Magnite, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. Magnite operates a digital advertising platform connecting publishers and advertising buyers across CTV, mobile and desktop.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $152.5 million | $137.8 million | $282.7 million | $255.9 million |
| GAAP operating loss | $71.8 million | $23.3 million | $172.3 million | $63.1 million |
| GAAP net loss | $73.9 million | $25.0 million | $172.6 million | $69.5 million |
| Contribution ex-TAC | $134.7 million | $123.3 million | $250.7 million | $230.3 million |
| Adjusted EBITDA | $37.3 million | $41.3 million | $60.7 million | $70.2 million |
| Operating cash flow | — | $43.2 million | $64.0 million |
- Q2 revenue grew 11%; six-month revenue grew 10%. Q2 channel revenue was CTV $71.8 million, mobile $55.0 million and desktop $25.7 million. Mobile and CTV grew year over year; desktop declined.
- Q2 gross profit was $22.4 million versus $72.8 million; six-month gross profit was $27.7 million versus $131.5 million. Reported cost of revenue rose sharply, primarily from accelerated amortization of acquired technology and software. The company said this accounting charge did not change Contribution ex-TAC.
- Q2 Contribution ex-TAC grew 9%, while Adjusted EBITDA fell 10%; for the six months, each grew 9% and declined 14%, respectively. Management attributed lower Adjusted EBITDA mainly to hosting and bandwidth, bad debt, traffic acquisition and personnel costs.
- Cash and cash equivalents were $266.4 million at June 30, down from $326.3 million at year-end. Current assets were $1.197 billion and current liabilities $1.054 billion. Accounts receivable was $908.4 million, net; seller payables were $990.8 million.
- Gross principal debt was $662.3 million: $309.5 million of convertible notes and $352.8 million under the Term Loan B Facility. The Term Loan B rate was 10.24%; $59.7 million remained available under the revolver, net of letters of credit. The company reported covenant compliance.
- Six-month investing cash outflow was $18.5 million and financing cash outflow was $85.0 million, including $75.0 million used to repurchase convertible notes.
Material changes and management commentary
- GAAP losses widened substantially, chiefly reflecting accelerated amortization of acquired intangible assets and capitalized software after the company reassessed useful lives during 2022. The company reported $52.1 million of incremental amortization in Q2 and $104.1 million for the first half; it estimated approximately $7.9 million of further incremental non-cash expense through Q3 2023. The accelerated amortization was expected to be complete in Q4.
- General and administrative expense included increased bad-debt expense after a buyer filed for bankruptcy. The allowance for doubtful accounts was $19.6 million at June 30, versus $1.1 million at year-end; management identified $4.5 million of bad-debt expense associated with that buyer.
- Magnite completed migration to its unified Magnite Streaming CTV platform early in Q3. It also announced Magnite Access and launched ClearLine; some Access products were still in testing. A workforce reduction of approximately 6% was announced in Q1 as part of platform integration and cost-synergy efforts.
- Management expected revenue to increase during the remainder of 2023 versus the prior-year period, driven mainly by transaction volume, partly offset by lower year-over-year aggregate CTV take rates. This is directional commentary, not quantified guidance. Management cited macroeconomic weakness and slower advertising-spend growth as ongoing headwinds.
- On August 4, 2023, after quarter-end, the board authorized a new $100 million plan to repurchase common stock or convertible notes through August 4, 2025. The company stated existing cash, operating cash flows and revolver availability should cover working-capital needs for at least 12 months, subject to business and macroeconomic risks.
Risks, contingencies and unusual items
- Key risks include advertising-market weakness, CTV take-rate pressure, dependence on large buyers and sellers, buyer credit risk, competition, privacy regulation, platform integration and technology costs, and floating-rate debt exposure. A 100-basis-point increase above the Term Loan’s rate floor was estimated to add about $3.5 million in annual interest expense, before offsets.
- Non-cancelable obligations included $126.9 million due under other agreements, including a cloud-services minimum commitment of $57.6 million annually for July 2023–June 2025. Total scheduled lease, debt and other obligations in the filing were $1.050 billion, including estimated interest.
- Management said known litigation was not expected to have a material adverse effect, while noting outcomes and aggregate liabilities could not be predicted with assurance. Disclosure controls were assessed as effective at the reasonable-assurance level; no material Q2 change in internal control was reported.
Important facts for investors to verify
- Whether revenue and Contribution ex-TAC growth continue, particularly in CTV and mobile, and whether CTV take-rate declines offset volume growth.
- The duration and per-period effect of accelerated amortization, and the company’s operating performance excluding that non-cash charge.
- Receivable collectability, subsequent developments involving the bankrupt buyer, and whether the allowance and seller-payable recoveries adequately reflect credit exposure.
- Cash conversion, debt-service capacity at the floating Term Loan rate, covenant headroom, and the timing and terms of debt maturities.
- Use of the new repurchase authorization and its effect on liquidity, leverage and potential shareholder dilution.