Q3 2023 Magnite Inc Earnings Call
Good afternoon, and welcome to the magnetite.
I'm sorry Mcknight.
Third quarter 2023 earnings conference call.
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I would now like to turn the conference over to Nick Karma luck of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to <unk> third quarter 2023 earnings Conference call. As a reminder, this call is being recorded joining me on the call today are Michael Barrett CEO, David day, our CFO I would like to point out that we have posted financial highlights slides on our Investor Relations website to accompany today's presentation before we get started I will 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.
Current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks uncertainties and other factors that may cause our actual results performance or achievements to be materially different from expectations or results projected or implied by forward looking statements.
These and other risks uncertainties and assumptions is set forth in the company's periodic reports filed with the SEC, including our third quarter 2023 report on Form 10-Q, and our 2022 annual report on Form 10-K, we undertake no obligation to update forward looking statements or relevant risks.
Our commentary today will include non-GAAP financial measures, including contribution ex Tac were 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 our financial highlights deck that is posted on our Investor Relations website.
At times in response to your questions. We 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.
Access to our press release financial highlights deck periodic SEC reports and the webcast replay of today's call to learn more about masonite I will now turn the call over to Michael. Please go ahead Michael.
Thank you Nick.
Happy to report results for Q3 that exceeded our topline guidance for total CTV and be replenished contribution ex Tac.
While delivering strong profitability and free cash flow.
Our <unk> business performed very well delivering contribution ex Tac growth of 12%, despite a depressed CPM market.
Moreover, in CTV, we continue to grow our market share with AD spend growing over 20% year over year exceeding industry growth estimates.
We were pleased with our execution in the quarter as we continued to solidify our position as the leading independent player in CTV.
And as product mix shifts stabilize and macro AD spend returns to normal we believe our CTV contribution ex Tac growth will overtime approach our AD spend growth.
In this respect it is important to remember that we are still in the early days of programmatic CTV.
Marquee publishers are just now ramping <unk> and their inventory is limited.
And in high demand by advertisers.
With this dynamic hubs generally refer to sell programmatic deals through their direct sales teams.
Good news is they are using our technology to execute those transactions.
However.
As we've explained previously.
The programmatic direct business carries a lower take rate versus when we sell the inventory and layer on more services.
We believe that as programmatic CTV scales buyers will want to purchase the majority of their see TV programmatically.
Using advanced data targeting within Biddable environments, a process that can be executed using a direct sales team.
This evolution will attract a significantly broader advertiser base.
Increased AD spend are more competitive CPM environment, and better R O I and Cogs for both buyers and sellers.
We had some noteworthy customer wins this quarter announcing that we'd be powering the Disney plus biddable marketplace.
Magnates streaming as well as an expansion in our partnership with Paramount advertising.
Buyers now have access to all of Paramount combined streaming offerings, including their IQ program through magnate.
Yeah.
We're also encouraged by the fact that a lot of the growth in our CTV business is being enabled to advanced integrations with our AD server spring serves as.
As you know AD serving puts us one step closer to the publisher and creates a stickier relationship.
With spring serve our platform is more deeply embedded within the client workflow and becomes a central technology and their overall monetization strategy.
Okay.
The stickiness of the software and development, we provide in CTV is far different than a typical FSP model.
We're clearly growing share as shown by our AD spend growth above 20%.
And this is the result of working with nearly every scale media owner outside of the walled gardens.
These clients have continually expanded their relationship with us both vertically and horizontally.
I'll offer two examples.
One is the market, leading streamer and media company that started using us.
And a small part of their U S business for workflow indirectly sold campaigns.
Now that partner has expanded our services to additional streaming platforms to other countries and now uses us to access biddable programmatic demand through the magnate Thats S T.
Another example is a market leading TV OEM that started with us and AD survey.
They now use us as their S. S P and demand engine as well as a source of incremental revenue to our new CTV tiles products.
The same partner also leverages our audience capabilities.
Sell in package, it's first party data on both its direct properties and through audience extension.
These examples are common across our top partners and we have continually shown Dennis.
As our partners grow their CTV businesses, so do the ways in which they utilize our services.
Despite a soft start to Q4, largely driven by macro conditions. We believe we are uniquely positioned to capitalize on the inevitable market turnaround.
I'll briefly touch on just a few of the things that makes me the most excited for 2024.
Accelerated supply path optimization with our agency partners, particularly in our curated and often exclusive marketplaces.
Consolidated spend on our platform.
<unk> to more publisher supply and enhance margins.
Yeah.
Clear line.
Our recently launched buy side tool.
Loss to a strong start and with additional features and functionality planned for the coming quarters. We expect continued momentum in adoption.
If you recall clear line is built to capture linear TV dollars that aren't currently in the CTV ecosystem, a tam of enormous proportion.
And planned innovation across our audience tools spring serve AD server magnates streaming and D V class platforms.
With our CTV platform integration behind US, we can now focus exclusively on new innovative products supporting our unrivaled omnichannel offering.
And new and existing customer expansion, although magnate works with every publisher across the D V plus and CTV landscape.
We have tremendous opportunities to grow our existing business and capture new entrants in fast growing and dynamic markets like CTV.
In summary, there is a lot to be excited about our business our people our customers and our partners.
Never felt better about our strategic position and ability to grow long term.
We have made the right investments and it's time to put our heads down work hard and deliver.
We're in a great position to capture an outsized portion of market growth when it in flex by executing and being the best at what we do.
With that I'll turn the call over to David for more details on the financials David.
Thanks, Michael.
Total revenue for Q3 was $150 million up 3% from Q3 of 2022 contribution ex Tac was $133 million up 4%.
See TV contribution ex Tac was $52 million down 6% from $56 million last year T.
D V plus contribution ex Tac was $81 million, an increase from $72 million or 12% compared to last year. Both of these exceeded the high end of our guidance ranges.
Our contribution ex Tac mix for Q3 was 39% C T V, 41% mobile and 20% desktop.
Geographically our international results outpaced our U S results.
Led.
By our D V plus business with new publisher wins and overall volume growth.
From a vertical perspective travel was our strongest performing category well weaker performing categories included retail financial services and media and entertainment related to the actors and writers strikes.
CTV contribution ex Tac was negatively impacted by expected softness in managed service and by the mix shift.
As a reminder, tough political comps from last year negatively impacted Q3, CTV contribution ex Tac results by roughly 3%.
PV plants continued to be an area of strength with 12% growth in the quarter we.
We continue to innovate in and are excited with the launch of native AD formats across D V plus allowing programmatic demand to target key publishers that offer native formats.
We expect to 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 third quarter were $168 million similar to the $167 million in the same period last year.
Operating expenses for the third quarter. This year includes the final 8 million of noncash accelerated amortization, resulting from our platform consolidation.
Adjusted EBITDA operating expense was $93 million at the midpoint of our guidance range adjusted EBITDA operating expense for the third quarter of last year was $83 million.
The year over year increase resulted from higher datacenter and bandwidth costs as well as higher payroll related expenses.
Net loss was $17 million for the quarter compared to a net loss for the third quarter of 2022 of 24 million.
Adjusted EBITDA was $40 million and adjusted EBITDA margin was 30% for the quarter.
Please note, we calculate adjusted EBITDA margin as a percentage of contribution ex Tac.
GAAP loss for basic and diluted share was 13 cents for the third quarter of 2023 compared to a loss of 18 cents for the third quarter of 2022 non.
non-GAAP earnings per share in the third quarter of 2023 was 12.
Compared to 18th sense reported last year.
The reconciliations to non-GAAP income and non-GAAP earnings per share are included with our Q3 results press release.
There were 137 million weighted average basic and diluted shares outstanding for the third quarter of 2023.
Only diluted weighted average shares utilized for non-GAAP earnings per share were 146 million for the third quarter.
Capital expenditures, including both purchases of property and equipment and capitalized internal use software development costs were $8 million for the quarter.
Operating cash flow, which we define as adjusted EBITDA less capex was $32 million for the quarter.
Our net interest expense for the quarter was $8 million.
During the third quarter, we purchased and retired $34 million in face value of our convertible notes using $30 million in cash, resulting in a discount of 14%.
Our total par value convertible notes repurchased through the third quarter was approximately $125 million, reducing our total convertible note debt balance from 400 million to $275 million.
We have $70 million remaining under our current program for either the repurchase of common shares or convertible debt.
Our cash balance at the end of Q3 was $311 million, an increase from $266 million at the end of last quarter.
We're very pleased that we reached our initial net leverage target.
Target of less than two acts with one eight acts at the end of Q3.
We expect to generate significantly increased seasonal free cash flow in Q4.
We will continue to evaluate the best use of our cash as it relates to debt reduction and share repurchases.
I'll now share our expectations for the fourth quarter and some high level thoughts for 2024.
For the fourth quarter, we expect contribution ex Tac to be in the range of $158 million to $162 million.
We expect contribution ex Tac attributable to see T V to be in the range of $61 million to $63 million.
As a reminder, political comps create a roughly 6% headwind in Q4 of 2023.
We expect contribution ex Tac attributable to D V plus to be in the range of $97 million to $99 million.
We expect adjusted EBITDA operating expenses to be between 94, and $96 million, which implies adjusted EBITDA margin of approximately 41% for Q4 at the midpoint.
Looking ahead to 2024, we expect strong continued AD spend growth, particularly in C. T V.
Total contribution ex Tac to grow in the high digits high single digits with C. T V to grow faster than D V plus.
Adjusted EBITDA margin expansion of 50 to 100 basis points at this level of revenue growth.
Double digit percentage growth of adjusted EBITDA with even higher growth in free cash flow.
And total capex to be in the mid $40 million range, including property plant and equipment and capitalized software.
It's worth noting that our guidance reflects some uncertainty in the macro environment in particular, the potential impact from the mid east conflict.
Overall, the company's performance for the third quarter was better than our expectations.
I'm, especially pleased that even with the soft macro and with a negative impact of the current C. T V revenue mix shifts that we've that we've been experiencing.
We've been able to continue to generate such strong cash flows.
As a result of those cash flows this past year.
Able to retire over 30% of our outstanding converts well before their maturity.
And achieved our initial net leverage ratio target of less than <unk>.
I'm confident that our greater than market share AD spend growth in C. T V will continue.
Also confident that we will continue to expand our CTV partner relationships, leading to see T V revenue growth and closing the gap with our AD spend growth.
We continue to have significant opportunities ahead of us and we are uniquely positioned to leverage our capabilities as a leading independent Omnichannel S. S. P.
With that let's open the line for Q&A.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Jason Crier.
With Craig Hallum.
Okay.
Please go ahead oops.
Can you just step back and maybe just talk about what you see is the evolution of the connected TV transaction model for the industry and just kind of curious on what you think you know how that migrates from the programmatic execution that seems to.
The dominating more of that spend today and how that may be evolves into a more biddable environment down the road.
Yes, sure Jason Great question.
Yeah, Here's here's how we look at the market.
We're very very early stages I mean, if you looked at our leading CTV.
Revenue publishers on the magnate platform two years ago.
None of them would be the top guys that we're talking about today, the plus services the broadcasters et cetera on they were highly specialized CTV first players.
And it's not surprising that the types of advertisers that the bigger services are talking to right now are there legacy linear advertisers.
And it's not surprising that they've sold to them direct their whole existence in that they will want to continue that message and working with those advertisers.
I think where we're starting to see and you can see it with services that had been around for some time you know take a look at a hulu.
You're starting to see this openness to biddable.
Just largely because the buyers are wanting that to occur.
And they wanted to use more data targeting.
They want to use more audience definition that may be coming from the buy side not just the sell side. So I think that you have that occurring with that cohort of advertisers that desire to do more automated to do more data targeting to do advanced biddable environments.
In addition, we really do believe that if all of this is just about converting a couple of hundred broadcast advertisers over to see T. V. We really Miss the Big picture and then a big picture is 10000, new advertisers coming in right advertisers that right now predominantly advertise.
And social video environments, and Theyre going to with the increasing targeting in the hyper targeting an advanced functionality and features that you're going to find with the chaparral ads are coming out that youre going to find that they're going to find this to be a very performing environments and they're always going to.
It would be in our Biddable environment and these are the types of advertisers that are direct sales team from that.
Large broadcaster there aren't going to hire people to go call on them. So that's where we feel is programmatic comes into play beautifully.
And lastly.
All of US all sports will be streamed it theyre already most of the contracts are in sports is ideal for a programmatic environment time adds over times et cetera.
[noise] dramatic is ideally suited to fill those kinds of AD gaps. There. So we really think that youre going to see a maturation in the CTV environment in the not too distant future, where it's much more of the programmatic that we're accustomed to in the TV plus side of the business with one exception theyre not going to be used.
<unk> 'twenty S S p's.
It's going to be a winner take most and we think we're perfectly positioned for that position.
Thanks, Michael I wanted to just follow up on managed service. If you can give any color on how that progressed through Q3, if there's any indications on how that's going in Q4, and then maybe along with that just a I think some of that's been perhaps has been impacted by some of the strikes that are.
Going on and so I'm curious if that will continue to pressure spending in that category or if there's any signs that that could be alleviated.
Yeah, I'll, let David give.
Some more color, but I would say Jason in general no surprises there it's behaving as we thought it would.
Managed services.
And previous to macro headwinds and I would say that we're not the only company, citing a Q4, that's a bit weaker than we had anticipated going into Q4, perhaps hoped for.
And so I I managed services not an outlier there I don't know David if you have any more details to share.
Yeah. That's right. It's you know, it's it's stabilized and you know I think what's important is we've you know we've tried to take a very cautious approach in our guidance for Q4.
Yeah.
Thank you gentlemen.
Thanks, Jason.
The next question is from Shyam Patil with Susquehanna. Please go ahead.
Hey, guys I had a couple of questions.
You guys talked about.
Uh huh.
Single digit growth next year with the T V going faster than D D plus.
Lying I think low double digit growth for T T V.
Can you maybe just talk a little bit about just you know what would be the upside doctor or P. T D.
That scenario and then how you see the the Hollywood strikes.
<unk> P. T V next year as well and then just a follow up Michael in your prepared remarks, you talked about.
When you plot, the new tech platform and that enabling new products. Our new offerings can you just talk a little bit about the specifics there and any kind of timing on when those might be launched and potentially start contributing to revenue.
Yeah sure I'll take the latter first and know what David talked about in the upside factors.
Related to <unk>.
Yeah, No I think we'll be able to throughout 2024 rollout some of the innovation that's occurring I mean, I think a general theme is youre going to see a tighter stitching them.
The spring serve AD server with the programmatic platform that magnate streaming is.
Multiple clients that use both of them and <unk>.
Making it more of a harmonious.
Our experience for the client and user I think is a big goal and Thats just not a static will lead to better monetization for publishers.
But that's more of a 'twenty 'twenty four.
Discussion and it will certainly be keeping everyone.
Rest of the developments on a quarterly basis and David perhaps you want to talk about CTV for next year.
Yes sure.
Yeah, I think it would be helpful is to talk about that it would be just set a little background on our perspective for a 2024 from a little higher level.
We're giving this guidance for 2024.
Certainly don't have the same degree of confidence or visibility.
In 2024, as we do in Q4, just because of the time lag.
But we thought it would be super helpful to share some of our thinking around you know what our financial profile would look like what our margin would look like and so forth and so with that in mind, our our 2020 for revenue guidance certainly reflects caution around the macro.
<unk> and our managed service business you know our modest expectations are from the presidential year, and so if I think about upside for from a C. T V perspective, certainly I think if the macro turns around you know that certainly.
Pushes Ah.
More dollars into some of our longer tail higher take.
Hey, great channels in C T V.
There could be upside from the presidential election as well. So you know overall, we've just tried to take a very cautious approach.
With a focus on you know are giving some visibility around our cost structure.
Great. Thank you guys.
The next question is from Dan tumors with the benchmark company. Please go ahead.
Thanks, Good afternoon.
Michael I mean, you talked about kind of the tighter stitching a spring serve with that with the E. S. S. P and you spend a bunch of time talking about your sort of a winner take most of you know I know that we saw that sort of screens press release with Yahoo, DSP full integration with the S. S P.
And the AD server in addition to trade desk through their open past solution and so I know if we will it's been kind of pursuing that it feels like a.
I'm going to call it a golden handcuffs in a way, but it feels like an opportunity to gain share through kind of direct integrations is that sort of what you're talking about and can you kind of maybe give a little bit more color on the thought process or economics behind those deals.
Yeah Dan.
Yeah, we thought it was a great development.
Obviously, it's not a huge rebel a tory.
Trend some.
Some of the type DSP is wanting to go direct to publishers.
In D V plus.
With you know an open past product like the trade desk has theres a pre bid adapter that makes it possible to be able to plug into multiple publishers in the CTV world there really isn't that equivalents.
And so we saw an opportunity because of the spring serve its connections with every major publisher out there in the CTV world to us to enable those connections through spring serve.
We retain kind of the economics of that connection while some of the largest dsp's are able to have a direct pipe and pitch their clients and the efficacy of their direct pipe.
It should be noted that we have seen only increased spend with someone like the trade desk.
Post open past.
Through their normal channels through through the pre bid our header bidder.
So we think that this is all accretive for our publishers are publishers wanted access to these different dollars because it's been explained to us and into marketers that these are kind of different budgets that if the publisher doesn't connect with.
The DSP in this fashion, there theyre going to be at that revenue and so we were delighted to be able to help our publishers capture this revenue for them at the same time we.
Kind of retain our.
Economics, and Yeah, I think Dan it's part of the winner take most.
You know you're not going to see a header bidding world, where they need 10 S. S p's.
To be able to run a unified auction.
Even when things become biddable for the vast majority of the publishers is gonna be an invite only auction run by one.
Or when it <unk> and we think we're in a terrific position.
To to work with their clients as that progresses.
Got it that's helpful and I know international is kind of.
You know tricky ground right now given both the macro and the conflict out there, but I mean, there's some data out there that suggest you guys took some 10 points of share sequentially in EMEA are and you know I'm I'm, just kind of curious how youre thinking about kind of planting the seeds and <unk>.
Continuing to grow kind of ex U S from here.
Yeah, and I'll, let David talk to.
Some of the specifics, but yeah. It was just over there last week and you know.
The team is on fire in London.
Some of it was.
Quite depressed.
Comps given.
You know where.
Several years now into the.
Ukraine War and some of that has worked its way through the system in terms of CPM pricing.
But it we definitely invested in that marketplace and we you know when you look at it to Lori.
Post.
Pre acquisition <unk>.
Merger with <unk>.
You know Rubicon now magnate and spot X. It was kind of a market that neither one we're playing in and so now you have this legacy Rubicon team being able to take these.
New shiny tools in their tool kit out to market and I think that largely explains why you're seeing an acceleration of success. There David I don't know if you have anything else to add.
I think you've covered it you know a couple of specific initiatives, we took over for a from a reseller in the Nordics. We've opened an office in Sweden, we're seeing some nice progress there.
We've opened up an office in India. So we're also making some.
Modest investments globally that we're that we're excited about it and she'd have greater payoffs in the future.
Yeah.
Alright, great. Thanks, very much guys I appreciate it.
Thanks, Dan.
The next question comes from Laura Martin with Needham. Please go ahead.
Hi, there good morning.
So my favorite.
Hi, My favorite chart.
Average, whereas in two years' time.
Leverage at one point.
I know you hit your goal early in.
Hi, My question is do you want to stop here are you going to keep the elaborate how are you going to zero leverage or are you going to do sort of like stay here and then use our capital to buy in shares can you tell me, how low that leverage what you're aiming for for the net leverage now that you're under the two acts.
Yeah, Laura I think yeah. It is great. We're super excited to achieve that initial goal I think in the current economic environment, one X might be the to the new two acts and so you know I think we do have you know aspirations I think I think to to lower that somewhat we don't.
That's what I have zero X you know, there's some you know benefit cost of capital benefit that you know, having some debt out there.
So I think I think we'll continue to lower that to some degree but it won't be we won't have the same urgency around it that we've had in the past.
Okay. That's super helpful and I have 10, more but I'm going to sort of take it and it is of course were really weak for my traditional media companies and so what I'm wondering is if a weak upfronts where people didn't commit to as much it didn't commit to as much in Europe is good for you.
Because that brings out more money in scatter.
It's not an option that's tied into the Amazon question. So Amazon as you know on January 1st can I start, adding sort of against your will unless a customer pays an extra $3 a month.
Is that good for you or is that Amazon sort of a walled garden. It does that take share away from you.
Those two things aren't related but I didn't want to ask your questions.
[laughter], yes, so on the first one I think in a normal market place the assumption that advertisers withholding from the Upfronts.
Committed dollars and having a dollars that they have at their leisure. They can go in to the spot market that probably would be a net benefit for streaming and for magnate I think that what you're seeing is the lousy upfront necessarily wasn't folks reserving.
<unk> dollars are spot it was folks not having dollars thinking that because of the macros.
So I think it was a lousy upfront across the board that said programmatic plays such a big role front and center with all the upfront presentations that I think that distinction between upfront being bad for streaming in spite being good is starting to very blur. So, let's just see how that plays out when the AD.
Spend a engine kicks back in from a macro standpoint.
Amazon ads here I think that they're going to in a market like this was the muted spend world.
Those dollars are going to be fiercely fought for and it's possible that those dollars come at the expense of the paramount or a or Disney or an NBC universal.
But I do think that generally speaking if you look at it in a slightly longer timeframe, having another a broad mass global service out there is nothing but good for for magnate.
The whole idea that you can't be successful in this environment without having an AD tier at scale is just music to our ears. So we think in the longer term, it's going to be fine and Amazon isn't exactly completely out of reach for us we're able to work with them when partners like Disney distribute.
Grabbing on an Amazon, we're able to take their share that they get from an AD sales standpoint, and help them monetize it so.
On the margins, we can work with Amazon.
Thank you very much very helpful. Thank you.
Thanks.
The next question comes from Nick Bangalore, Vang Blur with Stephens. Please go ahead.
Yeah, Hey, guys are going to see the upside for the quarter I'm. Just curious on you know last quarter as you pointed to three Q you called out managed service you called out the mix shift to premium services and you called out soft M&A spend as I guess pressure points and C. T V for three Q and I think it was in that order.
I'm curious on the guide for <unk> down 4% are these the same pressure points and is it again in that same order.
Yeah.
Yeah.
Yeah, I think yeah.
Yeah, I think it's I mean, we're making so let me I think it's an interesting dynamic in Q3 to Q4 and C. T V first to call out. The you know at the midpoint of our guide as he mentioned you know 4% down in Q4 versus the 6% down actual in Q3.
If you take out the political comps from 2020.
Two we had a 3% impact in Q3 and actually a 6% impact in Q4, and so if you factor those out the CTV growth goes from sort of an adjusted 3% down in Q3 to actually at 2% Uh Huh.
In Q4, and kind of an apples to apples you know taking out the comp basis and so the the the the the the comps mask I think a little bit of the actual.
Growth in acceleration that we're seeing in that CTV business and as far as drivers I think.
Yeah, I think I think I I think all of those drivers and about the same order are you know fairly fairly accurate.
Yeah.
Got it helpful. And then you know obviously Hulu goes to Disney and this was pretty much expected.
I'd imagine maybe just a relief in general so that it doesn't go to Comcast, but any any benefit that you could point to that you might see as is Hulu Hulu gets oh.
Fully brought in by Disney going forward. Thanks.
Yes, Nick I think.
Youre right, we anticipated who will just stay in the Disney family and I think that it's a it's more business as usual then that presenting a huge opportunity.
But again you know.
Having a service that large in the idea that there, possibly could extend the brand globally.
And this is just my conjecture I have no inside information isn't really sit Disney, but there's upside to the extension of the Hulu footprint and the bundling of it with other properties that could lead to more ad opportunities for us.
Hum.
Great. Thank you very much and good luck going forward.
The next question is from Sputter cut urea.
With Evercore ISI. Please go ahead.
Okay. Thank you let me try one for Michael please.
Like what do you think would drive the inflection is there an inflection point that you think could drive the gap between <unk> and.
Revenue, a narrower and what would that be what should we be looking out for that gives you confidence that it is outside of macro all else equal. This is what's going on.
To help narrow that gap. Thank you.
Yeah, I think that's what it is.
Macro definitely plays a role in it as we kind of had said, especially last quarter that this kind of product mix shifts.
I wouldn't be nearly as severe in a normal spend environment because.
Media plans will be more diversified there'd be a lot more.
CTV native first.
<unk> Oems on the bi.
And they use a different product than say a direct sold programmatic by one of the plus services. So so I think that macro helps for sure but I do think that it's it's it's it's a buyer intention.
No.
Environment win.
Spending is down every dollar I can bring with it so much more cloud from the agency standpoint, and dairy universally spoke task spoke to are our partners in the publisher side about a desire to do much more biddable much more.
Data targeting.
And much more.
Programmatic.
So you know I think that it's just you know again the buyers have a lot of cloud in a market where our dollars are.
Short supply to go around and I think that that's probably inflection point shredder. That's in the near are in not too distant future.
So sorry, let me follow up on that if that's the case why would you not be seeing that happening today.
Well keep in mind.
Our friends, who are just now being placed right.
And you have this paucity of content that because of the strikes. So I think in terms of again, it's another kind of macro.
Challenge, but a lot of those dollars are on pause right. Now. So there has been talked about to be executed programmatically, but there's not really any home to put them in to execute programmatically. So I think that that's part of the lag if that makes sense sure.
Okay. Thanks, Michael.
Right.
The next question is from Matt Swanson with RBC capital markets. Please go ahead.
Yeah. Thank you so much for taking my question.
Kind of touches on point going for quite a bit here, but I guess when you're thinking about the FY 'twenty four guidance framework around CTV growth could you just kind of help us think about what your assumptions are for take rates in 'twenty. Four is that assume no changes in assumed lower as assume higher.
I asked for kind of trying to think about too variable model with that and and the volume growth, which remains really strong.
Let me handle that David.
Yeah sure Yeah, no I think it assumes again.
Some of these the mix shifts that we're seeing.
We we can we continue to expect very robust growth in these premium channels and so I think overall take rates as an average you know will decline somewhat but the the rate of AD spend growth is.
Is significant we see great momentum there.
And as we see them until we move through the year.
And then particularly.
As we as we get our you know the presidential there that the 2022 comps behind us and into our 2020 for you'll see.
You know that that that will lead us to that kind of you know as was mentioned earlier, probably low to mid single low to mid.
Double digit growth in C. T V and other words of CTV growth as we guided to is a higher than a D V plus and our average is high single digits, you'll see something you know with a double digit growth in CTV.
Next year.
Yes.
Yeah. That's that's that's helpful and then the context, when you're giving on the adjusted EBITDA margin I noticed that you pointed out to say you know specifically at those revenue numbers.
You always seem to get a lot of leverage when we do deliver that upside to the top line keeps almost thinking a little bit about that like are there a bunch of other investments.
Investment opportunities that you'd like to go after if revenue growth ends up being better than expected or do you think we should expect to kind of see that dropped straight to leverage.
I think you'll see if if we have greater top line growth I think you'll see a sick.
More of that drop are you now to the bottom line.
There are a few investments on the margin that we would that we would make but we're.
We're making all the most important investments that we need and that is embedded in in in this model I think the other thing I'd like to call out is a and I think we briefly mentioned it last quarter, but we will have a one time event in Q1, we're bringing the whole company together.
You know that has a cost of you know 4 million plus and that that actually yeah Super important event for us and we see a lot of value in it that.
That will lower margins in Q1, but it also represents you know almost 100 basis points of margin as you look at our profile next year until we do that one time event and so the core business.
You know were still seeing you know a nice flow through even at.
The lower topline growth rates, then you know what we what we think will happen in the future.
Yeah.
Hmm.
Thank you.
The next question is from Dan day, with B Riley FBR.
Please go ahead.
Yeah, guys I appreciate you taking the questions Michael wanted to come back to the point you made earlier on live sports I agree it feels like we're at a tipping point, there, especially 2020 for potential direct to consumer ESPN.
This slide sports accelerator product out there just wondering how active the pipeline is for your business there.
And you know whether that's a whether that's a significant piece of the business at all today immaterial or how how much of a revenue driver and you think that can be in 2024.
Yeah.
You know in 2024, it's a tricky one right because all of the services you know arent.
Made available just yet we think it'll be a contributor theres no question Theres, a little bit of a disconnect right now between getting piping the programmatic dollars in it to that environment. If you think about the way the dsp's work generally speaking they pace campaigns over X period of time.
<unk> and they try to balance it right. So that you're not firing off you know there's a million dollar campaigning no one went to spend a million dollars in day one.
You want it's spread over the period of time sports isn't completely different right. It's a it's a huge spike on a Saturday afternoon, and it's gone and if you Miss that opportunity.
So there is tweaking the algorithms that have to work, but everyone's hard at work, making it work better I think from a consumer experience. If you watch sports streaming you understand what I'm, saying here you see one more you know.
Just Billboard that says when we returned to programming soon youre going to pull your hair out. So yeah. I think it's a huge opportunity I think it's one of those areas, where there is much more openness from a publisher standpoint from a premium publisher standpoint to engage with programmatic because it just made.
So much sense.
Yeah.
Thanks, and then just another one on the D V plus just the strength there 12% growth is that all mostly volume driven or what's happening with CPM for the TV side is it a plus or minus right now.
Yeah, Yeah. So yeah go ahead David.
You were good enough.
The same thing Yeah C. P M theres still depressed and so it's.
So it's it's on the on the volume side.
Okay, so volume better than better than the growth offset by weakness.
Yeah.
Okay. So you guys I appreciate it.
Lower volume at a lower price yet.
Okay. Thank you.
The next question is from Tim Nolan with Macquarie. Please go ahead.
Hi, Thanks for taking the question and I apologize in advance I joined the call little bit late so I hope. This question wasn't answered, but most of my others already have done.
Was curious about this news about the Disney campaign manager using its own AD server for automated insertion orders I'm. Just curious if you could remind us what role is your are you now or are you playing with Disney So Disney why you've got Disney plus you've got Hulu of course.
And you know ESPN plus can you just remind us what youre doing in terms of being the SSP poor Disney if Disney uses its own AD server if that somehow pushes you to decide if that is negative for you in any way and lastly on that point. It seems like the campaign manager using its own AD server is targeting local audience.
So I'm wondering if maybe that's not kind of your game anyway. So I know that's kind of a lot of points and I hope you could just clarify for me. Thanks.
Yeah Tim.
Good question.
The answer to the degree that I can in terms of working with Disney.
And you know some of the restrictions and talking about it but.
Simple fact is.
The AD server generally speaking.
Is that a touch for us even if it springs are right. If it published yourselves that campaign directly and it's delivered by the AD server.
You know unless it springs, or we don't kind of participate in those economics.
Now it will publish yourselves a deal directly.
But it's a programmatic deal.
That's when we interact and so if anything <unk> done programmatically within the Disney Empire magnate has a role in that but direct sold and I think what you're referring to is they were talking about it you know a self service tool that they have.
Have launched to try to get those local dollars rate. That's that's probably you know a step beyond our per view anyway like our our managed service business isn't necessarily a local local business that you need. So oftentimes you true for to kind of a tier two where you're talking.
About not just the car dealer, but you're talking about the car dealing with multiple locations in the region.
That's kind of more what we're focused upon.
And so it's not necessarily a cannibalistic of our advertising efforts in that area.
Okay.
That's something I was hoping you were going to say is that it's more of a local effort. So it's not really your thing. Okay can I ask one related question. This news and I'm sorry again, if this was already asked but she discussed this already in the prepared remarks, but this news several weeks ago about freewheel and you integrating more with freewheel I'm just curious if you could just give.
Give us a bit more color on any kind of advances you might be making with other publishers in terms of getting spring spring serve a bit more integrated into their businesses I know, you're not going to overtake freewheel, but kind of chipping away at the business in some ways you could provide a bit more color on that please.
Yeah. So you know timna as we talked about the ideas into rip and replace it it's the provide publications.
Publishers as an alternative to state of the art you know with state of the art programmatic tools with you know using an AD server that was born for streaming and a platform that was born for streaming.
And you know it had quite a bit of success in uptake so freewheel.
Our connection and freewheel.
Just helps that piece of it it used to be a little clue Gee if you.
You were a publisher you use freewheel is your AD server you wanted to use magnates via programmatic efforts there.
There was a bit of stitching together that fell on the publisher that created extra workload now, which you're dealing with is just kind of a seamless integration that allows for any publisher eases freewheel to choose to use mad ignite as their programmatic partner with.
Not having to lift a finger because it's already integrated show. So we have high hopes for that certainly from a buyer standpoint buyers that were creating these marketplaces on magnate streaming are excited about that because it gives them access to all.
All the publishers that may not be using a spring suraj server so.
Yeah, we think it's a.
It's a great deal for both companies, we've been talking with them for quite some time and happy we're able to go through the hoop.
Okay, great. Thanks, a lot.
Okay.
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 Debbie I would like to thank the magnate team for their diligent effort required to deliver another strong quarter I really like the business that we built and how well we're positioned most see TV and D requests.
We remain hard at work delivering solid financial results building more tech growing share and working vigorously with our partners to prepare for the growth that we all know lies ahead.
We look forward to speaking with many of you at our upcoming Investor events Macquarie, We'll host our post Q3 meetings tomorrow.
Busy conference schedule in November we will be attending the Stephens conference in Nashville on November 14th and 15th the RBC Conference in New York on the 15th of November The Craig Hallum Conference in New York on November 16th.
And then Macquarie International Conference in Sydney in November 29th 30th.
We will be hosting at Evercore bus tour meeting at our office in New York on November 29th Nick will be participating in the Wolf Research Conference in New York on December 7th and marketing in San Francisco on December 20th.
And a little further out we will be participating in the Needham Conference in New York on January 18th.
Thank you again for joining and have a great evening.
Yeah.
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