish media Disney advertising Fox Digital nine and Warner Brothers Discovery Tour launch partners LG and Vizio.
Second in June we introduced magnate access.
Our suite of omni channel audience data and identity products that make it easier for media owners and they're having advertising partners to maximize the value of their data assets, including a D. M. P. A.
The data storefront, a secure solution, enabling sellers and buyers to match datasets and more.
Parts of accessory available to clients today, and others are in testing and on track to reach wider availability of this year.
And finally earlier this month, we and freewheel announced an integration enabling clients of their AD server, including many of the world's largest programmers and broadcasters to work seamlessly with magnet for their programmatic needs.
Not only does this integration allow our mutual clients to better maximize yield across sales channels, but it also unifies their view of AD creatives frequency capping and other data across systems, which ultimately improves the advertiser and consumer experience.
We expect it will take a few quarters for this integration to ramp up but we're bullish on the value for the industry and the opportunities it opens for us to further grow our footprint.
We believe these efforts will both positively influence our revenue and increase our role as a strategic partner to our clients.
And now that we've completed the CTV platform integration that began with our acquisition of spot X two years ago.
We will apply even more focus towards innovation that advances our technology and leadership position.
In summary, we.
We are very pleased with how our business is performing and our share gains in both D V plus in CTV. So the.
The rapid shift to premium programmatic CTV has come with some near term revenue pressure the AD spend growth represents a significant opportunity for us to expand our relationship with the industry's top players.
I am confident that we have the resources and the strategy to execute on this opportunity.
With that I'll turn the call over to David for more detail on the financials David.
Thanks, Michael.
Q2 was a solid quarter for magnet, we reported total and CTV contribution ex Tac results within our guidance range and our D V plus business performed very well.
Total revenue for Q2 was $153 million up 11% contribution.
Contribution ex Tac was $135 million up 9% from Q2 2022 and at the midpoint of our guidance.
CTV contribution ex Tac was $56 million up from 52 million a million dollars or 8% from last year T.
T V plus contribution ex Tac was $79 million, an increase of 10% compared to Q2 last year.
Our contribution ex Tac mix for Q2 was <unk> 42 per cent CTV, 39% mobile and 19% desktop for.
From a geographic perspective international continues to lead our growth increasing at a rate well over double the U S.
I'm a vertical perspective travel showed relative strength overall, biotechnology and media and entertainment were relatively weaker particularly in CTV.
I'd like to highlight a few trends, we're seeing which are impacting our Q3 CTV guide.
In General April and May continue to grow and June was softer than expected.
In particular, our managed service business was notably weaker evidenced by slower order flow and pause campaigns as Michael alluded to.
The premium broadcasters plus services and Oems are taking share from smaller CTV publishers, which while creating significant long term opportunity is negatively impacting revenue in the short term.
Also related to second half trends keep in mind that political spend represented roughly 3% of CTV contribution ex Tac in Q3 2022.
And 6% in Q4 2022, creating some additional comp challenges.
D V plus continues to be an area of strength with 10% growth in the quarter. We continue to innovate and D V plus and are excited with the launch of native AD formats across TV plus.
Allowing programmatic demand to target key publishers that offer native formats.
We will continue to bring new products to D V plus that will enable our publishers to better monetize their supply.
Total operating expenses, which includes cost of revenue for the second quarter increased to $224 million compared to $161 million in the same period, a year ago with increase primarily driven by $53 million of noncash accelerated amortization, resulting from our platform consolidation.
Adjusted EBITDA operating expense was $97 million.
Higher than our expectations due to $4 5 million in bad debt expense that was recognized as a result of the media math bankruptcy.
Excluding the medium F impact expenses would have been at the low end of our guidance range.
Last year adjusted EBITDA operating expense for the second quarter was 82 million the year over year increase was driven by higher platform expenses payroll expenses. The aforementioned media math expense returned to office and travel and event related cost.
Net loss was $74 million for the quarter compared to net loss for the second quarter of 2022 of $25 million.
For the second quarter. This year include the previously mentioned $53 million of accelerated amortization expense.
Adjusted EBITDA was $37 million and adjusted EBITDA margin was 28% for the quarter, both of which reflect the negative impact from the $4 5 million in bad debt expense.
Note that we calculate our adjusted EBITDA margin as a percentage of contribution ex Tac.
GAAP loss per basic and diluted share was <unk> 54 cents for the second quarter of 2023 compared to a loss of 19 for the second quarter of 2022.
non-GAAP earnings per share in the second quarter of 2023 was <unk> <unk> compared to 14th reported last year.
The $53 million of accelerated amortization expense had a negative impact on GAAP loss per share of 39 cents and a negative.
They've impact on non-GAAP earnings per share of <unk> in Q2.
The reconciliations to non-GAAP income and non-GAAP earnings per share are included with our Q2 results press release.
We will recognize the final amount of accelerated amortization expense of $8 million in Q3 this year.
To the completion of our CTV platform consolidation.
There were 136 million weighted average basic and diluted shares outstanding for the second quarter of 2023.
Fully diluted weighted average shares utilized for non-GAAP earnings per share were $146 million for the second quarter.
Apple expenditures, including both purchases of property and equipment and capitalized internal use software development costs were $9 million for the quarter.
As a reminder, our capex for this year is expected to be about $5 million lower than 2022 aided by the repurposing of the spot ex CTV platform servers to our on Prem EV plus platform.
Operating cash flow, which we define as adjusted EBITDA less capex was $28 million for the quarter.
Our net interest expense for the quarter was $9 million.
During the second quarter, we purchased and retired $40 million in face value of our convertible notes using $34 million in cash, resulting in a discount of 15%.
Our total par value convertible note repurchases through the second quarter was $90 million, reducing our total convertible note balance from 400 million to $310 million.
With these purchases we have completed our previous plan and our board has approved a new repurchase program authorizing the use of up to $100 million to.
Repurchase common shares or convertible debt through August of 2025.
Our cash balance at the end of Q2 was $266 million an increase from $237 million at the end of last quarter. Our net leverage ratio was two point to ask at the end of Q2 down sequentially from $2 five acts at the end of Q1.
We expect the ratio to be meaningfully below <unk> at year end.
Our business model generates strong cash flow, providing the flexibility to self fund investment in our business reduce debt and maintain a healthy cash position.
We continue to expect to generate significant free cash in 2023, especially in our seasonally strong second half and we will continue to evaluate the best use of our cash as it relates to debt reduction and share repurchases.
I will now share our expectations for the third quarter and thoughts for the full year.
For the third quarter, we expect contribution ex Tac to be in the range of $128 million to $132 million.
We expect contribution ex Tac attributable to CTV to be in the range of $50 million to $52 million.
We expect contribution ex Tac attributable to divi plus could be in the range of $78 million to $80 million.
We expect adjusted EBITDA operating expenses to be between 92 and $94 million, which.
Which implies adjusted EBITDA margin of approximately 28% for Q3 at the midpoint.
For the full year 2023, we expect our contribution ex Tac growth rate to be in the mid to high single digits.
For Q4, we expect CTV growth to improve from Q3 guidance and to be much closer to flat year over year.
We anticipate adjusted EBITDA would be comparable with 2022, excluding the impact of medium off bad debt expense.
For Q4, we expect adjusted EBITDA operating expenses to be between $94 million to $96 million.
Our capex expectation is unchanged and we expect it to be less than $40 million.
And lastly, we continue to expect free cash flow to exceed $100 million.
Overall, the Companys performance for the second quarter was solid we are well positioned financially.
With strong cash flow generation that has allowed us to retire 23% of our converts well before their maturity.
We have significant opportunities ahead of us and we are uniquely positioned to leverage our capabilities as a leading independent omnichannel SSP.
We're excited about our position and feel confident in our ability to continue delivering positive results.
With that let's open the line for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.
Our first question comes from Jason Prior from Craig Hallum. Please go ahead.
Great. Thank you guys. Michael can you spend a little bit more time talking about just the trade off and what's happening in <unk>.
<unk> TV like are you seeing some of the bigger participants move volumes from like a bit of ball or a private auction to something thats purely director I'm, just having trouble reconciling going from an inventory that has a higher take rate to an inventory that's a lower take rate.
Yes, Jason.
To address that.
So yes, so the.
Florida guidance that we're giving in CTV is a mix of two things right.
Well three things.
The managed service business, which as.
As you know carries with it the highest take rate when deals are cancelled or shifted out of the quarter.
It's quite an prompt.
And it does have an impact to the net revenue for the quarter.
Call that around 50% of an impact and the other 50% Jason we're seeing was the.
Serge in publisher sold programmatic deals.
And that was primarily shifted to the.
The premium inventory that kind of didn't exist last year. So the plus services are run by the broadcasters.
And if you look at the TV Oems.
Throw roku into that group of folks that have exceptional data and prefer to try to sell that direct and so the larger.
CTV players with direct sales teams.
Hi.
They will be exacerbated the share shifts on the platform. So you are seeing a couple of things you are seeing the shift come from an open market.
World that wasn't really ever.
Domain of those players like they they didn't really ever really lean into auctions, they like to sell their own stuff directly as we've talked about we think that over time as it evolves there'll be more comfortable with that but right now they like to sell direct.
And they.
They really took a lot of air out of the room in what was a muted spending environment and then any new dollars that came in to the environment, which new dollar stayed because again, we talked about the dislocation between our revenue growth rate in the spin new dollars did come in at almost exclusively we went to that cohort. So it was.
Relatively quick transition.
From a you know.
Quarter, and a half play out.
And we think as spend returns to normal that spend will find its way into open auctions. It will find its way onto other publishers, but right now and are pretty scarce spend environment. This is kind of a flight to quality.
Flakes of security for the buyers and fight to like dealing with the folks they know best and so that's.
Hopefully that helps you understand Jason what we saw.
So so that helps I guess that begs another question I mean, clearly you've got some confidence that youre going to continue to play a role I mean, if youre seeing some of this premium inventory be sold direct.
Where does that confidence come from that.
That inventory comes back to Magna it overtime and do you view that as a quarter or two transition or is that like a year or two transition.
Okay, so to be very clear and I know, it's very nuanced, but theres publishers sold direct deals that are.
Processed by the AD server right. So I sell traditionally go in someone emails media creative and sends me an insertion order and Thats publisher sold direct and we unless it's spring serve involved we have no involvement in that is magnate what I'm talking about here that occurs in the magnate platform its publisher sold.
Programmatic and so the agency agrees to buy from the publisher, but they want to do it programmatically largely because of workflow. They can just press a button hands on keyboard campaign goes live that's what I'm talking about in adjacent they've always done that this group is now just getting an outsized.
Share of wallet on the platform, but this has always been the domain and how they play.
Disney plays in the programmatic world. So so what gives us confidence is.
As we've said all along we know that as they.
Get more and more into programmatic have more and more inventory available in programmatic that eventually buyers will move them into kind of an invite auction world, which will conduct the auction and those publishers will want more demand because they'll have more inventory and that is where our demand facilitation team gets involved.
So we are very confident and we've seen this play out in TV plus over the years and we've actually seen it play out on certain publishers on the platform. So all of those things that we talked about the upsell. It has transitioned to spring sort of clear line all of those things give us great confidence that we're incredibly well positioned to incur.
Kris the value, we bring ergo increase take rate.
Thanks for the detail Michael I will hop back in the queue.
But.
The next question comes from Shyam Patil from Susquehanna. Please go ahead.
Hey, guys.
I just wanted to follow up on on the the CTV and the managed services in that transition Youre, saying.
With the with the CTV programmatic direct that that piece that you just talked about how how big is that.
You know as a mix of your <unk>.
CTV business.
How I guess and how big could that get with <unk>.
With this transition that you talked about.
Actually if other.
If other large customers kind of move in that direction.
And.
As you look out to I know you guys gave color for the second half, which is really helpful. But as you kind of look out to.
Next year and the year after I mean, what what what's the right way to think about CTV growth.
We're kind of thinking kind of 10% growth, 5% growth, 20% growth like what's the right way to think about CTV kind of looking out to next year.
And then just a second second quick question.
On the on the Upfronts and you talked about.
Upfront weakness and potentially kind of the scatter market being stronger later in the year.
When do you think you might you might know if that's actually happening is.
Is that moving toward programmatic CTV. Thank you.
You bet, so I think I got them all.
So the first question is how big is that business today, and how big could it be I want to emphasize again.
How are these players to sell their inventory hasnt changed the amount of dollars going to these players has changed so.
Close to 80% of our business in the CTV world on the streaming platform is direct deals.
In some cases, we will bring the direct deal we'll find the buyer and bring it in other cases, the publisher sales team will do it.
It is not an open market.
Industry right now are very few players.
A handful do but very few players do open auction. So it's not like a D V plus world. So.
I'm, not saying that Thats changed what's changed is just the concentration of spend on those particular publishers.
And what gives US hope again is all of the products and services that we have both for the buy side and for the sell side to enhance.
The take rate over time.
So I think we're incredibly well positioned there as far as 2020 for CTV growth rate. This hasnt changed that at all.
The market returns to a normal pace of growth, what you define normal or magnetic and defined normal we fully.
Fully intend to grow faster than that so we think we're incredibly well positioned to outpace the market growth in CTV.
It's just really a question of when it returns and what does that return too.
And lastly from an upfront standpoint.
You know I think a lot of people are hoping that.
When the reference really kick in.
Traditionally you know at the end of Q3 Q4.
That data.
Spend thats been paused as the spend that was held back will find its way through scatter and streaming has always been a beneficiary of scatter.
I will caveat that by saying there is externalities like the writer and actor strike that will pause the creation of new.
Programming, which will definitely have an impact on broadcast theres, a little less on the kind of plus services because of their library, but that could very well.
Create some friction in that spend resuming because of the lack of programming choices, but.
We do feel confident that a weak upfront or a muted upfront is not the enemy of streaming it actually might help.
Downstream.
Great. Thank you for all the color.
The next question comes from Laura Martin from Needham. Please go ahead.
Hey, there.
Hey, Laura.
Uh huh.
Well I think we need to let you address the big question, which is your primary competitor was down 33%.
And from this morning's open you guys are down round numbers, 24%, So where I was trying to ask is down 5%. So I think the question I'd like to hear you address it.
Essentially wall Street in Spain.
Ssds are doomed, but somehow they are in a worst strategic positions in dst's. Please respond as to why that's wrong why wall Street's wrong.
Well.
We certainly don't read it that way Laura on.
And I think some of it has to do with the particular performances of each company and not necessarily the <unk>.
Category.
Hi.
Our difference is markedly.
Our performance is markedly different than the competitor that you cited we actually grew in the D V plus business and is in a world of suppress cpm's.
And as we noted our AD spend is significantly increased not decreased significantly increased CTV AD spend on the platform. So I think we're extremely well poised.
For this to play itself out I think in the case of trade desk, they've done a magnificent job of consolidated spend on their platform to the point, where the DSP world, It's almost become a duopoly and.
We have great confidence that over time, you're going to see that play out on the SSP side, and we'll be the beneficiary of that shakeout.
Okay. My second one is following up on upfront today Netflix.
Aqua is not flat and I think that's pretty much that there might be one more one of the things. We've heard is that they had that contracts that share gain a lot more flexibility to get out of their commitment, which was a big competitive advantage of scatter and with an open internet like where you guys can see.
So as the upfront market didn't have as much power to negotiate draconian terms by the linear guys does that mean that the competitive advantages in scatter of the digital ecosystem, where you compete or actually less valuable what's your point of view on that.
Yeah, that's a great question and I would say, maybe a year year and a half ago that might've been a cogent observation because essentially programmatic was kind of thrown to the kid is stable and in all they got with scatter, but if you look at our the Upfronts this year.
Hi.
I believe I read this morning that Disney and their upfront that they just recently closed claiming that their percentage of programmatic is above 40%. So programmatic is now part of the upfront.
And.
To the tune of maybe one out of every $2 and so therefore I think that.
That distinction about scatter upfront.
Screaming losers screaming winter is a lot less defined now that programmatic is a part and parcel of the upfront.
Interesting. Thank you very much.
Thank you.
The next question comes from Nick <unk> from Stephens. Please go ahead.
Yeah, Hey, guys I was wondering if you could talk about.
Any contribution.
In the quarter from the nuclear line product.
Directing spend right from the agencies.
<unk> reception than there and how.
How might clear line contribution be impacting your guidance for the rest of the year with N CTV.
Yeah, Hey, Nick I'll handle that.
Let David chime in if he.
It feels as though a botched it but.
I was wondering on any contribution de Minimis and we don't it's already baked into any kind of a.
Guidance that David has provided.
The reception has been incredibly strong as noted by the list of folks that have.
Jumped on the clear line Bandwagon, if you will on it.
Seemingly.
Is the right product at the right time for us.
The customers that we're offering it to this.
Theres a lot of excitement around it and we feel over the mid to longer term it will definitely be a material contributor to our revenue.
Within like the next like year or two though do you think that this influx of CTV growth rates or is it still just too small.
No I think I look at if you look at some of the folks that have been using the product for the longest period of time, because it had been in beta before.
We saw definitely a crawl walk run.
I wouldn't say, it's two different from deals that we announced like a group and marketplace, where it takes a while for the client to onboard their clients and get them acclimated to the idea and the concept. So I think it plays itself out over the coming quarters, but I think there'd be some sense of disappointment on our end.
And.
24 ended and we Werent able to cite a clear line contribution to the growth rates of CTV.
Got it and then last one I just wanted to see if you could flesh out the recent partnership with Freewheel. Obviously, there are an SSP competitor of yours. It sounds like in a way youre, combining <unk> capabilities, but just I'm.
Looking for just more detail on what exactly you guys are doing together and what the economics are for magnet. Thanks.
Yeah sure so in some ways it's.
Unchanged rate the broadcasters that are all free world clients have always liked working with us and our programmatic capabilities. Whether that's you know are serving functionality are targeting functionality, our demand facilitation functionality and to be honest it wasn't.
Is the easiest lift for these broadcasters to do it because they have a separate AD server over here, they're using programmatic over here, which is magnay. The two systems are talking to each other.
Makes extra work for the the ops people at these broadcasters.
A combination of US you know.
Talk to me a free well the broadcasters talking to free will.
This announcement was a technical integration that makes it quite seamless to us.
Magnate for programmatic capabilities.
And use are in use.
Good.
The freewheel server first AD serving capabilities have them talk to each other in real time. So that you are making the most efficient use of your programmatic and direct sold inventory.
So we think this is a <unk>.
Breakthrough partnership and we are.
Really respect the freewheel folks and I think that meets the needs of our programmatic partners in the broadcast space.
Great much appreciated thank you.
The next question comes from Dan <unk> from the Benchmark Company. Please go ahead.
Great. Thanks, Good afternoon, Michael maybe I can rephrase that.
Conversation a little bit today.
Some risk here I'm not sure how investors will go about this but just in terms of you guys have always preached variable take rate and it seems like.
The point here is you have things in place to ink.
Increased value add, especially with the mentioned broadcasters as you develop some of the new things, but the correct me if I'm wrong, even if.
Oversimplify this even if you don't fight for them at a low single digit take rate rather than managed services.
Because of all the AD server that can be a massively high margin accretive businesses scale. So.
Just kind of hold and what I just added it or just kind of help me.
About that wrong.
No Dan I think you nailed it I mean, it's it's.
It's not our highest margin profile product that we have in our suite of CTV offerings, but if that's how the world ended and $60 billion of linear dollars shifted to CTV. Most of it goes to Magna and most of it is public sold programmatic by the broadcasters lives.
Good like it's good I mean, we just we think that the imbalance that we're feeling right now is that.
The broadcasters and the plus services and some of the TV Oems had a decidedly different strategy a year ago in terms of how they were going to embrace programmatic or how they were going to use it and generally speaking it was like not.
Really a lot.
Yeah.
What's changed is the market softened buyers wanted by this way they don't want to buy direct anymore and so all of this inventory wishes in and all of a sudden it's bright and shiny Disney inventory guess, what there's a what's your spend that goes over toward towards it and then you spend that kind of thing goes towards it. So we're just going through this imbalance right now.
I think you hit the nail on the head Dan that if if it never does anything and we can never up sell in the market resumes at a 25% growth rate.
Is good but we think we're really truly at kind of the nadir of take rates because of this.
The phenomenon.
Non that's occurred in this period of time, and we think over time there'll be expansion.
Got it Thats helpful.
And a follow up on part of that question I mean, now that you've got the integration.
Leo side behind you you've talked about some new products that you are planning on launching any sort of we've seen this before with you guys and have the chance to redeploy assets, obviously, what that meant for DB plus over the past year or so so just help us think through if you really believe that.
Trough take rate for you guys.
Feels like a good time to invest incrementally and redeploying those assets that you know just help us think about your willingness to kind of maybe either give us the margin or aggressive invest a little bit more aggressively when a turn you guys are kind of pointed to gasoline.
Yes, Dan I think you.
He killed it there I think that you're exactly right.
This is very now this divi plus.
And the D V plus business, we had <unk> inventory running on the legacy <unk> platform. The legacy <unk> platform and the legacy Roomba kind of platform. We brought it altogether that freed up bandwidth from people have and operate three platforms to one it freed up creativity. It freed up our innovation and we think we're going through that.
Phase right now that we've sunset.
One of our platforms and it's all on streaming on T. T V. So I don't even think they use cases now it's time to double down and bring on 100 people because we just read up 100 people. These poor people were working night and day consolidating platforms and now they're 100% bandwidth is focus on innovating on stream.
And so I think we're just incredibly well positioned if they use case presented itself, where we could collapsed time by bringing them more resources or investing more.
Long term our revenue growth of CTV, obviously, we look at that every day, but I really think the story here is with our existing assets. We just gain like 50, ftes because those poor people we're doing two jobs.
Got it thanks for all the colon rectal really appreciate it.
Thanks, Dan.
The next question comes from Matthew Thornton from True Securities. Please go ahead.
Hey, good afternoon, guys. Two if I could can you walk us through what you're assuming for the back half of the year.
Mhm services across Anthony as well.
Verticals.
Yes, just some more color on what you're thinking.
Thanks.
Excellent.
When you're talking about.
<unk>.
Our T V.
The program, but we're back in the short term workloads. So in the short term are you also seeing it.
Shifts for maybe smaller tail players to blue chip a handful of blue chip.
Publishers as well, so I wonder if that exacerbate as well any thoughts or color there would be helpful. Thank you.
Yes, sure Matt you were a little garbled, but I think I got it.
So back half of the year.
I think that some of the disruption in managed service are truly are kind of pauses in campaigns that should reignite in Q4, particularly in like verticals of orders what we're hearing from regional auto dealers is theres still troubled by lack of supply it's not as bad as it was.
The height of the.
The pandemic, but they're still they're still not where they need to be and whether that's.
Battery shortages or chip shortages I think that.
On the what they don't have what they want to sell but they feel more emboldened by model launches coming later median entertainment might be a little bit slower to rebound a lot of it has to do with new.
New production.
I think youre seeing tune in for libraries, I I see it myself people are now advertising existing shows that are deep in the library to get people to watch them, but I don't think we see that whoosh of new media and entertainment spend if theres not new production and so that's kind of a question Mark.
As to any other verticals, David do you have any.
Opinion or insight into anything that we might see in the second half of the year from a trend line no I think you've covered the big ones, Okay and then.
Yes, definitely man I think we talked about it in the script and that is so it's impossible for our spend to significantly grow in the CTV platform.
If there hasn't been some cannibalization rate. So in other words, if spending is growing disproportionate to net revenue.
Can't all be new spend.
So some of it has to be a spend.
Spend that was hitting publishers that had higher take rates that were more open auction oriented publishers that have now gone to more premium.
Pumps sold programmatic deals. So that's kind of the shift that's occurred and then what we're seeing is the new dollars coming in disproportionately favor that cohort of publishers are again, we think that if you get spend rising and back to 2025% as some of the.
Analysts are.
Predicting any in a normal market that I think every mouth will be fed and everything will be great and we will also have worked our journey with.
Bringing in higher value services to the plus service broadcast TV Oems.
Yeah.
The next question comes from Dan <unk> from B Riley Securities. Please go ahead.
Hey, guys. Thanks for taking the questions.
Just any potential friction in the third quarter guide from my math going down in that.
That spend getting reallocated between DSP ask because my understanding is there not much of a player in buying CTV. So I assume if anything it would be more on the cost side, but is that a challenge for you in the third quarter right now.
No Dan.
Most of that spend was D V plus as you pointed out and from.
From our tracking of it it's found its found a home.
Some rare exceptions because of private deals take a while to be activated but by and large it spend has worked its way back into the ecosystem, but fall on the D V Flash platform.
Other than that other than the cash it was kind of sadly nothing Burger.
Understood.
Maybe just talk about what's giving you the confidence here to get sort of a soft guide for the fourth quarter.
<unk> revenue and we haven't seen people sort of willing to opine.
Beyond the current quarter is that.
I think you said close to flat year over year for the fourth quarter for CTV, just different conversations with advertisers publishers just actual visibility at all.
Is it that's informing that.
For Q commentary.
Yeah, I'd say first of all it is.
Cautious approach.
But we have spent a lot of time with our sales team.
Getting feedback from the managed service team Michael mentioned that some of those campaigns appear.
Appeared to be a pause rather than completely taken off the table.
We think that it's sort of a.
As our sales team described earlier, an air pocket you know for a few months here and so we we.
We are comfortable with some recovery.
On the managed service front and then.
The rest of the business as Michael mentioned a friend.
From an AD spend share perspective, the business is actually very healthy and so we do have continued growth on that front and so even at.
These reduced take rates, it's still as we move forward we believe.
<unk>, some momentum and lift for us to to at least return to those levels.
Yes.
Okay. Thanks, guys.
Thanks.
The next question comes from Tim Nolan from Macquarie. Please go ahead.
Hi, Thanks, very much obviously CTV is the topic of the day. So I've got another related question to the switches there's been more discussion recently over issues of transparency and measurement and things and in CTV and I Wonder if that may be factoring in in any way to the network groups maybe opting.
To go into direct sold means instead of using more programmatic tools I just wonder if theres any.
The correlation of that at all and if so what you can do to help improve that and then one point of clarification. I think we're talking mostly are exclusively U S. CTV you did mentioned international is growing double the rate. So I'm. Just wondering if there is any of this sort of dynamic that's going on now in the U S. If that's also happening outside the U S.
Yeah, great questions I.
Listen I think that when.
Dollars are scarce.
Marketers turned to <unk>.
Stick with the people they know the safe the safe bet.
And probably experiment a lot less.
So I think that that is less to do with perhaps fraud or lack of visibility than it does to do with just kind of.
Looking for a safe harbor in Iraqi.
Ocean.
You know one of the things about our platform is because we deal publisher direct we've never had those issues at all we don't deal with Aggregators in the CTV World. So we know every publisher we have a direct relationship with them so visibility on our platform fraud on our platform.
Credit has never really existed visibility you know at 100% level. So I.
I don't think from a micro standpoint from a magnitude standpoint that has played a role maybe more of a macro but for now for magnet and.
International.
Is predominantly divi, plus so not surprising that if they over index on the divi plus and our growth rate is what it was that they will outperform their peers and in those markets.
We have a very strong footprint in the Australia marketplace.
As it relates to CTV.
But it's mostly through broadcasters and so some of the phenomenon that you're seeing here is the same in that marketplace of the top tier broadcasters they like to sell a pub sold direct and so.
So I think that it's not a unique north America phenomenon that we're seeing.
Occur right now.
Okay, great. Thanks very much.
Okay.
The next question comes from sort of cut urea from Evercore ISI. Please go ahead.
Hi is your line on mute.
Pardon me, we can't we can't hear you.
It looks like his line is not coming through.
This concludes our question and answer session I would like to turn the conference back over to Michael Barrett CEO for any closing remarks.
Thank you Jason.
I'd like to thank the magnate team for their diligent effort required to reported another strong quarter. We are thrilled to have completed our CTV platform integration I would particularly like to thank the many internal teams responsible for completing the migration to the new CTV platform, which required significant additional work and attend.
<unk> to deliver a smooth transition for our partners. So thank you so much.
We look forward to speaking with many of you at our upcoming Investor events RBC will host our post Q2 virtual meetings tomorrow, Nick will be participating in a virtual I R. O conference with Cannibal on August 14th and mid Atlantic Marketing was Craig Hallum on August 22nd.
We will be marketing in New York on September 6th and attending the Benchmark Conference in New York on the 17th we will participate in the truest virtual summit on September 12.
Nick will be marketing in San Francisco with Truth September 'twenty, one will also be in London for marketing on September 26.
Thank you for joining and have a great evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.
Yeah.
Yeah.