Good afternoon, and welcome to Magnite’s Second Quarter 2021 Conference Call. All participants will be in a listen-only mode. [Operator instructions] Please note that this event is being recorded. I would now like to turn the conference over to Nick Kormeluk, Head of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Magnite’s second quarter 2021 earnings conference call. As a reminder, the comparisons you will see in the 10-Q as reported include the financial results of SpotX from May and June of 2021, but for the second quarter of 2020, the results do not include SpotX given the acquisition date of April 30, 2021. During the course of this call, when we refer to results and associated year-over-year comparisons with the phrase as reported, we are referring to the basis as reported in our 10-Q. When we make comments referring to pro forma comparisons, we are including SpotX for the second quarter of 2020 and the month of April in 2021 in order to provide additional detailed insights that management also uses to evaluate our business performance. Please keep in mind as it relates to the SpotX acquisition, prior quarterly results or estimated in unaudited. As a reminder, this conference call is being recorded. Joining me on this call are Michael Barrett, CEO; and David Day, our CFO. 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’ll remind you that our prepared remarks and answers to questions will include information that might be considered to be forward-looking statements, including, but not limited to, statements concerning our anticipated financial performance and strategic objectives, including the potential impacts of COVID-19 on our business, as well as statements concerning the acquisitions of SpotX and SpringServe and potential benefits and synergies we expect to realize therefrom. 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,…

Thank you, Nick. It’s been an exciting three months for us since our last call. The digital advertising market has continued its strong recovery from the impacts of COVID. To recovery is clearly visible in our Q2 revenue ex TAC across all formats and channels, which combined were up 79% on a pro forma basis. These results are very strong, even when considering easier comparisons from COVID in Q2 last year. I’ll first cover some quick performance highlights. CTV revenue ex TAC grew 108% on a pro forma basis, with both legacy Magnite and SpotX platforms each delivering growth over 100%. OLV is display also show very strong revenue ex TAC pro forma with growth of over 60% each, indicating broad strength in our business aided by a strengthening economic recovery. Adjusted EBITDA margins ex TAC came in at 32% in Q2, and we generated $24 million in operating free cash flow in Q2, which we define as adjusted EBITDA, less CapEx. This quarter was transformative for Magnite. Specifically with the closing of two strategic M&A deals SpotX and SpringServe, which expanded our addressable market added video ad serving to our product offering significantly enhanced our product development and engineering capabilities, all of which contribute to greater CTV scale in revenue growth expansion. I want to provide some insights on what our combined scale, value proposition and growth opportunities look like going forward. As viewers continue to consume media content via streaming services and platforms, many media and content owners are creating content and services for the CTV market. And we are in a great position to provide them with the only independent end-to-end monetization platform. To be clear, we define CTV as large screen immersive TV advertising, and do not include streaming TV across other devices like mobile, tablet…

Thanks, Michael. We are pleased to announce our strong Q2 to provide some color on areas of strength in the business and to provide our outlook for continued growth in Q3. Total revenue for Q2 was $114 million. Revenue ex TAC was a $100.4 million for Q2 up 139% from Q2, 2020 on an as reported basis and up 79% on a pro forma basis. CTV revenue ex TAC was $34.3 million and grew a 108% on a pro forma basis as Michael stated earlier. OLV and display were up over 60% all on a pro forma basis. Looking at the CTV business more granularly both legacy SpotX and Magnite grew pro forma revenue ex TAC over a 100% in Q2. Since we’ve now integrated our customer sales, support and engineering teams, we’re no longer running separate CTV businesses, and thus it no longer makes sense to split out CTV results based on legacy companies. As a result, we will speak to our combined CTV business going forward. Desktop pro forma revenue ex TAC grew 52%, and mobile pro forma ex TAC grew 75%. Our revenue mix for Q2, 2020 on an ex TAC basis was 34% CTV, 39% mobile and 27% desktop. Operating expenses, which in our case includes cost of revenue for the second quarter, were $161.5 million versus $82.9 million in the same period a year ago. Increases were primarily driven by the inclusion of SpotX cost of revenue, including traffic acquisition costs, operating expenses, and acquisition related expenses. Adjusted EBITDA operating expenses, which represents the difference between revenue ex TAC and adjusted EBITDA, were $68.6 million for Q2 as compared to $45.5 million in Q2, 2020 also driven primarily by the addition of the costs resulting from the SpotX merger. As Michael mentioned, we’ve made significant…

[Operator Instructions] The first question comes from Shyam Patil with SIG. Please go ahead.

Thanks. It’s Ryan on for Shyam. So first, you know he talked at length about SpringServe and the prepared remarks. But can you talk about how you think about SpringServe impacting CTV growth sort of in the long-term? And does that accelerate your opportunity there? And then secondly, we saw you set up the new leadership team in Asia, of course, the acquisition. So how do you feel about your expansion prospects in Asia? Thanks.

Yes, Ryan, this is Michael Barrett. I can start it off and David can jump in. Yes, so well. So prior to SpringServe acquisition, we were certainly the leading independent programmatic player in CTV, but we did lack the ad serving capabilities. And ad serving isn’t just essential to the whole monetization stack, whether it’s CTV or online video display. The top players have shown that if you combine an SSP with ad serving, there are benefits for the publisher from a monetization standpoint. So there’s the direct benefits we get from market expansion, which is ad serving. So if the publisher were to sell an ad and not run it programmatically, it still has to be served. And there’s revenue to be generated from that. But then there’s also the, increased opportunity from a programmatic standpoint. So, we’re quite excited. I think had SpringServe has done a great job in the, let’s say middle market in terms of the customer base. I think that, we see that segment growing. We had mentioned in the prepared remarks about interest on content owners and distributors to get into the CTV marketplace, and we think we’ll have a very exciting role there. And as far as, the Asia announcement of our leadership team that was done across the board and I think the exciting aspect there is that, we have go-to-market teams focused on CTV and DV+. So we have product teams focus on CTV and DV+ and engineering teams focus on CTV and DV+, and DV+, display video, audio, anything, that’s not CTV. And I think that allows us to better invest in the areas of the company because you saw the display growth numbers, they were quite strong for the quarter and then that intimating that, display is up 60% marketplace every quarter. But the simple fact is, it’s a growth business for us. It’s highly profitable, and we’re going to lean into that as well with the appropriate resources. And that team’s done a bang up job. And I think we have, growth, particularly in India in the Asian market. We’re making investments there. So yes, I would say, very pleased with the team structure, the leadership in place, and the prospects for growth in the future.

Great, thanks.

The next question is from Jason Kreyer with Craig-Hallum. Please go ahead.

Thank you, guys. And congrats on the execution, I wanted to go back to the SpringServe topic, just wondering where that product sits today, relative to where you think it needs to be to kind of to serve as a big catalyst as kind of another tool in your tool bag, because we hear a lot in checks and in conversations that there’s a lot of demand for an alternative ad server relative to what’s out there. But curious kind of what kind of resources you need to put behind that, to get it ready for a broader go-to-market?

Yes, it’s a great question, Jason and thanks for the kind words on the quarter. I think we’ll be touching – will be kind of drilling down on this quite a bit more on our Analyst Day in September 15. But it’s a new acquisition for us, right just recently closed on it. The good news is SpotX had been working very closely with the SpringServe team for the past year. And it was almost, a complete validation, that if you couple ads serving knowledge, with programmatic monetization, that it’s going to yield greater outcomes for the publishers and there is definitely a tier of publishers that are ready for the SpringServe product and leaning into it. And there’s, admittedly, a tier of publishers that bring with it legacy sales and linear sales and that’s a far more complicated product. And probably not the effort that we’re going to attack on as a kind of rip and replace of a Google or a FreeWheel, but we see many, many opportunities, and what is it pretty complex, multi server environment, to be able to work very closely with those folks into gain more opportunities than we currently had prior to SpringServe. But yes, again super excited about it. And as David mentioned, in the area of investments, but the team is proven for the last year, working closely with SpringServe, that there is a real need out there for a coupling of our demand with the SpringServe product.

Thank you, Michael. In regards to integrating SpotX, we’ve spent some time before talking about the managed service offering. And I’m curious, is there – is that part of the integration process to make that product available to the more legacy Magnite CTV customers? And I mean, if it is, is there a timeline when that becomes available? Because it seems like that could be a source of revenue synergies over time?

Yes, great call. And that’s one of those things where you kind of just hit the ground running with it. Like if you had inventory say, a legacy Magnite, or legacy Telaria had inventory that SpotX didn’t have access to DND [ph] of the close that goes into the salespersons bag, right. And so it’s just those that’s inventories used to bolster packages, create new packages. But yes, that’s the kind of low hanging, go-to-market stuff that doesn’t require a tremendous amount of tech work background, wiring et cetera. So yes, we see really promising opportunities in the increase of demand facilitation.

Perfect. All right. Thank you.

Thanks.

The next question is from Nick Zangler with Stephens. Please go ahead.

Hey, guys great quarter. Curious how revenue trended throughout the quarter? What maybe you might attribute to COVID-19 impacted businesses driving a resurgence in ad demand, maybe specifically in CTV as well, I know, you saw some oscillations late last quarter. Just thoughts on how things trended throughout the quarter?

You want to start David?

Yes, I think. So, I think across the business, we saw for the most part, normal seasonal patterns, except that we did see some acceleration, I think, coming into June. And so you had a couple categories that kind of picked up I think, travel was one in particular that over the course of the quarter, really, really strengthened. And I think we also saw, slight strengthening in the CTV as well, but nothing extremely outsized I guess.

Great. And then I mean, obviously, this was a very busy quarter for you guys. So, this might be going backwards. But maybe you could talk through some of the advantages of partnering with Iris TV for contextual advertising as well as TV scientific for access to incremental demand. And do you think you’re seeing performance marketers; performance advertisers enter this market for CTV? And maybe you can just talk about the opportunity there? It seems it’s, it’s pretty vast, I think $134 billion is spent across search and social and they covered the measurement and attribution, that search and social offer. Now that theoretically, is coming to CTV. It’s available on CTV, so maybe you can just kind of size up that opportunity for incremental demand.

Yes, I mean, all good questions, Nick. I would think that, one of the themes that we’ve kind of been pushing on as it relates to the programmatic opportunity or market size for CTV is kind of this democratization of advertisers. If you look at linear TV, given the, sophistication of the media buying the expense of the media buying and the quality of the advertising that has to be produced, it’s not surprising that, the linear world from a national TV standpoint, is a couple of 100 advertisers, right? Represents the bulk of it, where we believe firmly in programmatic CTV, you’re going to be talking 10,000 advertisers. And we’ve already saw that throughout the COVID, when a lot of direct-to-consumer brands, started testing, CTV and had a very positive experience with it. Pricing was right, pricing on Instagram, and Facebook, kind of gotten very expensive for them. And so they already had the creative from those video units and were able to repurpose it. And so you were at the very early stages. But I think it’s a big, big opportunity, this democratization of advertising. And lastly, the two partnerships you mentioned are strong partnerships. And one of many, I think one of the things that SpotX in particular is done extraordinarily well, is the whole onboarding, of measurement of attribution, of audience segments, of packaging, they’ve done a very nice job, in terms of being able to present inventory and the results of the advertising on inventory to marketers and publishers. And we’re going to continue in that vein with more partnerships and generally just trying to help the industry with this attribution and measurement conundrum that kind of exists today.

Great, thank you so much and good luck going forward.

Thanks Nick.

The next question is from Vasily Karasyov from Cannonball Research. Please go ahead.

Thank you very much. Good afternoon. So on Q1 report, you’re connected TV revenue, were a little light. And one of the reasons you cited was that the inventory wasn’t that, there was a shortfall in inventory due to linear ratings. So that caused some constraints, so now that you have closed on SpotX and the SpringServe is going to be required. So on to can you tell us how these transactions mitigate the risk of that happening again? Thank you very much.

Yes, Vasily thanks for the question. I think that, in a high growth, nascent marketplace. I think it’s hard to bulletproof projections. And, your baseline of, performance quarter-to-quarter isn’t all that great in terms of, years of practice. And so I think we’re going to have choppiness, but I think we still stick with, our longer term view of a marketplace that we’re going to outpace the growth in the marketplace. And you know, as it relates to safeguarding against inventory shortfalls. Those kind of fall out of our control by and large, because of, publishers, and they’re going to market efforts, et cetera. But I can say what SpringServe does and certainly SpotX, it absolutely broadens the product sets that we can go to market with, which creates a larger TAM, which creates stability. And so yes, they’ll always be blips here, there was an online video and we’ve been at that for 15 years. And so in programmatic, there’s – it’s technical things happen, and there’s pushes in polls, but long story short, I think that the larger our base becomes, the more stable the projections can become and we now have a portfolio of products that help safeguard against that.

Thank you.

The next question is from Matt Thornton with Truist. Please go ahead.

Hey, good afternoon, guys. Maybe two, if I could. I guess, Michael, maybe – can you talk a little bit about the competitive landscape out there, maybe on the display side, as well as on the CTV side, just kind of anything incremental since we’re on the call last time, three months ago, supply path optimization, competition, pricing, just got the lay of the land. And then just secondly, and I apologize that I missed this. But I think last quarter, you talked about being comfortable with north of $0.5 billion in revenue next year. Just want to see if you’re still comfortable orders you update to that to that number. Thanks, guys.

Sure Matt, I’ll take the first half and David will stick his neck out for the second half. It’s just, what you do to a good CFO? Right. Yes, listen, competition continues, right? I think what we’re seeing is, it’s really getting consolidated among the top players, right, a Magnite or maybe a PubMatic on the display side, folks that are in the private sector that mentioned that see open access, going through a process right now trying to sell themselves. No index exchange, which was a – tough competitor a couple years back, I think is, fallen a step behind and you kind of hear that in the marketplace. So, I think there’s just, the bigger getting bigger, marketers are feeling more comfortable with a handful of partners. And winnowing that down has occurred and the final steps to supply path optimization will look different in different sectors, open auction, I think there will always be a need for eight to 10 participants to do a unified auction in that open market header bidding. In CTV, I don’t see any momentum for people looking for more demand partners in the PMP world, I think they’re quite satisfied with the players that are exist there. And so I think will benefit from that growth. So all in all, I think we stand very well positioned in this marketplace that is consolidating. And David on a 2020 forecast –2022 forecasts?

Yes, we were excited this quarter to come in $6 million or so ahead of our midpoint of guidance and, remain bullish about 2022. So, certainly not reducing our targets and we’ll continue to lean into, I think we talked about well in excess of $500 million in revenue, and we’re remain super comfortable with that.

[Operator Instructions] The next question comes from Shweta Khajuria with Evercore ISI. Please go ahead.

Okay, thank you. Well, I’m sorry if I missed this, but is there – Michael, Is there a way – is there a structural difference in growth rates? So, you mentioned 100% year-over-year growth in CTV revenue for Magnite, as well as SpotX. I guess the question is, for managed services versus direct deals, putting into programmatic, sort of two growth different paths. Are you seeing trends where one is going faster than the other?

David is that something we’ve ever broken out?

We haven’t really…

The question, Shweta, I don’t know if we’ve ever broken that out, though.

We haven’t broken our growth rates, but what I would say is, they’re both growing strongly, and so they’re going to be an important part of our business. The managed service or demand facilitation part of our business represented about 18% of our total GAAP revenue. So it will be an important part of our business, but it’s not the primary part of our CTV business. It’s still programmatic will be the biggest driver over the long-term, I think.

Okay. So 18% of the combined like pro forma, it takes products plus Magnite to [indiscernible] is that right? It’s managed service?

18% of the CTV number, correct?

Yes. Okay. Go ahead.

Sorry, I was going say, it’s actually, it’s 18% of our total revenue. It’s so – but let’s talk about revenue ex TAC, it’s 7% of our total revenue, and so it’s still a minority of our of our CTV business.

Okay. And then the guidance that you gave where it accounts called for 50% year-over-year growth in CTV revenue, is it fair to assume it’s 50% for both the [indiscernible] part as well as SpotX?

We’ve combined our teams and so there really is no such thing going forward as a legacy, one legacy business versus the other business. So, in the second quarter, we did have that differentiation, both CTV businesses, grew it basically the same rate. And so now we’ve combined and we’re going forward, and there’s no drag in any of the legacy clients that we brought together, and we’ll be talking about that business on a combined basis going forward.

Okay. So then – when you report the third quarter, should we not expect you to give us a breakout like you did this time? That was 100% each?

That’s correct.

Okay, sounds good. Well, thank you very much.

Thanks, Shweta.

The next question is from Matt Swanson with RBC Capital Markets. Please go ahead.

Yes, thank you guys so much for taking my question. So, I’ll kind of follow-up on the previous Matthew going down competition. So, I mean, with the acquisition of SpotX, and now with SpringServe, you’ve really kind of established your place in the CTV market. So thinking competitively, how do you build a defensible moat, around the market share kind of acknowledging that this is still a nascent market? We’re looking five years from now with a much larger TAM, how are you thinking about kind of sticking to the areas that you’re excelling in right now?

Yes, great question, Matt, and thanks for the question. The funny thing is, you can certainly look at competitors coming up general display exchanges, like a PubMatic, crashing the party and wanting to get into CTV and God knows why – we know why they would want to give him the exciting TAM and growth rates et cetera. But we really do feel it’s going to play out quite differently. And as you pointed out, we now have a collection of assets that are unrivaled. And in order to really compete against us as a new entrant, you really are going to have to bring a lot of tech, and a lot of experience and a lot of talented engineers. And so we don’t think – we don’t see this as something where it erupts into open auction header bidding with 10 exchanges competing for inventory that may well occur at a segment of the market. But that would be kind of the longer tail. And it wouldn’t necessarily at all look like the upper top of the pyramid, like broadcasters, et cetera. The way we look at it, Matt, is that this isn’t a defensive move by us to maintain what we have, the vast majority of the revenue dominating this space right now is by FreeWheel and Google. And that’s we’re going after. So it’s a lot less about being concerned about creating a moat, to protect what we have, then it is about expansion opportunities to get business that is already there in the hands of the non independent, more walled garden guys. And that to us is the stuff that has really driven the collection of assets that we have the people that we have in our go-to-market strategy.

Yes, and that’s super helpful, Michael. And then if I could just kind of add on to that collection of assets idea, bringing in SpringServe, can you talk about kind of how you see the whole mess of your value proposition now, are there any other clear adjacencies or capabilities, either M&A or internal development, either assets or even thinking about, like ways to build out some of those strategic managed services to kind of build I know – we’re not saying defensible, I want to say entrenched position with your customers, but kind of cement the value creation that you have for publishers.

Yes, I mean, listen, I think we have the big pieces in place. And I think we are very satisfied if we never did another M&A deal, that we have gotten it the best that was out there, the best talent, and now we’re all set to run a unified company Magnite. That said, that’s probably not realistic. So the flavor of the M&A is going forward, we’re more than likely be SpringServe sized, as opposed to SpotX size, just simply because that’s – what exists in the market. And with the ad server, it’s about executing and scaling this SpringServe product. So, what are adjacent areas? I don’t think we’d ever get into as a principal in the measurement business. Because, a lot of marketers or publishers don’t like the grading your own homework, so they’re a great measurement companies to work with and help and help unify. I think the audience packaging, the audience segmentation business, that has some interesting areas of opportunity for us. We’re already head down, doing a great job on it, and CTV and NDV Plus, but there’s probably opportunities there particularly as we get closer to the deprecation of cookies in Chrome. But yes, I think generally speaking, the way you should think about it, Matt, is that we’ve got the pieces in place. It’s about execution at this juncture.

Got it. Fantastic. Thank you for the time.

All right, thanks, Matt.

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

I’m sorry, Debbie. I was on mute.

Okay.

One more time, we are excited about what the future holds for Magnite and how we’re positioned in the CTV, OLV and display markets. Magnite is the industry’s leading independent omni-channel SSP. And we could not have achieved that position without all the hard work from our close to 1000 Magniters. Thank you all for your commitment and passion. We’ve accomplished a lot in a very short time from a strategic perspective. The investments we’ve made the offerings and talent we now possess, give us the opportunity to play an ever more strategic role in serving open web and CTV publishers. We are very excited about the industry and Magnite’s future. Thank you for joining us for our Q2 results call. We look forward to talking to many of you at our Virtual Analyst Day on September 15, or through virtual investor meetings hosted by Craig Hallum and Cannonball Research this quarter. Have a great evening.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.