Good afternoon, and welcome to the Magnite Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nick Kormeluk, Head of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Magnite second quarter 2020 earnings conference call following the merger of Rubicon Project and Telaria. As you may recall, the merger closed on April 1, 2020, and this quarter’s 10-Q will be the first quarter that includes the combined company results. The comparisons you will see in the 10-Q are listed as reported, as they include the combined financial results in the second quarter of 2020, but for 2019 the results do not include Telaria. During the course of this call, when we refer to results and associated year-over-year comparisons with the phrase as reported, we are referring to the basis as reported in our 10-Q. When we make comments referring to pro forma comparisons, we are using combined company metrics for the prior year period in 2019, as the basis for comparison in order to provide additional detailed insights to business performance that management also uses to evaluate our business performance. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, CEO; David Day, CFO; and Tom Kershaw, our CTO, for the Q&A session. I would like to point out that we have posted financial highlights slides to our Investor Relations website to accompany today’s presentation. Before we get started, I’ll remind you that our prepared remarks and answers to questions will include information that might be considered to be forward-looking statements, including, but not limited to, statements concerning our anticipated financial performance and strategic objectives, including the potential impacts of the COVID-19 on our business. These statements are not guarantees of future performance. They reflect our current views with respect to future events, and are based on assumptions and estimates and subject to known and unknown risks, uncertainties and other factors…

Thank you, Nick. Before we get started, I want to take a moment to recognize that this is our first earnings call as Magnite, the leading CTV and full service omni-channel SSP. When we intend to merge in December, we knew that our combined company deserved a new name and name that would capture the culture and drive of both companies, project our strength as a global leader, position us as the alternative to the walled gardens and highlight our ambition to unite the industry through innovation and transparency. The Magnite brand embodies all of that. And since we launched it in June, the excitement from our clients and partners has been phenomenal. I’d like to review the highlights of our first full quarter since completing the merger. We’ve seen a strong improvement in our business trends since our last call and are seeing very positive momentum since the start of Q3. But before we get to the current trends, which you’ll be most interested in, I’ll give a brief overview of the second quarter 2020 results. Q2 revenue was $4.3 million reflecting year-over-year revenue growth of 12% versus as reported Rubicon Project only revenue of $37.9 million in Q2 2019. CTV revenue was $7.9 million in Q2, which represented an increase of 12% year-over-year. And Q2 adjusted EBITDA was – loss was $3.5 million much better than we originally expected. Since our last earnings call, we have observed a steadily improving revenue recovery. We noted in our last earnings call that we had observed revenue stabilizing in April and early May at a level of roughly down 30% year-over-year on a pro forma basis. Revenue in May and June continue to recover with June down only 17% year-over-year on a pro forma basis resulting in a 24% year-over-year decline…

Great. Thanks, Michael. As Michael noted, we’re very pleased with the significantly improving revenue trends since our Q1 call, June 18 update. As Michael pointed out Q3 three revenue levels on a pro forma basis are nearing breakeven year-over-year quarter-to-date, which is up approximately 40% on an as reported basis. Most importantly, CTV has resumed a very strong growth trajectory, currently growing at roughly 50% year-over-year, quarter-to-date. The Q2 2020 year-over-year increase in as reported revenue was 12% attributable to the Telaria merger and offset of course, by the negative impact of COVID-19. As reported, Q2 2020 revenue declined 10% in mobile and 8% in desktop. CTV was entirely additive due to the revenue from the Telaria merger. On a pro forma basis, Q2 2020 revenue for mobile declined 32%, desktop declined 26% and CTV grew 12%. Revenue mix for Q2 2020 was 19% CTV, 45% mobile and 36% desktop. Operating expenses, which in our case includes cost of revenue, for the second quarter of 2020 were $82.9 million versus $46.5 million in the same period a year ago. Increases were driven by the inclusion of Telaria expenses, $12.5 million of non-recurring merger and merger-related restructuring expenses and the purchase accounting impact of approximately $7 million in non-cash intangible asset amortization. On an adjusted EBITDA basis, operating expenses, including cost of revenue for the second quarter were $45.8 million as compared to $33.5 million in Q2 2019. This was below the $48 million to $49 million in total adjusted EBITDA operating expenses we originally expected, driven primarily by additional savings and temporary cost reduction efforts, including the deferral of some non-time sensitive projects. Our GAAP based gross margin for the second quarter was 49%. Gross margin is lower due to the impact of COVID-19 on our revenue and due to…

[Operator Instructions] The first question is from Lee Krowl with B. Riley FBR. Please go ahead.

Great. Thanks for taking my questions and nice work on the quarter and quarter to date trends. I wanted to start off just kind of on the quarter-to-date trends, you highlighted a few sectors that were performing well, as well as a few sectors that were performing poorly due to the macro backdrop. Just curious what kind of the working assumption is for the impacted sectors to the downside and Q3? And then also, I know you kind of defended the IDFA impact on the business. Is there any impact from revenue standpoint or do you guys fully believe that you can steer clear of any impact in the second half.

Yes. Great questions. David, do you want to take the trends to date with the categories question.

Yes. I’m sorry, I don’t fully follow that. So I apologize. So Lee, can you just expand on that question?

Yes. I guess, is there an assumption that those negative sectors improve in Q3 or do they kind of trend similar to Q2?

Yes. We’re basing our guidance on what we’re observing today. So we’re not assuming significant upsides in those lower performers at this point in time. I’m not saying that’s – what will happen, but that’s what we’re basing our guidance on.

Yes. And I can – Lee, I can hit the IDFA and then also would love to throw that to Tom Kershaw as well, our CTO is on the call, who’s far more expert at the impacts of IDFA perhaps not monetarily, but from a technical standpoint. But yes, we feel comfortable Lee, in that, we aren’t terribly exposed or have outsized exposure to any deprecation of IDFA. And of course, it’s all guessing game as to how money is the top acts are unable to get consumer permission. And so that all has to play itself out. But generally speaking, we think that the inventory is broad and diverse enough and the spend is broad and diverse enough that what we’ve seen on platforms, whether it’s GDPR or any of the other Apple initiatives, like intelligent tracking prevention and the deprecation of cookies and the Safari browser that if there’s a momentary imbalance, it’s usually in CPMs, not an ad budgets, and there tend to be enough inventory where if you sold one unit at a dollar, selling two units at $0.50, I’m not trying to minimize the impact that may have on specific publishers, but for our platform, generally speaking, we deliver the budgets and we haven’t seen the budgets cut. I don’t know, Tom, if you have anything further to add to that.

Yes, I totally agree with that. I think the thing to note is this is going to be a phased rolled out iOS 14 rolls out in the middle of September. And it’s not going to be adopted on day one. It will be adopted gradually by customers over time. And the same way, the opt-in process for apps is the opt-in to IDFA tracking is per app. And that will be rolled out again over a period of time. So you won’t see like a onetime impact that we’ll see a gradual roll out of this. And with the introduction of the SK ad network standard for attribution, we feel that spend will still flow to iOS devices, mobile buyers have been close contact with us on what’s going to be necessary to maintain spend. So I think there will be some impacts here then, but the here or there, but I think given the phased roll out, our experience with this, because we’ve seen this in the year before, it means it makes us pretty comfortable that we’ll be able to manage this transition.

Got it. That was very helpful. I think most investors just breathe a sigh of relief there. Thanks Tom. The second question I had just wanted to focus on the SPO share gains, I know we’ve talked about it several times in the past. It’s always kind of been on the horizon, but it seems like the tone in this call has changed. And so it really seems like perhaps it is starting to materialize. I guess, what is the catalyst for the change in tone? And I guess, what is sort of the trajectory for SPO from here go forward.

Yes, I’ll jump on that. And maybe David want to chime in. Lee, but yes, there’s no question we’re seeing than average rebounding this quarter and the projections at the guide that we gave for Q3. And if you look across the industry and look at the CPMs that we have trending on our platform, in the volume, it all seems to be beating on the industry average with this COVID tamped down. So through the multiple initiatives that we’ve done over the last two years, to the strengthening of the company’s profile with the merger with Telaria, the strength of the balance sheet in terms of being able to assuage buyers and sellers that we’re not going anywhere with our cash balance. There’s definitely been an uptake, we think in this kind of slate to quality. And I also believe that many of the initiatives are – they’re not bold. You would like SPO to be one day you wake up and four platforms go out of business and it’s tangible. And everyone recognizes that SPO is upon us. This is – it’s a gradual game. And we’ve been seeing a gradual shifting, a gradual strengthening of the Magnite platform. And there’s no question, there’s countless examples of agencies or agency partners or DSP partners that we can point to where we’re getting shift spend towards the platform.

Got it. Thank you for taking my questions guys.

Thanks, Lee.

The next question is from Jason Kreyer of Craig-Hallum. Please go ahead.

Hey, guys. Good afternoon. Good to hear the improvement of trends. Just wondering to start on connected TV. Michael, can you give any details on the cadence that you saw over the course of the quarter and in particular, in any changes in the volume of CTV being purchased programmatically as opposed to direct?

Ye. So we see what we can see right, Jason, so it’s not completely a macro insight, but what we have seen is what intuitively folks predicted and others have commented upon. And that is CTV was not immune from the pause in March. It was a drastic decline in growth rates, but it was still growing. And then we saw it as one of the fastest media types to recover. And so outpacing the gains that we saw in the rest of the platform. And those are even accelerated as we pointed out with the guidance for Q3. And we know that it’s an increase in inventory that we are seeing, not partially because of consumer behavior, but also because of how difficult it is in a world without upfront, in a world that’s been disrupted from direct selling, the idea that you can monetize these added impressions in the surge in viewership without having commercial your direct team to do so in this backdrop we really definitely benefited from that trend. And I think some of that’s here to stay. The concern that programmatic would drag down CPMs. The concern that programmatic would take away rest control of inventory from leading players. You can just sense it abating and that there’s this new norm that it’s going to be front and center with their distribution strategies and their sales strategies, and it’s now going to play a very, very important role pulled forward by, I would guess, eight or so quarters in terms of what it would normally be the development cycle.

Perfect. Thank you. And you made a couple of comments that stood out to me earlier in regards to the privacy initiatives. Two in particular, I wanted to see if you could just give a little bit more color on or maybe I’ll give a little bit more color on. But one was just the establishment of publisher segments, it seems like almost kind of creating better capabilities to target individual groups. And then the second on launching a vendor marketplace. So any more color on those two would be great.

Sure. Tom, you want to jump on this?

Sure. So publisher segment, publishers leveraging first party data for the creation of segments is something that the industry has been doing for awhile. We’ve been publisher data in the form of key value payers to buyers for a long time. But they weren’t really using that data actively. And what’s shifted now with this change in identity is that we’re using deals and deal IDs to package up segments for buyers, so they can buy their audiences without having to process the IDs themselves. And I think what this is going to represent is a shift of kind of control and responsibility to the sell side to the publisher community. And those publishers are going to need to federate, because a lot of them are too small to scale on their own. So these groups of publishers using tools like Prebid to be able to create standardized audiences for the buy side is a clear trend we’re seeing and we’re super excited about it. And I think we’re with Prebid in Magnite, I think we’re collectively in a really good position there. The vendor marketplace is a – it’s a new innovation that allows us to plug third-party data into our platform. So say a third-party provider has a bunch of information for segment creation or for targeting. Taking to our platform will collect the money from the buyer on their behalf or from the seller and pass that on to them seamlessly. So they don’t need to have contracts with thousands of publishers. And what this helps publishers do is it will help them take their first party data and extend that to other publishers. So we think there’s going to be a data marketplace as well as kind of a format marketplace that will be enabled as we move towards this first party environment.

Okay. Since Tom’s already got the floor, I’m going to one more out to you. But over the course of the quarter, I guess, early in the quarter, we saw one of the larger DSP starting to put some regulations out there to limit supply paths. And as we’ve gone through checks, we’ve heard that that’s been a big tailwind for prebid and they’ve seen better adoption. And just wondering if you can kind of connect some dots for us, I mean, do you see that as a benefit to Magnite with Prebid gaining market share or what’s kind of the read through.

Well, yes, I have to see it pretty positively for Magnite that Prebid is gaining market share. And I think it’s just phenomenal testament of Prebid success that when publishers were asked a couple of months ago, you have to pick, you have to pick between Google, A9 and Prebid, they overwhelmingly picked Prebid as their preferred methodology for connecting to the rest of the world. And that’s a testament to the open source nature and the control the publishers have. So we definitely did see that trend. We see a continued movement of inventory into Prebid. The next phase of this is for that to extend to mobile and to CTV. But certainly that was one of the big trends in the first half of the year was just the continued acceleration of Prebid as the preferred method for most publishers to connect to demand sources.

All right. Well, thanks a lot for all the color guys. And Tom appreciate you joining the call. Thank you.

Thanks, Jason.

The next question is from Matt Thornton with Truist Securities. Please go ahead.

Hey, guys. Michael David, Nick, Tom, thanks for the question. Maybe first, just coming back to supply path optimization, I guess, maybe this one’s from Michael. I guess, did you see without getting into specifics, but are you starting to see in the second quarter, did you see developments that just gave you just proof points that this is starting to play out in the way that favor is Magnate meaning, obviously you guys just closed this merger. Did you see a buyer or buyers come to the table and prune their supplier cohorts in favor Magnite because of the steps you guys have taken. So I’m just curious, without any specifics, if you’ve seen some of the evidence start to come to fruition there. And then just secondly, on maybe on the revenue side, we’ve talked a little bit about some of the costs synergies that you guys reiterated the deal, but I’m just curious if you’ve started to see again evidence of some of the revenue synergies that we’ve talked about in the past, starting to come through as well as you start to cross sell the two different customer basis and the two different kind of geographic footprints. Any color there would be helpful. Thanks, guys.

Yes, Matt. I’ll jump on that. So yes, the big vision is the promise of Magnite bringing together the great CTV capabilities of Telaria and the omni-channel capability Rubicon. We see validation of that play on a daily basis, but to be honest, that’s a longer-term delivery in terms of then working with publishers on demand manager products, or video management platform products, and more of a software we’ve always saw this the big opportunity that Mark and I saw when we got together, wasn’t just being able to provide demand to publishers for all media types, that’s a very important obviously. But the idea was to take this to the next level and being able to combine some of the cool initiatives they’ve done with Hulu, with our demand manager project, our product bring them all together and have this one platform, one software first approach. And that obviously takes time. And I’ll be honest. It certainly isn’t helped by – helped to be in the office meeting your colleagues and doing all the normal stuff you normally would do under business, but we are terribly encouraged the feedbacks and fabulous from clients and as it really directly to fruition of the deal promise we definitely saw that the initial pause and spend that occurred in the concern from publishers about viability of certain sources and viability of certain platforms given this combined strength of the two companies and the combined balance sheet. There was no question that played a significant role in this shift of spend in the coaling of partners among leading publishers. And so we definitely benefited from that. And as it relates to revenue synergies, I think it’s a kind of dovetailed into the first part of the answer of the first question, which was those are definitely longer-term plays. We’ll be shouting them from the mountain top as they start to come to fruition. But I think that right now given what we’re doing, we’re just trying to excel at the CTV game, excel at the omni-channel game and work behind the scenes of making it one cohesive pitch that we’ll be able to deliver on the ultimate proud. I don’t know if you have anything to add, David.

I think you got it.

Maybe just one quick follow-up, and then I’ll jump back in the queue. I guess when you think about the landscape over time, obviously you’ve come together with Telaria, which was a very pragmatic move. I’m curious as we continue to see kind of fall out here, if you think there’ll be more opportunity for you guys to be a consolidator of the supply side. I know the choice being or given then maybe it’s a consolidation of the supply side, didn’t make sense, but obviously the world changing, I’m curious your views of that looking forward.

Yes, Matt, I don’t think they’ve changed. I think we’re bullish on the consolidation. I think we’re – we look at deals constantly and what took us so long to deal it to our idea was, the market timing was right for both companies. But it was also we’re both winning and we don’t want to do a merger or a rollout or an acquisition just for the sake of trying to do it for financial engineering. I think any company we look at it’s got to be playing often has to be in a very strategic and valuable piece of the ecosystem has a plethora of options themselves because they’re doing well. But buy into the overall vision of this combined entity and running the TV omni-channel, SSP with a huge focus on CTV. And so we’re – I think you’ll see activity from us in the future. But –and we’re as I said, open to a lot of things, but we’re highly selective and still don’t buy the thesis of trying to revolve a bunch of general exchanges that were kind of born in the desktop banner era and trying to see if that adds up to more than the sum of the parts.

Great. Thanks, guys. Appreciate it.

The next question is from Kyle Evans with Stephens. Please go ahead.

Great. Thanks for taking my question. And this is actually Michael on for Kyle. I know you talked about the number of live contracts increasing now to 172 for demand manager. Do you feel like you’re scaling to a user base and have a healthy environment to get to the original pre-COVID goal of $5 million in revenue? And just to tack onto that, are there any new competitive threats to demand manager outside of in-house development of pre-bid solutions that you’re seeing?

I’ll jump the latter and let David handle the revenue projection piece of it, but no, I don’t think the landscape is changed much Michael, and that was a – and thank you for the question. And that was kind of the believe that we had that our primary competitor in the demand manager space is going to be the free pre-bid product and that is certainly played itself out. And why you see the acceleration is pre-bid is growing in complexity, previous moving server to server. And I think publishers are starting to look hard at internal costs in realizing that by taking a company like ours with a managed service offering, it’s a very attractive economic proposition based trying to run it yourself. So I think that’s really what we’re seeing in terms of the uptick, as it relates to revenue in reaching the original $5 million goal, David, do we have a…

Yes, I’ll take that, yes. Yes, I think there was well, first as he noted on the signups, we’re just – we’re – what’s interesting is we’re also getting more interest from, I think some of the larger players that we thought would have taken more time to gain this level of interest, because of COVID and because of the impacts on their revenue and because they look at their cost structure, so definitely positive progress on the signup side. From a revenue side, I think we’re not formally at the in our guidance, but we – there’s a big enough hole here that, that we don’t expect to hit those levels this year. Of course, we’ve still got a runway here the rest of the year, so things could take off even more of it. At this point, I don’t think we’re going to hit those levels, but I think we’re going to be better positioned for 2021.

Got it. Thank you. And just one follow-up the onetime deal and merger related payment that you guys were expecting to $16 million. I know it came in a little bit below. Just wondering what the variance was here and if you expect any kind of more incremental expenses in Q3, or if that’s going to be a little bit cleaner going forward. Thanks.

Yes, yes. And there was the – it was a little bit confusing. The part of the – we were talking about cash outlays when we talked about that $16 million and the cash outlay related those deal expenses will actually be $17 million, just a tick up. And it’s just a cork of some of the investment banking costs on the Telaria side, actually aren’t on the cost ledger, but they are on the cash flow ledger. So the – we’re proceeding as expected with both the costs and the cash outlays related to the deal costs. But yes, and then going forward, there’s a lot of noise in this quarter and it should certainly GAAP side normalize, significantly next quarter, this third quarter.

Got it. Thanks so much.

The next question is from Chris Sakai with Singular Research. Please go ahead.

Hi everyone, can you – I know there was some weakness in the desktop and mobile channels. Can you just provide some color as to what were the main points of weakness there and in the near future, how do you see these channels in the future?

Why don’t you grab that, David?

Yes, I’ll. Well, I think the premise I mean, obviously COVID has impacted across the business. And actually the results on top and mobile I think are better than we would have anticipated, certainly, even at the end of May for the quarter, and certainly did not anticipate the momentum that we have coming into July. And so I wouldn’t necessarily describe even though they’re down, that’s purely we see as COVID driven and we think we’re well on our way to recovery as overall ad spend levels lift across the industry. And as we get continued momentum on some of the things that Michael talked about with continued SPO, and then in particular, as some of the sectors, some of the low performing sectors do start to recover, for example, travel and retail certainly not necessarily in the super near-term, but we believe they will come back as well, and those will certainly help lift our desktop of the business as well.

Okay, great. And then as far as the proportion of revenue from CTV by the end of the year, where would – can you provide a good estimate? How was – how much that the revenue came from CTV as compared to desktop and mobile?

Yes. We’re only – we’re not provide any specific CTV revenue guidance going forward, but obviously with a 50% growth rate and a higher a quicker trajectory certainly that, that 19% that we experienced in Q2 is mathematically going to grow. So we’re very bullish on that CTV business. And I think that the benefits that we’re seeing are not just COVID related, but sustainable for the longer-term.

Okay. Great, thanks.

Thank you, Chris.

Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Barrett for any closing remarks.

Thank you, operator. And as David mentioned in his closing remarks, we’re very pleased to deliver solid Q2 results and a view into the strengths we’ve seen so far in Q3. We are optimistic that these trends continuing and remain very excited about the future long-term growth prospects of our business, especially CTV. None of this would be possible without the tireless effort, but every team member of Magnite. We closed our merger at the start of this quarter have never had the opportunity to meet each other in person, we have three thousands of hours of Zoom Meetings, the teams who bonded and not missed a beat. Don’t get me wrong. We all hope one day to return safely to our offices and resume a more regular business cadence. But if our team can put up these types of results under extraordinarily trying circumstances, I feel very bullish about the future of Magnite. Thank you all for joining us for our Q2 results call. We look forward to talking to many of you through virtual investor meetings in the coming weeks. And everyone, have a good evening.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.