Magnite, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Magnite operates a digital advertising marketplace and related platform services, with CTV a key focus. Results include SpotX, acquired in April 2021, and SpringServe, acquired in July 2021; Carbon was acquired in February 2022.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $137.8m | $114.5m | $255.9m | $175.3m |
| Revenue ex-TAC (non-GAAP) | $123.3m | $100.4m | $230.3m | $160.3m |
| Gross profit | $72.8m | $64.0m | $131.5m | $104.0m |
| Operating loss | $(23.3)m | $(47.0)m | $(63.1)m | $(60.8)m |
| Net income (loss) | $(25.0)m | $36.8m | $(69.5)m | $23.9m |
| Adjusted EBITDA (non-GAAP) | $41.3m | $31.8m | $70.2m | $41.2m |
| Operating cash flow | Not separately presented for the quarter | $64.0m | $27.4m |
Revenue rose 20% year over year in Q2 and 46% for the first half; on a pro forma basis including acquired businesses in both periods, management reported growth of 1% and 3%, respectively. Q2 Revenue ex-TAC increased 23%; CTV Revenue ex-TAC grew 52%, mobile 13%, while desktop declined 1%. Q2 gross margin was approximately 52.8%, versus 55.9% a year earlier, reflecting in part a higher share of gross-basis revenue and related traffic acquisition costs.
Cash and cash equivalents were $233.1m at June 30, 2022, compared with $230.4m at year-end 2021. Gross debt principal was $756.4m: $400.0m of 0.25% convertible notes due 2026 and $356.4m under the floating-rate Term Loan B. The term loan’s stated contractual rate was 6.02% at quarter-end; the company reported covenant compliance. The $65.0m revolver had $59.7m available after letters of credit. Total liabilities were $1.80bn. Six-month investing cash outflow was $36.7m, including $20.8m for Carbon; financing cash outflow was $23.6m, including $15.7m of repurchases and $9.5m of taxes related to net share settlement.
Changes, outlook and risks
- Q2 net loss contrasted with prior-year net income, which included an $87.7m income tax benefit; the current-quarter tax benefit was only $0.1m. First-half net loss was also affected by higher acquired-intangible amortization and operating costs.
- Management expected revenue, Revenue ex-TAC and Adjusted EBITDA to increase in the remainder of 2022 versus the comparable 2021 period. It expected sales and marketing expense to decline in absolute dollars, but technology and development and general and administrative expenses to increase. These are management expectations, not quantified guidance.
- Management identified CTV as its expected largest growth driver and mobile, particularly in-app video, as another growth opportunity. It cautioned that desktop growth may be more challenging and that desktop could decline as a share of revenue.
- Risks include weaker advertising demand from recession concerns, inflation, supply-chain disruptions and geopolitical events; competition and “walled gardens”; shifts in privacy rules and identity technologies; dependence on large buyers and sellers; and variable-rate debt exposure. Management noted that a 100-basis-point increase above the loan’s rate floor would add approximately $3.6m of annualized interest expense before offsets.
- Unusual items included $3.3m of first-half impairment for abandoned technology projects and elevated year-earlier acquisition-related costs. Management said known legal matters were not expected to have a material adverse effect, while noting outcomes are uncertain. It stated cash, operating cash generation and revolver availability should cover needs for at least 12 months.
Important facts for investors to verify
- Reconcile reported revenue growth with pro forma growth of just 1% in Q2 and 3% for the first half, and assess the contribution from acquisitions.
- Track CTV and mobile growth against desktop trends, and monitor gross-basis revenue mix, TAC and gross margin.
- Review the quality and sustainability of Adjusted EBITDA and operating cash flow, including non-cash add-backs, working-capital timing and capital spending.
- Assess debt service capacity, floating-rate exposure, convertible-note dilution and the availability of the revolver.
- Monitor privacy and identity developments, macroeconomic advertising demand, acquisition integration, and the realization of expected operating leverage.