Magnite, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020. Unaudited results. Magnite operates a digital advertising sell-side platform. The SpotX acquisition closed on April 30, 2021, after quarter-end, and is not included in Q1 results.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $60.7 million | $36.3 million |
| Operating loss | $13.8 million | $10.7 million |
| Net loss | $12.9 million | $9.7 million |
| Net loss per share | $0.11 | $0.18 |
| Operating margin | -23% | -30% |
| Net margin | -21% | -27% |
| Cash used in operating activities | $1.2 million | $5.2 million |
| Cash used in investing activities | $3.3 million | $4.6 million |
| Cash from financing activities | $355.6 million | Cash used: $7.5 million |
- Revenue increased 67%. Management attributed $18.5 million of the increase to the Telaria merger, completed April 1, 2020, and the remainder primarily to desktop and mobile growth.
- By channel, Q1 2021 revenue was CTV $12.0 million (20%), desktop $20.9 million (34%), and mobile $27.9 million (46%). Q1 2020 included no reported CTV revenue.
- At March 31, cash and cash equivalents were $468.6 million, total assets $1.215 billion, and current liabilities $449.0 million. Accounts receivable were $401.8 million and accounts payable and accrued expenses were $436.6 million; these balances are large relative to reported net revenue because of the platform’s buyer-to-seller settlement model.
- Magnite issued $400 million of 0.25% convertible senior notes in March. The balance-sheet carrying amount, net of discounts and issuance costs, was $388.6 million. The notes mature in 2026 and have an initial conversion price of approximately $63.88 per share. The company spent $39.0 million on capped calls intended to limit potential dilution, subject to a cap.
- At quarter-end, Magnite had no borrowings under its SVB revolver and reported $54 million available, net of letters of credit; it was in compliance with the facility’s covenants. The SVB facility was terminated April 30.
Material changes, outlook, and risks
- Expenses rose 58% to $74.5 million, faster than revenue. Sales and marketing increased 100%, technology and development 33%, and general and administrative 55%, largely reflecting Telaria-related headcount and acquired-asset amortization. Depreciation and amortization increased to $12.5 million from $7.5 million.
- Management expected revenue to increase substantially during the remainder of 2021 following the SpotX acquisition and continued growth, especially in CTV. SpotX’s adjusted purchase price was $1.136 billion: $640 million cash plus 12,374,315 Magnite shares, subject to customary adjustments. The company said it was targeting more than $35 million in run-rate operating cost synergies, with more than half expected in the first year of combined operations. These are expectations, not guarantees.
- To help finance the acquisition, Magnite entered into a new credit agreement on April 30: a $360 million seven-year senior secured term loan and a $52.5 million secured revolving facility. It received $325 million net of fees from the term loan. The loans bear floating-rate interest; the agreement includes restrictive covenants and a leverage test when revolver usage exceeds a specified threshold.
- Management said existing cash, investments, and available revolver borrowings were expected to support working-capital needs for at least 12 months from issuance of the financial statements. The SpotX cash payment and new debt materially change the post-quarter liquidity and leverage picture, so quarter-end cash alone does not reflect the acquisition’s financing impact.
- Management cited COVID-19 uncertainty and said travel, auto, and entertainment advertising remained below pre-pandemic levels in Q1. Other risks include SpotX integration and synergy execution, higher leverage and covenant compliance, potential note conversion dilution or cash settlement, buyer nonpayment while seller obligations remain, CTV growth and customer concentration, competition, privacy regulation, and foreign-exchange movements. A 10% adverse foreign-exchange move was estimated to cause a $3.8 million loss on foreign-denominated balances.
- Routine legal and regulatory matters were disclosed; management did not expect their resolution, individually or collectively, to materially adversely affect financial position, results, or cash flows. The 2017 Telaria U.S. tax return was under IRS examination, with no issues identified through March 31, 2021.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of March 31, 2021, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How SpotX’s acquired revenue, purchase accounting, cash flows, and operating costs affect results after the April 30 closing; the filing did not provide a preliminary purchase-price allocation or combined financial information.
- Whether the company realizes the targeted cost synergies and CTV growth, and how acquisition-related costs and amortization develop.
- Post-acquisition debt balances, interest expense, leverage, covenant headroom, and liquidity under the new secured credit agreement.
- Cash-versus-share settlement outcomes for the convertible notes, dilution exposure above the capped-call ceiling, and counterparty performance under the capped calls.
- Revenue growth, take rates, advertising-spend mix, buyer collections, and seller-payment timing; Q1 operating cash flow remained negative despite improving year over year.