Magnite, Inc. (MGNI) Q3 2020 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Magnite Third Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nick Kormeluk of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Magnite’s third quarter 2020 earnings conference call. As a reminder, the comparisons you will see in the 10-Q as reported, include the combined financial results in the third quarter of 2020. But for 2019, the results do not include Telaria. During the course of this call, when we refer to results associated to year-over-year comparisons with the phrase as reported, we are referring to the basis as reported in our 10-Q. When we make comments referring to pro forma comparisons, we are using combined company metrics for the prior year period in 2019 as the basis for comparison in order to provide additional detailed insights to business performance that management also uses to evaluate our business performance. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, CEO; David Day, our CFO; and Tom Kershaw, our Chief Technology Officer, is also joining us for the Q&A session. I would like to point out that we have posted financial highlight slides to our Investor Relations website to accompany today’s presentation. Before we get started, I will remind you that our prepared remarks and answers to questions will include information that might be considered to be forward-looking statements, including, but not limited to, statements concerning our anticipated financial performance and strategic objectives, including the potential impact of COVID-19 on our business. These statements are not guarantees of future performance. They reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements, included with respect to the severity and duration of the COVID-19 pandemic. A discussion of these and other risks, uncertainties and assumptions are set forth in the company’s periodic reports filed with the SEC including our 2019 Annual Report on Form 10-K and subsequent filings and including our 10-Q for the third quarter of 2020. We undertake no obligation to update forward-looking statements or relevant risks. Our commentary today will include non-GAAP financial measures. 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. We define cash flow as adjusted EBITDA less capital expenditures, which excludes changes in working capital. 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 may be one-time in nature, and we may or may not provide an update on the future of these metrics. I encourage you to visit our Investor Relations website to access our press release, financial highlights deck, periodic SEC reports and webcast replay of today’s call to learn more about Magnite. I will now turn the call over to you, Michael. Please go ahead.

Thank you, Nick. Our revenue performance in the third quarter was strong across the Board and these trends are continuing into the fourth quarter. Demonstrating the value we provide is the leading independent sell side platform. Our strong top line outpaced category and industry performance and meaningfully exceeded trends that we share in our last earnings call. This led to rapid margin recovery, demonstrating the power we have in our financial model, in the discipline to deliver profitable earnings growth. I’ll get right to the overview of the Q3 2020 results. Q3 revenue was $61 million, which equates to a 62% as reported increase year-over-year, 12% pro forma increase year-over-year and the 44% sequential increase over Q2 reported revenue of $42.3 million. CTV Q3 revenue was $11.1 million representing an increase of 51% year-over-year on pro forma basis. Q3 adjusted EBITDA turn positive with a 23% margin at $13.7 million. Recovery we’re experiencing as broad base and is taking place across all formats in device sites led of course by CTV. I’d like to provide some color on recovery trends and sectors. Overall, revenue growth trends continue to show strength five-plus weeks into the fourth quarter and we expect them to continue. Key drivers in the third quarter included political spending and the return of live sports, we saw strong performing verticals, including technology in home and garden, and trend improvement in weaker sectors, such as shopping and automotive. It’s also notable that even in regions where COVID case counts have recently increased. We have not seen interruptions or pauses in spend. To start the fourth quarter, we’ve seen some more normalized seasonal patterns returning. This comes from retailers pushed to drive holiday shopping earlier than in pre – prior years, Prime Day in October continued strength from sports in new streaming TV content. We are seeing continued strong post-election year-over-year growth in CTV, even without the benefits of political spending. I’d like to provide an update on the Rubicon Project and Telaria merger integration, and our go-to-market efforts, a couple of key points. Our employees have done a remarkable job of coming together, allowing us to go-to-market and execute for customers on the buyer side and publisher side, driving market share gains with new and existing customers. We exceeded our original merger cost synergy targets ahead of schedule and have positioned the business well to deliver strong financial leverage with revenue growth. We’ve also made progress in non-CTV video revenue, which returned to growth at 3% year-over-year pro forma growth for Q3. This is an area of focus we identified when we announced the merger. CTV continues to lead our growth in the drivers are powerful. We believe the events of this past year has significantly accelerated the adoption of the ads quarter programmatic CTV. These drivers are further acceleration of cord cutting, causing a faster disruption to the linear TV advertising world. There’s over 63 million or 38% of U.S. years in aggregate now unreachable by pay TV according to eMarketer, and projected 35% U.S. CTV ad spend growth in 2020. Additional drivers include expansion of live sports access and ad supported CTV broader consumer acceptance of ad supported free or lower class content as the economy consumer spending has been impacted. Dramatic acceleration of content on ad supported platforms by publishers acquiring or launching their own platforms. CTV publishers looking for better efficiencies and improve monetization. And lastly, marketers wanting more control and flexibility of their spend as evidenced by Procter & Gamble’s public statements. CTV political spend was a positive contributor Q3 growth as expected. This election season so just how powerful ineffective CTV advertising can be. Based on these findings, we published a case study in August that shows marketers across various sectors, how they can use CTV in their future campaigns. As we’ve indicated previously, our most notable partners include the likes of Disney, Hulu, Sling, Pluto, DISH, Tubi and Kraków device manufacturers, such as Samsung, Sony, LG, and Vizio and broadcasting cable partners like Discovery, Fox and NBC. On the publisher side, we help content providers monetize their inventory that runs through Roku, Firestick, Apple TV, Chromecast, PlayStation and Xbox devices to name a few leaders. Overall, we believe these trends are driving marketers to accelerate the move of linear TV ad dollars to CTV advertising. This move has begun in the back half of 2020 as upfronts have been greatly reduced in marketers begin planning for 2021. These trends are further supported by comments made by the Trade Desk and Roku on their earnings call last week. I’ll now turn back to talk about the benefits of our enhanced go-to-market strategy. As the leading independent and scaled omni-channel platform, we are seeing tangible results with buyers and sellers that we believe are resulting in market share gains. I want to share a few examples of how this is working on the agency, brand and publisher fronts. On the agency side, Omnicom U.S. selected Magnite to power the new Omnicom marketplaces. Magnite’s differentiated buyer tool suite coupled with access to both traditional and CTV inventory made it’s the ideal launch partner. As part of this effort, Omnicom is bringing large and engaged advertisers that want to ship spend into curated premium and transparent inventory. The launch is taking place this quarter on desktop and mobile with CTV expected in 2021. On the brand marketing side with the leading consumer packaged goods or CPG brand, Magnite leverage its existing CTV relationship into a broad programmatic buy across all inventory types. With the multi-platform opportunity, this advertiser was able to plan their campaign, secure their desired audience in unique campaign reach all through one Magnite by. As a result, this brand spending with Magnite over a three-month span increased from $100,000 in the prior year to over $2.5 million in Q3 2020. On the publisher side, in early October, Disney announced the strategic reorganization of its media and entertainment businesses to combine all of their streaming services as a key growth driver for the entire company. As Disney announced a few weeks back, their offering is powered by Magnite. If further solidifies our already strong relationship with Disney and Hulu on CTV, as well as across their non-CTV and display business. Today, I’ll cover how targeted advertising is changing for the open web and the opportunity to this presents for Magnite. Despite the pending death as a third-party cookie, targeted advertising isn’t going anywhere, instead it’s quickly shifting from an identity model powered by buyers to one enabled by publishers and powered by global SSPs like Magnite. The first chapters of programmatic history were largely dominated by buyers because their system relied on their distribution of third-party cookies to aggregate and find audiences. Within 18 months, the third-party cookie and mobile identifiers, such as Apple’s IDFA will be replaced by more consumer friendly means of identity that work in the world of GDPR and CCPA. Of the proposed alternatives, the vast majority of lean heavily on first party identifiers implemented by publishers, not buyers. Because publishers have direct relationship with consumers, their best position to obtain user consent for implementing first party identifiers. That said, for this publisher centric identity model to work effectively across massive volumes of sites and consumers, the industry require sell side infrastructure and tools. We are well-positioned to be one of the only companies with the scale of publisher relationships to do this. The shift toward sell side adjustability is much more than theoretical. Magnite is already helping its seller clients profit from it. A year ago, almost none of the revenue we made for publishers was derived from audience segments created within our own technology. Today, more than 10% of our revenue is generated from audience segments, we create on a Magnite marketplace and we believe related revenue or more than double by the end of 2021. Further, because we believe strongly that identity should be open stores free and interoperable with all existing and feature solutions, we will continue to partner with the Prebid.org community and identity standards and technologies, including taxonomies for how audience segments should be expressed. Keep in mind, these solutions will be joined by first party consented targeting that will continue to play a role in the market for some time to come as seen in recent news from the Trade Desk, LiveRamp and Criteo all supporting an open source Unified ID. In summary, targeted advertising isn’t going anywhere in global SSP, such as Magnite will be absolutely central to making it work. Now an update on demand manager, where we continue to see strong adoption by leading publishers. At the end of Q3, we had 187 wide contracts as compared to 172 at the end of Q2. We are seeing larger publishers recently, and we are deploying new demand manager formats, such as mobile, which was announced two weeks ago. We are particularly pleased with the signing and onboarding of the weather channel. IBM Watson Advertising is working with Magnite to leverage demand manager for control and insights into the digital advertising ecosystem. Our demand manager revenue continues to grow and we are ahead of our contract signing targets for the year, which bodes well for the future as publishers look to decrease costs and optimize revenue. We continue our focus on the following key growth drivers. Growing CTV, which will continue to be our most exciting opportunity for the foreseeable future; accelerating market share gains across formats and device types, as we consolidate a fragmented marketplace as a transparent, independent, omni-channel partner; expanding our publisher focus Prebid offering with demand manager and last week playing a leading role in the changing landscape of targeted advertising with broad reaching identity solutions. I’m proud of the efforts that our team has undertaken and of their performance in this challenging work from home environment, their client dedication and adaptability are evident in our results. With that, I will hand things over to David, who will go into greater detail regarding our Q3 financial performance, cost reductions and Q4 expectations. David?

Thanks, Michael. As Michael described, we’re pleased to report continued improvement and strength and our top and bottom line performance. Q3 is illustrative of the power of the leverage we have in our financial model with recovery and margins. Q3 2020 revenue of $61 million represented a year-over-year increase and as reported revenue of 62% attributable to the Telaria merger and a significant recovery from COVID driven lows and was up 12% on a pro forma basis. The revenue recovery was broad-based across device types and formats led by CTV growth of 51% on a pro forma basis. Also notable in Q3 was that display revenue grew 9% year-over-year on a pro forma basis, which demonstrates share gains in a contracting market. Based on device type, Q3 revenue for mobile increased 14% and desktop declined at 3% on a pro forma basis. Revenue mix for Q3 2020 was 18% CTV, 48% mobile and 34% desktop. Operating expenses, which in our case includes cost of revenue for the third quarter of 2020 were $71.9 million versus $44.3 million in the same period a year ago, increases are driven by the inclusion of Telaria operational and purchase accounting related expenses and from $2.3 million of non-recurring merger and merger-related restructuring expenses for certain personnel and professional service related expenses, which are excluded from adjusted EBITDA. On an adjusted EBITDA basis, operating expenses, including cost of revenue for the third quarter were $47.2 million as compared to $31.5 million in Q3 2019. This was below the $49 million to $50 million in total adjusted EBITDA operating expenses we originally expected, driven primarily by the timing of synergy savings and temporary cost reduction efforts, including the deferral of some non-time sensitive projects. We’ve achieved the $20 million in run rate cost savings, which we had targeted as of the end of the third quarter of 2020. Our GAAP based gross margin for the third quarter was 66% up from 49% in Q2 2020, and also up from 63% in Q3 of 2019 on an as reported basis. Net loss was $10.5 million in the third quarter of 2020 as compared to a net loss of $6.2 million in the third quarter of 2019. Adjusted EBITDA was a positive $13.7 million, resulting in a margin of 23%, much better than originally estimated due to strong revenue growth and the lower adjusted EBITDA operating expenses as noted. This strong incremental flow-through of revenue to adjusted EBITDA shows the leverage we have in our financial model from incremental revenue growth. GAAP loss per share was $0.10 for the third quarter of 2020 compared to GAAP loss per share of $0.12 in the same period in 2019. Non-GAAP income per share in the third quarter of 2020 was $0.06 compared to non-GAAP loss per share of $0.02 reported for the same period in 2019. There were 110.4 million weighted average basic and diluted shares outstanding for the third quarter of 2020. There would have been an additional 5.7 million shares included in the diluted share count had the company posted net income versus a net loss consistent with anti-dilutive accounting rules. For purposes of estimating full year EPS calculations, please also keep in mind the impact of the April 1, 2020 merger closing date and the lower share count that should be used for Q1 and the post-merger share count for Q2, Q3 and Q4. Capital expenditures, including purchases of property and equipment, as well as capitalized internal use software development costs, were $5.3 million for the third quarter of 2020 in line with our guidance. We closed the third quarter with $104 million in cash, a slight decrease from the $107 million balance at the end of Q2. The cash decrease was driven primarily by an expected usage of working capital, which we highlighted in our last call and which was offset – mostly offset by positive free cash flow of $8 million for the quarter, which we define as adjusted EBITDA less CapEx. As a reminder, our cash balances can swing disproportionately both up and down compared to the run rate of our business since we collect and pay the gross amount of flow through to our sellers, while we record revenue on a net basis. I will now share some indications for our fourth quarter. We expect revenue for the fourth quarter to be in the range of $72 million to $75 million and we expect CTV to continue with strong year-over-year growth rates. Our revenue growth estimates represent greater than 20% sequential growth in line with prior seasonal patterns. These estimates also assume no additional negative COVID related impacts. We expect that adjusted EBITDA operating expenses in Q4, including cost of revenue will be approximately $50 million to $52 million, which includes the reinstatement of some of our temporary COVID related cost reductions. As a result, we expect our adjusted EBITDA margin in Q4 to be approximately 30%. We expect a CapEx for the full year 2020 will be roughly $24 million, a slight increase to prior expectations, in order to support growing volumes and specific growth opportunities in APAC. We are very pleased with our revenue growth and with our cost management through these challenging and very unpredictable times. The efforts we’ve undertaken position as well to adapt quickly to any potential future macro volatility to capitalize on the significant growth opportunities ahead of us and to drive increasing flow through and profitability. We will continue to balance investment to support top line growth along with healthy margins. With that, let’s open the line for Q&A.

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Jason Kreyer of Craig-Hallum. Please go ahead.

Hey, guys. Good afternoon. Nice work in the quarter.

Thanks, Jason.

Wondering if you can give any more color on the nature of the relationship with Disney. I mean, we know that Telaria had a contract in place with Hulu that was going to be up for renewal in February. So just wondering if you can give details, like, if that’s been restructured and what segments within Disney or what brands that Disney that covers and just any more color on that would be great.

Yes. Hey, Jason, it’s Michael. Yes, I think at this point, it’s safe to say we feel really good about our relationship with Disney powering their Hulu cross platform initiative is definitely, I think, a vote of confidence for Magnite and the decision of bringing together this omni-channel company. And I think, when the time’s appropriate, we’ll be able to talk more about the status of the relationship.

Fair enough. You gave some good color, Michael, on the connected TV opportunity. Is just piggybacking off kind of your expectations for the future, you kind of mentioned what Procter & Gamble has said and the accelerated pivot for the consumer. How does this manifest for Magnite? I mean, what do you hear from publishers? What are your expectations for upfronts next year? Curious any thoughts you have going into 2021 around, what happens with CTV after everything we’ve been through these last six months?

Yes. Great questions. And of course, there’s two angles to come at that front, right, the publisher side and the buyer side of the agencies. And having spent a fair amount of time with both, not surprisingly, they have slightly different opinions about how it’s all going to play up. So I would just relay their sentiment and that is, I think that buyers have continued this process, COVID 2020. And I think as seen by and large that the CPM or the value of their inventory wasn’t negatively impacted by data targeted programmatic advertising. I think, as we know, not to dwell too long on the history lesson of programmatic advertising, but it did begin as a remnant business in the display world, right. And the knock on programmatic was the minute it left the direct selling world and went to programmatic, CPMs are going to plummet and there goes your business. And although that’s an accurate observation, the reality was there were gods of inventory, it wasn’t scarce and monetizing it for a penny was probably better than not monetizing it at all. And it didn’t have that upstream impact to the direct selling CPMs. And so I think that – with that fear taken away for publishers after they saw the performance of what programmatic has done for their businesses that there’s a greater inclination to utilize it or have it as part of their monetization strategy and I think we’ve commented in quarters past that we’ve kind of seen a pull forward of maybe a year or year and a half for that eventually working its way out to being front and center. So we think we’ll be able to see more inventory than we’ve ever seen in the coming quarters. As far as agencies are concerned, there’s always been a lot of tension about the upfronts anyway. And so that’s going to play itself out, I don’t think anything happens in the advertising business, that’s been in place for 70 or so odd years. I don’t think it evaporates overnight, but safe to say, I think more and more marketers and agencies would prefer to negotiate more on a calendar basis or less of upfront obligation than it has been traditionally done in the linear TV world, if that answers your questions.

Yes. That’s helpful color. Maybe just one last one for me. So you’ve talked about the audience segmentation revenue, and I wasn’t expecting to hear that, that’s already up to 10% there. But can you walk through how the revenue progression kind of works from one end to the other? I’m not sure if you’re working with DSPs or agencies to deploy that or who was involved in those conversations, if you’re going direct to the brands to work that out. And just kind of more color on how it works.

Yes. Jason, why don’t I avail ourselves of the expert, Tom Kershaw in that, maybe bringing light without mentioning names, a case study of how it’s worked with particular publishers the data and how the economics work.

Yes, sure. I mean, the way it works today is buyers bring segments to us. And they’ll bring that segment to us in the form of an ID. So that buyer could be an agency or a brand. Let’s say, this is the group I want to find in target and we’ll low those of 1990s into the platform and then use those to create a deal ID. So we then send to the buyer a deal that says here’s auto intenders or here’s forced car enthusiasts or here’s people who like purple shoes. So we’re – we create these segments based on information buyers give us today. We expose that in the form of a deal ID. So that audience segment is given to them as a deal ID. What we’re doing now is with third-party cookies going away, it’s using publisher data to do that. So publisher first party information about sites that have been visited or contexts or things that publishers have learned about that users journey. So the economics stay very similar to the way it is today, but the segment creation moves to the sell side. So we’re doing this now using buyer data and the big trend you’re going to see a lot of in 2021 is leveraging a seller data, because after third-party cookies and idea phase are removed. That seller data is a thing that’s going to still be there, so thing that’s going to be persistent and present and that model is going to really explode at that time. Does that answer your question kind of the basics of how it works?

Yes, that’s very helpful. Thanks, Tom. Thank you guys. Appreciate it.

Like I said, we’re doing that – at scale. Sorry about that, Michael.

The next question comes from Laura Martin of Needham. Please go ahead.

Hi, there. So my first one is, you brought up Trade Desk and their CTV revenue grew 100% and yours grew 51% pro forma. So I’m just wondering what the leakage is and why you wouldn’t see since you’re the largest sell side platform and they’re the largest demand side there have been why wouldn’t those be closer in both ways?

Hey, Laura, it’s Michael. Yes. So I think that, Trade Desk growth rate is something we can corroborate on our side as well, because it’s around the exact same, if not a little bit more growth in spend that they are doing on our platforms. So if I think you look at Trade Desk success, it’s probably more a case of stealing share. Then, it is structural that, DSP has a shot at a higher growth rate than in SSP. So I think we’ve talked at length about our vision for the sell side that we know it’s more fragmented than the buy-side, but we do believe that it will behave over time, like the buy side, and then there’ll be outsized winners, a handful, maybe just one or two. And that will be Magnite. And so I think that we’re outpacing industry growth in the rates of the high 20s, 30s that eMarketer and others have talked about. So I think we feel like we’re gaining share on our side, and I think to come as to the ultimate steady state for us in terms of when supply path optimization happens on this SSP side.

Okay. That’s super helpful. And then the market was down Magnite’s stuff, I said down 3% until you guys got earnings, fabulous earnings thoughts up a lot. My question is, do you think that the upfront, because that production is going to start at the Pfizer vaccine works. Means, we’re going to have to go back to full upfront production – full production, full movies, which is good for you. And then back into the normal upfront, so that maybe we’re going to have a one-year benefit from upfront, and it actually won’t persist once upfronts come back. Do you have a point of view on the relative benefit to Magnite of only having one year off of upfronts versus maybe a couple of years off of upfront?

Yes. Another great question and obviously, just conjecture on our part, but again, in talking with buyers, case in point with Disney’s cross platform play in streaming. They have – programmatic has never been more important to their business in many, many, many publishers businesses. So even if upfronts return in earnest, there’s always going to be inventory available for us to access. So I don’t know necessarily if a return to upfronts is the death of a CTV growth by any stretch. I think the big key, Laura, this 2020 was the audience adoption, right, where the eyeballs are dollars will follow and the upfront is not necessarily going to eat up all that inventory. So I think that we stand very well positioned going forward. And as we’ve talked on a number of occasions, we kind of think that 2020 has kind of pulled forward two more years of this maturation and programmatic as a monetization strategy for publishers will be very important piece of the puzzle.

Great results. Thanks guys. Bye.

Thanks, Laura.

The next question comes from Shweta Khajuria of RBC Capital Markets. Please go ahead.

Okay, thank you. Let me try a few, please. Could you talk about the fourth quarter trends, understood on your thought process for upfronts and trends next year? Could you please talk about what you saw in the fourth quarter is qualitatively talked about the strength, any quantitative sort of comments on CTV and how we should think about it for the fourth quarter. And then second question is how does Trade Desk commentary on Unified ID and their strategy to address a cookie less future in fact, Magnite’s business, or if at all. Given that you have audience segmentation based on publisher access to data. And then final one is on Disney, please. So Disney is now, as you’ve mentioned, is trying to aggregate their OTT platform. How material is an opportunity again that before Magnite? How – just that decision from Disney, how important is it for Magnite? And it just not only this year, but over the next couple of years. Thanks.

Great. So in order of question asked, David, do you want to comment upon fourth quarter quantitative trends in particular, I guess, CTV focus.

Yes, sure. Yes, I think, as we mentioned, we’re seeing the same momentum that we saw in Q3 and early Q4 and expect the same kind of growth in our CTV business. So I guess, one question that one might have is on the political spend front, as you look at 2020 in total, political span represented in the lower single digits as a percentage of our spend. And so that won’t have a huge impact in Q4 from a drop-off perspective. And so, yes, after coming out of two quarters of extreme volatility in Q2 and Q3, I think the message for Q4 is we’re seeing a little bit of normalcy, I’m not sure what normalcy is today, but more normalcies in the standpoint of the trend that we’re seeing a little bit less volatility and normal seasonal patterns kicking in from Q3 to Q4.

Outstanding. And Tom, would you like to talk about the Trade Desk Unified ID with the question I think was friend-foe coexist and mutually, what does it mean to our initiatives in orient segmentation.

Super friend who with the answer to that. I mean, so we are big supporters of the Trade Desk UID 2.0 initiative, and we’ve been working with them on prototypes and educating the industry be a Prebid. Prebid is doing a lot of work to try to support UID2 as it rolls out. UID2 is focused on giving users to login and creating a single sign-in environment to the internet where users consent to a new internet targeting regime. And we think that is going to be a huge part of the internet. But there’s also going to be a big part of the internet where you don’t have a user login or the user does not want to provide email address versus that identifier. That’s going to be the majority of the internet. So the Magnite created segments or the publisher created segments is going to be the majority of the internet going forward. And these two solutions will coexist very symbiotically with each other and you have to have really kind of can’t have one without the other. So you’ll have logged in users via a standard open source methods, like the TTD UID2, and you’ll have publisher created segments where a login doesn’t exist. And together those two solutions will cover the vast majority of the internet at comparable spend and performance holes only out today. So we’re really excited about both in the way they’re going to work together, as we move towards a cookie less environment.

And then the last question is about Disney, how material. So there are things we can and can’t discuss about Disney as I alluded to Jason at the top of the call, when there’s an opportunity to discuss our relationship with Disney in greater detail, we will certainly do so. But in terms of material, the materiality as it relates from a financial perspective, I think we’ll still steer clear of describing or trying to scope the size of the Disney relationship at a difference to our partnership with Disney, but it is certainly material from a momentum in a proof of efficacy standpoint. There’s no bigger player out there in the AVOD World. And if you’re working with them in a preferred partnership capacity or an exclusive capacity, it certainly has a halo effect with the other clients out there. So it’s extremely important and strategic relationship for us both financially and meaningfully on the qualitative sides.

Okay, very helpful. Thank you, everyone.

You’re welcome.

The next question comes from Lee Krowl of B. Riley Securities. Please go ahead.

Great. Thanks for taking my questions and congrats on a very solid quarter.

Thank you.

Wanted to ask my audience segmentation question in online with everybody else from the call. If you had to kind of slice and dice from a different perspective, you guys are agnostic across audience segmentation or standardization like UID, but is there a monetization difference between those? Is there an opportunity to generate a higher CPM from audience segmentation that accrues to Magnite versus an open-end web ID?

I think over time there is, but I think what we’re trying to do right now is replicate the environment we have today and give buyers the opportunity to reach those audiences at scale and publishers the opportunity to keep CPMs in growing the way they’ve been grown. So I think that there will be by fusing buyer information and publisher data more effectively, theoretically, we’ll be able to get even more precise and accurate delivery of relevant ads to users. So there is a hope to that, but I – honestly, I think the Phase 1 approach is to just get to a parity level where we shift away from cookies and have the same tools, the same revenue for publishers and the same outcomes for buyers. So I liked the idea that we should shoot for the moon and get even better than we are today, but for now let’s just soft land this watch cookies go away and keep the plumbing the same and then we’ll go from there. That would probably be my answer to that question.

Got it. That makes sense. And then just a point of clarification on the infrastructure progress. If I heard correctly that you saw non-CTV video grow year-over-year, is the implication there that the infrastructure initiatives are ahead of plan? I think last time you guys said that Q1 2021 was when you would have everything fully integrated. Just curious how much progress you’ve made and when you expect completion, if not already?

Yes, I’ll start and then Tom…

Yes. All right, and then jump on – David, yes, go ahead.

Yes, I’ll start and Tom you can jump in. Yes, I think we’re – I think there’s elements that are ahead of plan. I think there’s definitely are pleased with those results, but definitely more work to be done and not claiming full victory yet. But Tom, why don’t you jump in there?

Yes. I would just add that our plan is to have a highly optimized CTV platform and a highly optimized on the channel platform. So we’re going to have both. So the integration for us is about developing common methodologies and common ways for customers to interact with us, even though the platform will be highly structured to maximize that particular format. Two of the things that we’ll be integrating or already looking to integrate that we’re on track to have in place by Q1 or identity and deals, which are key to everything we just talked about around segmentation. So we’re building a common identity structure between the two companies so that buyers can find audiences on CTV, on traditional video, on display, on audio and whatever format they want. And the fact that that may live on one platform or the other is totally transparent to them. The other thing we’re doing is developing a deals infrastructure where buyers and sellers can reach – get and can reach deals and negotiate transactions regardless of the media type. So the integration is coming along quite nicely, but yes, I think we have the best of both worlds in that we’ll have this common user experience for buyers and sellers, but the platforms underneath them will be highly optimized to the media they’re caring.

Got it. That’s helpful. And then last question, you kind of highlighted some case studies and success with Omnicom, the agency and a CPG brand. Just kind of curious, are those agreements exclusive meaning you are – you represent the only SSP in that relationship. And based on that answer, are there other agencies and brands in the pipeline that perhaps can have the sort of success you’ve seen with these initial two applications?

Hi. Yes, Lee, it’s Michael. I’ll jump on that one. By and large, I would characterize these as preferred relationships. I don’t think it’s in agency’s best interest to only work with one SSP from a competitive dynamic. So I think what they do is they want to work with a preferred SSP that will do help them with customization, help them with their model, help them build out their – the platform they desire, work with them to attract advertisers to it and publishers to it. And it just doesn’t make a heck of a lot of sense to the agency to do that more than as several times. And so, but we’re very pleased with the attraction, obviously, Omnicom very large media company, media agency, and they’re thinking not too dissimilar to how other agencies are approaching, this next phase of programmatic. And I think once you build out a successful execution for one agency that it’s quite likely you’ll be a preferred partner for more than just one.

But I will say – it’s David, we are the only partner in this initial launch phase. And so as they’re rolling it out, they’re sending all the business our way and we’re assisting them to get it off the ground.

Great. That’s really helpful. Nice work on the results and thanks for taking my questions.

Thanks, Lee.

The next question comes from Matthew Thornton of Truist Securities. Please go ahead.

Hey, good afternoon, everybody. Thanks for taking the questions. Couple if I could. I don’t know this is for Michael or David. First of all, synergies, I think you said cost synergies. We’ve kind of already achieved what we set out to achieve. I’m curious where we are on revenue synergies in terms of go-to-market. Are you still kind of operating somewhat siloed? Or are we already fully integrated? And really across that question is do we still have opportunity to get to a fully integrated go-to-market where we can start to see a revenue synergies still accelerate from here? That would be question number one. Secondly, maybe for Michael on the competitive landscape, you alluded to share gain. I’m curious if you were alluding to the CTV side or the non-CTV side or both. So maybe there’s a little more flavor and color around what you’re seeing other competitively. And then one for David, just housekeeping, you guys used to talk about a legacy 25% EBITDA margin target for Rubicon. I’m curious if there’s any update to that for the combined company. Thanks, guys.

Great, Matt. Yes, I’ll take the top two and David can grab the next. So synergies from a revenue standpoint, that was the purpose of setting those three examples of the working with an agency and creating a marketplace are Omnicom working with a CPG brand and increasing their spend substantially because of the capabilities of the both the CTV and the non-CTV business, and obviously, we talked about Disney. So yes, there’s a – we said we’d share examples when we had them, because of the early examples far more to come. Listen, it’s been a spectacular effort by the team doing this all via Zoom with the customers. So I couldn’t be more pleased with where we find ourselves with a differentiated voice in the marketplace and some of the early successes we’re seeing, so yes, there’s definitely more revenue synergies to come. As far as share gain, when we speak about share gain, I think we can confidently say across the Board, across CTV and non-CTV. We see where we rank with our publishing partners in terms of their stack ranking of who brings them the biggest check. We are consistently at the top. And when in cases where we weren’t, we are now. And so that is definitely not just a rising tide. It’s a rising tide plus hard work by the team to get more inventory, do a great job, monetizing that with buyers. And so we’re very, very confident that some of the success we’re seeing is at the expense of our competitors. David, you want to handle the margin question?

Yes. No changes from adjusted EBITDA margin perspective. We continue to target the 25% or greater adjusted EBITDA margins. We had 23% in Q3. And our guidance would imply a 30% plus margin in Q4. There’s still a lot going on with COVID, and the volatility that we have. And so I suspect that, that early next year, we’ll be maybe addressing that more formally.

Great. Thanks, guys. Appreciate it.

Thanks, Matt.

The next question comes from Kyle Evans of Stephens. Please go ahead.

Great. Thanks for taking my questions. And this is actually Michael Newton on for Kyle. Continuing on the UID to auto theme, we’ve seen good momentum for this solution via press releases from Criteo and Nelson, but we still don’t have really a good understanding of the timeline for ultimate rollout of the tech. Help me think about what milestones we should be looking at for when the solution could ultimately go live. And the follow-up, what is, I guess, community owned really mean for UID and what are the pros and cons of where that could eventually set, whether it be with the IAB or somewhere else. Thanks.

Well, in terms of timelines, we’re starting to see – we’re prototyping the plumbing part of this, right now there’s two pieces of this. The first is explaining to the users how the internet works and getting a new consent number from them by the – under which they provide log-in information. And the second is plumbing that log information in a secure way. So we’re already down a road of both of those. And as an industry, I would expect to see the plumbing part of this in the real world in Q1. The – and essentially what we’re talking about doing is taking anonymous versions of user identifiers, encrypting them and passing them to buyers into platforms. And then there’s a shared encryption key that can be used to decrypt those values, so that the value is only readable by those who are authorized. So to me, this is a really, really powerful way to reinvent how we interact to users and to provide persistent identifiers for buyers and sellers to action on. I think doing this in open source in a community environment where the values are owned collectively is the right way to do this and we have a huge amount of support up and down from buyers and sellers as this – for this method. The IAB will – could play a role. We need a neutral third-party to administer the encryption keys. We also need standard methods for sending these values back and forth. But I think, the Trade Desk is absolutely correct to do this in light of day in open source owned by the communities is the correct way forward and it gives us the ability to instead of fighting over who owns what ID and slowing progress we have to collectively develop a solution that’s going to replace third-party cookies. We have 14 months to do it. And we’re well on track to do it. And without open source, and without cooperation, we’d have no chance of doing it. So not only is it the best way, it’s really the only way. And we’re a huge supporters of that method.

Got it. That’s very helpful. And then just a quick other one, any updates on supply path optimization. It sounds like you’ve made market share gains across the Board. How much is the supply path optimization contributed to that? Thanks.

Yes. Thanks, Michael. The – so as we kind of talked about last quarter, the supply path optimization, we feel continues case in point announcement like working with Omnicom in as a preferred partner, that’s certainly a tangible sign of SPO. And it continues, I think there was a time when we thought maybe SPO looked more like a celebrated flame out of a handful of general SSPs. And I think it’s more going to look like the way it’s playing out and that is quarter-by-quarter on the margins securing more dollars, gaining more share, outpacing industry growth, and all of that is attributed to taking dollars away from our competitors. And so there’s – we’d love to be able to point to a resounding evidence of SPO, but I think what we see every day in terms of our strength is our publisher relationships and our strength with the buyer side that we have become this differentiated brand of preference. That’s a heck of a position to be in.

Got it. That’s helpful. Thanks, and congrats on the quarter.

Thanks. Appreciate you calling in.

This concludes the question-and-answer session. I would like to turn the conference back over to Michael Barrett for any closing remarks.

Thank you, operator. We’re very excited to deliver strong Q3 results and to see the momentum we have as we enter the fourth quarter. Strategically, we’ve worked hard to align the business with material enduring growth platforms in the programmatic markets. With our teams, great execution, we’ve been able to realize strong growth and to build a market leadership position. Even though, there’s much work ahead, I feel very bullish about the future of Magnite. Thank you for joining us for our Q3 results call. We look forward to talking to many of you through virtual investor meetings and conferences hosted by Needham, Craig-Hallum, RBC and Stephens in the next two weeks. Thanks, again, and have a good evening.

The conference is now concluded. Thank you for attending today’s presentation. And you may now disconnect.