Magnite, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited consolidated results. Magnite operates a digital advertising marketplace and platform, with CTV as a major growth channel.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $145.8M | $131.9M | $401.7M | $307.1M |
| Revenue ex-TAC (non-GAAP) | $127.7M | $114.1M | $358.0M | $274.4M |
| Gross profit | $74.1M | $68.3M | $205.5M | $172.3M |
| Operating loss | $(21.2)M | $(23.9)M | $(84.2)M | $(84.7)M |
| Net loss | $(24.4)M | $(24.3)M | $(93.9)M | $(0.4)M |
| Adjusted EBITDA (non-GAAP) | $44.4M | $40.0M | $114.6M | $81.1M |
- Q3 revenue grew 11% year over year; nine-month revenue grew 31%. Management attributed much of the nine-month increase to including full-period results from the 2021 SpotX and SpringServe acquisitions; pro forma nine-month revenue growth was 6%.
- Q3 CTV revenue rose 24% to $71.6M, mobile rose 6% to $46.0M, and desktop fell 8% to $28.2M. CTV represented 49% of Q3 revenue. Nine-month Revenue ex-TAC grew 68% in CTV, 17% in mobile, and 6% in desktop.
- Q3 gross margin was approximately 50.8%, versus 51.8% a year earlier; revenue mix, including gross-basis transactions, can affect this percentage. Q3 operating loss improved by $2.8M, while net loss was essentially unchanged.
- Nine-month operating cash flow was $103.8M, versus $58.0M; investing cash use was $49.9M versus $675.6M, largely reflecting the prior-year SpotX and SpringServe acquisitions. Financing used $28.3M versus $688.9M provided in the prior-year period.
- At September 30, cash and cash equivalents were $253.6M; current assets were $1.079B and current liabilities $919.0M. Gross debt principal was $755.5M, including $400M of 0.25% convertible notes due 2026 and $355.5M under a floating-rate Term Loan B. The term loan rate was 8.17%; $59.7M remained available on the revolving facility, net of letters of credit. The company reported compliance with debt covenants.
Material changes, outlook, and risks
- Q3 cost of revenue increased 13%, while sales and marketing declined 5%; technology and development rose 19% and general and administrative rose 22%. Nine-month results included $7.5M of merger, acquisition, and restructuring costs, including $3.3M for abandoned technology impairment.
- Management expected year-over-year Q4 revenue growth and further increases in Revenue ex-TAC and Adjusted EBITDA through the rest of 2022. It also expected higher Q4 cost of revenue, technology and development, and general and administrative expenses, while sales and marketing was expected to decline in absolute dollars. No numeric guidance was provided.
- Management said macroeconomic pressures—including inflation, geopolitical events, and recession concerns—were weighing on advertising budgets and could further affect results. Other stated risks include CTV growth and inventory access, competition and walled gardens, privacy regulation and identity changes, customer credit/default exposure, and rising hosting and infrastructure costs.
- Cash was supported by operating inflows and working-capital timing; management noted that buyer collections and seller payments can cause substantial cash-flow fluctuations. The company stated existing cash, operating cash flow, and revolver availability were expected to meet needs for at least 12 months.
- The company repurchased $15.7M of stock during the first nine months of 2022; $28.3M remained under its $50M authorization. The board extended the program in November 2022 through December 15, 2023. A variable cloud-services commitment was estimated at $40M–$50M per year for each 12-month period beginning July 2023, based on then-current spending assumptions.
- Management reported routine legal and regulatory matters and did not expect their resolution to materially adversely affect the company. Disclosure controls were assessed as effective at the reasonable-assurance level.
Most important facts to verify
- Whether CTV growth and the stated Q4 revenue, Revenue ex-TAC, and Adjusted EBITDA expectations materialized amid weaker advertising-market conditions.
- Drivers of the gap between GAAP losses and Adjusted EBITDA, including stock-based compensation, acquired-intangible amortization, and the sustainability of operating cash flow.
- Floating-rate debt cost, covenant headroom, scheduled debt maturities, and the company’s ability to manage the $400M convertible notes due in 2026.
- Actual cloud-services spending and the resulting minimum commitment, alongside hosting-cost trends and working-capital movements.
- Effects of share repurchases on cash and dilution, and any subsequent developments in litigation, privacy regulation, or buyer credit quality.