Magnite, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results; amounts below are in millions unless stated otherwise. Magnite operates a digital advertising marketplace and technology platform across connected TV (CTV), mobile, and desktop.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $150.1 | $145.8 | $432.8 | $401.7 |
| Gross profit | $65.2 | $74.1 | $92.9 | $205.5 |
| Operating loss | $(17.8) | $(21.2) | $(190.1) | $(84.2) |
| Net loss | $(17.5) | $(24.4) | $(190.1) | $(93.9) |
| Adjusted EBITDA | $40.3 | $44.4 | $101.0 | $114.6 |
| Operating cash flow | Not separately stated | Not separately stated | $125.3 | $103.8 |
- Q3 revenue grew 3% year over year; nine-month revenue grew 8%. Q3 net loss narrowed, while nine-month net loss approximately doubled.
- Gross margin was approximately 43.4% in Q3 versus 50.8% a year earlier, and 21.5% for the nine months versus 51.2%. These are calculated from reported revenue and gross profit.
- Q3 Contribution ex-TAC, a company-defined non-GAAP measure, was $133.1 million, up 4%; nine-month Contribution ex-TAC was $383.9 million, up 7%.
- Cash and cash equivalents were $310.5 million at September 30, 2023, versus $326.3 million at December 31, 2022. Current assets were $1,269.2 million and current liabilities $1,131.1 million.
- Debt principal outstanding was $627.0 million: $275.1 million of convertible notes and $351.9 million under the Term Loan B. Balance-sheet debt, net of issuance costs, was $605.2 million including current debt. The Term Loan B contractual rate was 10.53% at quarter-end.
Material changes and drivers
- Mobile led revenue growth: up 22% in Q3 and 23% for the nine months. Q3 CTV revenue declined 5% and desktop declined 8%; nine-month CTV rose 6% while desktop fell 11%.
- Q3 Contribution ex-TAC rose in mobile but fell in CTV and desktop. For the nine months, mobile and CTV gains were partly offset by desktop declines.
- Reported cost of revenue rose 73% for the nine months, primarily reflecting $194.9 million of intangible-asset amortization, including $111.9 million of incremental amortization from revised useful lives for acquired technology. The company said the accelerated amortization increased nine-month loss per share by $0.82, net of tax.
- Q3 Adjusted EBITDA declined 9%; nine-month Adjusted EBITDA declined 12%, as higher hosting, data-center, bandwidth, personnel and other costs exceeded revenue growth.
- Magnite repurchased $104.8 million principal amount of convertible notes for $104.8 million cash during the nine months and recorded an $18.1 million gain on extinguishment. At quarter-end, $70.2 million remained under its $100 million repurchase authorization. It repurchased no common shares during Q3.
Outlook, risks, and unusual items
- Management expected revenue for the remainder of 2023 to increase year over year, primarily from mobile growth, partly offset by lower CTV revenue. It expected cost of revenue and sales and marketing expense to decline in absolute dollars, and technology and development expense to remain relatively flat. No numeric revenue or earnings guidance was provided.
- Management stated that cash, operating cash generation, and available revolver capacity should be sufficient for working capital needs for at least the next 12 months. The $65 million revolver had $59.8 million available after letters of credit; no borrowings were outstanding.
- A buyer bankruptcy contributed $4.5 million of bad-debt expense in the first half of 2023. The allowance for doubtful accounts was $19.6 million at quarter-end, compared with $1.1 million at December 31, 2022.
- Management cited macroeconomic pressure on advertising budgets, ad-market competition, CTV growth and take-rate variability, customer concentration and credit exposure, privacy regulation, and execution risks from integrating CTV platforms and launching new products.
- The floating-rate Term Loan B creates interest-rate exposure; the filing estimates about $3.5 million of annualized additional interest expense per 100-basis-point increase above the rate floor. Debt covenants were in compliance at quarter-end.
- Commitments include $111.4 million of other non-cancelable obligations, including a cloud-services minimum spend commitment of $57.6 million in each of the 12-month periods ending June 2024 and June 2025. Management did not expect known litigation to have a material adverse effect.
- Magnite completed migration to its unified Magnite Streaming CTV platform early in Q3 and cited related accelerated amortization. It also reported workforce-reduction and platform-consolidation costs during the nine months.
Important facts for investors to verify
- Whether mobile growth continues and CTV performance recovers, given Q3 CTV revenue and contribution declines.
- The ongoing effect of accelerated acquired-intangible amortization on GAAP costs, earnings, and margins.
- Buyer receivable quality and potential exposure to additional defaults or seller-payment obligations.
- Cash generation and debt service capacity, particularly with the Term Loan B rate at 10.53% and substantial future debt maturities.
- Progress in realizing integration savings and the performance of Magnite Streaming, ClearLine, and Magnite Access.
- Whether management’s stated 2023 revenue and expense trends materialize; the filing provides no quantified forward guidance.