Magnite, Inc.

Good day and welcome to Magnite third quarter 2024 earnings call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Nick Kormeluk, Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to Magnite's third quarter 2024 earnings conference call. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, CEO, and David Day, our CFO. I would like to point out that we have posted financial highlight slides on our Investor Relations website to accompany today's presentation. Before we get started, I will 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 macroeconomic factors 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 that may cause actual results performance, or achievements to be materially different from expectations or results projected or implied by forward-looking statements. A discussion of these and other risks, uncertainties, and assumptions is set forth in the company's periodic reports filed with the SEC, including our third quarter 2024 quarterly report on Form 10-Q and our 2023 annual report on Form 10-K. We undertake no obligation to update forward-looking statements or relevant risks. Our commentary today will include non-GAAP financial measures, including contribution extracts, or less traffic acquisition costs, adjusted EBITDA, and non-GAAP income per share. Reconciliations between GAAP and non-GAAP metrics for reported results can be found in our earnings press release and in the financial highlights deck that is posted on our investor relations website. At times, in response to your questions, we may offer additional metrics to provide greater insights into the dynamics of our business. Please be advised that this additional detail may be one time in nature, and we may or may not provide an update on the future of these metrics. I encourage you to visit our investor relations website to access our press release, financial highlights deck, periodic SEC reports, and the webcast replay of today's call to learn more about Magnite. I will now turn the call over to Michael. Please go ahead, Michael.

Thank you, Nick. We are pleased to deliver another strong quarter of CTV growth and a strong beat on adjusted EBITDA, allowing us to boost full-year numbers. For the quarter... Our year-over-year growth rate in contribution ex-tac from CTV accelerated to 23% from a 12% growth rate in Q2. Strong CTV performance is driven by overall ad spend growth, increasing programmatic adoption by the industry's largest players, ad serving strength and solid contribution from political. Our growth rates in contribution ex-tac from CTV and ad spend have significantly narrowed, showing a stabilization in our mix and corresponding take rate. Robust programmatic CTV adoption is also continuing across a broad set of partners. As volumes continue to scale and CPM pressures persist, our clients are increasingly looking for us to help them add value to their inventory by layering on data to target and segment audiences. It is critically important for these partners to utilize programmatic selling to reach all demand sources, including SMB advertisers that didn't historically play in linear. We believe these trends are very powerful in expanding industry usage of programmatic and growing our accessible TAM. Partners more fully embracing programmatic include Roku, Netflix, Paramount, Warner Discovery, and Disney. Next, I want to highlight our Netflix and Disney partnerships. Netflix's rollout of Magnite-powered programmatic solutions continues to ramp, and we anticipate the partnership to grow in revenue contribution through 2025. We recently announced a two-year extension and expansion of our relationship with Disney. The recently signed deal now expands our partnership to include live sports like college football, the Latin American region, and podcasts for ESPN and ABC News. We will also make Disney inventory available through Clearline. Magnite will continue to be a key partner for Disney in the years to come, and we are pleased to further broaden our partnership. We are also seeing a nice boost from live sports to summer and fall. Recent areas of growth are college football, NFL, from the top MVPDs, and Olympics internationally. This is a market that is beginning its journey to programmatic, and our industry-leading tech offering, combined with our scale to monetize real-time inventory, is unmatched. We expect growth in live TV and live sports to continue with more sports and more partners in the coming years. This is a key investment focus for the company. We are optimistic about the commerce media vehicle being a powerful long-term growth driver, and I'm working many new opportunities in this space. Our partnership with United Airlines announced this summer is progressing well. We are now powering ad serving on personal devices on hundreds of planes, and look forward to expanding beyond personal device entertainment to include feedback screens in 2025. Clearline, our self-service direct buying platform, is continuing to grow and gain traction. We now have more than 20 agencies and brands buying through Clearline and continue to ramp their efforts. I want to double-click on our CTV ad-serving business which has been operating at nearly twice the ad impression volume from a year ago. Our software is deeply embedded within our partner workflows and go-to-market solutions as a core part of their operations, comparable to enterprise software solutions. It's very sticky and allows us to provide superior overall monetization. Our market leadership position in CTV continues to get stronger and we remain extremely focused on innovative features and services that will extend our lead into the future. Evidence of this is our deep and evolving partnerships with the likes of Netflix, Disney, Roku, Warner Brothers Discovery, Paramount, Fox, Samsung, LG, and Vizio. The fastest growing accounts this quarter included Roku, Warner Brothers Discovery, Disney, and LG. A solid portion of this growth comes from our SpringServe and Magnite streaming SSP combination, which gives us a competitive advantage as a programmatic first partner and is a major differentiator. Now to DV+. Q3 once again finished in line with our expectations, with contribution XTAC growth of 5%. Contributing to growth are investments in emerging formats such as native, audio, podcasts, and digital out-of-home. Our volume of ad requests continues to grow, and we continue to get much more efficient with our cost per ad request coming down by approximately 30% versus last year. Our improving efficiency is driven by filtering, traffic shaping, and AI. Another tailwind aiding our DV Plus and CTV businesses is is the increased importance of sell-side audience aggregation, a practice that is commonly referred to as curation. In simple terms, curation is the selective packaging of ad inventory using audience data to help advertisers reach audiences they might otherwise miss. For sellers, it means driving substantially higher yields on impressions that might have gone unsold. As Ad Age recently noted, there's an ongoing industry shift toward curation on the sell side, and it's being fueled in part by signal loss on the demand side, where data collection is becoming more restricted due to privacy changes in browsers and devices. We'd add to this that within the sell side, there's no better home for curation than the SSP. where it's easiest for premium publishers to lie with their peers to attract spend they'd have a harder time getting individually. In fact, Magnite's revenue from curating publisher audiences has grown over 100% year over year. It's early days, and we anticipate this growth to continue for the foreseeable future, given our strong tool set and unrivaled publisher footprint. Just last week, A Forrester report evaluating 10 SSPs highlighted curation as one of the top three capabilities publishers should prioritize to drive higher yields and differentiate themselves. Not only did Magnite receive the highest possible score for curation, but I'm proud to say we also achieved the highest overall score for the totality of our current offerings. Expanding our leadership and curation is critical and is another example of how our omni-channel footprint will enable capabilities for both CTV and DV Plus that no one else has and will drive outsized market share gains. In closing, we delivered strong Q3 results and Q4 guides. The strategic investments we've made to create the world's leading programmatic CTV platform are clearly paying off. We are confident about a strong finish to the year. It's an exciting time for the role of programmatic in the evolution of CTV advertising. And as the industry scales and evolves to bring in thousands of new buyers, we are also optimistic about 2025 as programmatic continues to gain steam at CTV We ramp up new and existing partners and see continued acceleration in sports and further growth of Clearline. With that, I'll turn the call over to David for more detail on the financials. David?

Thanks, Michael. The third quarter was another strong quarter for Magnite, beating the high end of CTV top line expectations and exceeding adjusted EBITDA expectations. Our results drove very strong free cash flow during the quarter. Our strong financial performance, debt refinancing, and early achievement of net leverage ratio goals have allowed for a tighter focus on equity dilution management. Our business is in a very solid position, and we are set up for a strong Q4, which is reflected in our updated guidance. Total revenue for Q3 was $162 million, up 8% from Q3 2023. Contribution X-TAC was $149 million, up 12%. CTV Contribution X-TAC was $64.4 million, up 23% year-over-year, and again, above the top end of our guidance range. Ad spend growth and strong momentum with our spring ad serving and programmatic growth drove the outperformance in the third quarter. EV Plus Contribution X-TAC was $85 million, an increase from 81 million, or 5%, compared to the third quarter last year. Our contribution XTAC mix for Q3 was 43% CTV, 40% mobile, and 17% desktop. From a vertical perspective, as expected, political was the strongest performing category at approximately 3.5% of contribution XTAC. News and retail were strong as well. Categories that did not perform as well were food and beverage and health and fitness. Total operating expenses, which includes cost of revenue for the third quarter, were $147 million, a decrease from $168 million for the same period last year. The primary driver of the decrease was the result of the SpotX acquired intangible assets that became fully amortized in the third quarter of last year. Adjusted EBITDA operating expense for the third quarter was $99 million, well below the low end of our guidance range. In Q3, we had a temporary benefit of approximately $1.5 million in lower rent-related expenses from one of our offices. The increase from $93 million last year was primarily driven by personnel costs, software costs, and cloud costs. Net income was $5.2 million for the quarter, compared to a net loss for the third quarter of 2023 of $17.5 million. Adjusted EBITDA grew 26% year-over-year and was $51 million, with a margin of 34%, which compares to $40 million and a margin of 30% last year. As a reminder, we calculate adjusted EBITDA margin as a percentage of contribution next tax. Gap earnings per basic and diluted share was $0.04 for the third quarter of 2024 compared to a loss of $0.13 for the third quarter of 2023. Non-gap earnings per share in the third quarter of 2024 grew 42% and was $0.17 compared to $0.12 last year. The reconciliations to non-gap income and non-gap earnings per share are included with our Q3 results press release. Operating cash flow, which we define as adjusted EBITDA less capex, was $40 million for the quarter. Overall, cash generation was very strong in the third quarter, and our cash balance at the end of Q3 was $387 million, an increase of $61 million, or 19% from the end of Q2. The increase was due to strong results and typical seasonality in our business, partially offset by share repurchases. Capital expenditures, including both purchases of property and equipment and capitalized internal use software development costs, were $10 million for the quarter, bringing the total to $40 million year-to-date. Our net interest expense for the quarter was $7 million. We were pleased to report that our net leverage ratio was 0.9x at the end of Q3, a sequential improvement from 1.3x at the end of Q2. This result achieves our goal of less than one X ahead of schedule. I'd also like to highlight that we repriced our $364 million term loan B debt at SOFR plus 3.75, a 75 basis point reduction. This will decrease interest expense by roughly $2.7 million annually. We're very focused on managing shareholder dilution after having successfully solidified our capital structure. During the third quarter, Magnite utilized approximately $14 million to effectively reduce dilution for shareholders by 1.1 million shares. Year-to-date, through November 6th, our repurchase program and withhold-to-cover activity have effectively reduced dilution by 2.9 million shares for $32 million. We expect net share dilution in 2024 to be approximately 2% excluding potential additional activity under the Repurchase Program. Through November 6th, we have plenty of additional capacity with $110 million remaining in our Authorized Repurchase Program. I'll now share our expectations for the fourth quarter and updated guidance for the full year. For the fourth quarter, we expect Contribution XTAC to be in the range of $182 to $186 million Contribution X-TAC attributable to CTV to be in a range of $75 to $77 million, reflecting year-over-year growth of approximately 20% at the midpoint. Contribution X-TAC attributable to DV Plus to be in the range of $107 to $109 million. We anticipate adjusted EBITDA operating expenses to be between $102 and $104 million, which implies adjusted EBITDA margin of approximately 44% for Q4 at the midpoints. For the full year, we're raising our expectation for contribution next tax to now grow between 11% and 12%. We're raising our expectation for adjusted EBITDA margin to expand 150 to 200 basis points over 2023. We're raising our expectations that adjusted EBITDA will now grow more than 15% year over year and raising our expectations for free cash flow to grow approximately 20%. and we now expect total CapEx to be above $50 million. We also expect to be net income and EPS positive for the full year on a gap basis. Q3 was another solid quarter for Magnite, and I'm very pleased with our consistent results. We have momentum and significant opportunities ahead, and I'm looking forward to the strong finish we expect for 2024. With that, let's open the line for Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please ask one question and one follow-up question. At this time, we will pause momentarily to assemble our roster. Our first question is from Laura Martin with Needham & Company. Please proceed.

Great, great numbers, you guys. My two questions are these all at the same time. Net leverage 0.9 times. Are we on our way to zero? It feels like you guys are giving your strong free cash flow. So that's my first question. My second question is on generative AI. One of the things we're seeing is that companies that are using generative AI are growing their costs much slower than they're growing revenue. So I'm wondering how you guys are using generative AI and what the roadmap for that is so we can get cost growth, like more operating leverage into the model. Thank you.

Great. I'll take the first one. This is David. Yeah, no, we're really happy with where our balance sheet or capital structure is at this point in time. I think our goal was to get to, you know, 1x net leverage ratio, 1x or below. We're happy with where we're at. And In some ways, our pivot is turning a little bit to equity dilution management, and so I suspect that our net leverage ratio could come down over time, but there also will be a focus on share repurchases.

Yeah, and hey, Laura, I'll take the generative AI question. Yeah, so it's a journey for us as a company, and we started a task force within the company, comprised of engineering, go-to-market folks, product, et cetera, to look at a slew of tools that are out there, as well as our own development. As you know, we have a very large data science team, and a lot of the machine learning that we're doing isn't true generative AI to speak of, but that's really where it's driving our cost efficiencies, as we kind of pointed out. Our volume on the DV Plus platform continues to go through the roof but our cost of processing has come down roughly 30% largely because of machine learning, filtering, et cetera. And we have talked about AI that we've pushed to our customers in the form of demand manager that's going over very well in creating revenue lists up to 30% for some of our customers. So it's a, like most companies, it's a work in progress and We see a lot of the efficiencies are going to be gained internally, probably through software development on our team's front, but we'll have more to say on that in the coming quarters.

Our next question is from Sean Patil with Susquehanna. Please proceed.

Hey, guys. Nice job on the quarter. I had a couple of questions. Michael, you talked about, I think, both of these topics in your prepared remarks. I just wanted to see if you could give a little more color. On Netflix, obviously a great, great land, great relationship. Just wondering if you could provide any more color on just how you expect that to ramp in 4Q next year and then also in kind of beyond that. And then on Disney, really good to see that partnership expansion. I guess, could you talk a little bit about just, you know, what, what led them to select Magnite for these additional areas and just, you know, what they really liked about the company and the technology that led to the renewal. And I guess maybe just kind of relate to that. Do you expect further, you know, revenue growth from this relationship kind of over time? Thank you.

Yeah, great questions. You know, as it relates to Netflix, as we've talked about before, We're very careful on our messaging there. A lot of folks ask us a lot about Netflix, and I'm not suggesting you're doing that, but to get a read-through on the Netflix ad business more so than a read-through on Magnite's business. I think what we stand by is that we're with them. We're a sole programmatic partner on the sales side. As they expand into foreign markets, we are going with them. The The implementation has been seamless to date. They're in the very early stages of selling programmatic themselves. But we stand by the estimate that when 2025 dust settles, that Netflix could very well be one of our, if not the biggest customer of Magnite. And as it relates to Disney, You know, I think that you've got to look at the length of our relationship with Disney and all the software that we've helped build for them that they use internally under Drax. And I just think it's more of an extension of the relationship that we've had as opposed to, you know, a full-blown RFP. But I think Disney has gotten very comfortable with what they want to do, proprietary, and what they want to be able to offer their customers but don't necessarily want to build it themselves. And so as you start to look at the expansion of the relationship, I think those are very good indicators that Magnet is a trusted partner of theirs and will be for years to come.

Great. Thank you, guys.

Our next question is from Jason Cryer with Craig Hallam Capital Group.

Great, thank you. Michael, there's been a lot of focus on direct connections over the last couple of quarters. Just wondering if you can maybe revisit that and give us your thoughts on how direct connections evolve over the long term.

Yeah, I mean, as you well know, Jason, a little bit different for both platforms, right? So DV+, the dust has kind of settled there. It's a little bit easier to do a direct connection because of pre-bid software being predominantly used by all DV plus kind of publishers. And, you know, as we said, there hasn't been much change in the kind of two pipe strategy that Trade Desk has deployed. One pipe for the direct connection, the second pipe to compete in the unified auction that is pre-bid and continue to see large amounts of spend from Trade Desk in the pre-bid unified auction area. As it relates to CTV, there is no pre-bids, so to speak. And so it's a bespoke kind of connection to each player's ad server. And in many cases, as you know, we're either the primary ad server or we're the programmatic layer by which the DSP would connect through to the ad server. And so, ergo, we don't see much loss in economics for Magnite in a direct connection scenario in CTV by the trade desk in non-proprietary ad serving CTV players. And even in those cases, you're dealing with a two-pipe scenario. So, You know, I think that one of the things that gets slightly conflated is the success that the trade desk is seeing with greater matching with UID. And I think a lot of people think, oh, UID in CTV equals direct connection, which is very, very far from the truth. Like look at Roku, for instance. Roku talks about UID and how it's helping them generate more revenue through the trade desk pipe. But keep in mind, UID isn't Direct Connect and UID is serviced by Magnite to the trade desk through Roku. And so I think people sometimes think if UID is mentioned, Magnite gets cut out of the picture and it's far from the truth.

Thank you. A lot of good color. You talked a little bit about a curated audience too. Just curious, I would think that that's relatively nascent in terms of adoption there. But can you talk about where there's some early success as far as, you know, DV plus CTV and, and, and kind of the scale of publishers that are looking at something like a curated audience solution?

Yeah, I'll tell you, it's incredible. Um, you know, so Jason, we've been talking about this whole, um, kind of moving audience targeting to the sell side. And, um, I think that, uh, the, uh, What's been the hindrance to that is there's still third-party cookies, right? And most publishers are like, hey, until the third-party cookie goes away, I'm going to continue to transact the way I always did. But now that they feel that it is going away, even though the hiccup with Chrome deprecation of cookies, they are really leaning into it. So we've seen – and it is early days and it's early revenue, but we've seen a big explosion in it from a theory – to reality. And so you're seeing quite a bit of publishers adopting it. I mean, again, curation is you're looking for finite audiences, you know, left-handed jugglers. And there's only so many that any publisher would have. But if a magnate can group together a thousand publishers, now all of a sudden you have this curated left-handed juggler segment that is scaled and buyers now can take advantage of that. And of course, in CTV, a lot of that world is first-party data, and almost everything's curated in that respect. So we think it's a logical outcome of what we've been talking about, and that is when third-party cookies go away, the signal loss goes away. That's how the buy side has operated since the dawn of DSPs. We really think this is a very encouraging uh opportunity for publishers and their partners like a magnet to be able to participate in those economics so early days but very encouraging the direction it's heading in all right appreciate all your thoughts michael thank you our next question is from tim nolan with macquarie please proceed

Hey, thanks very much. Michael, could you talk a little bit more about the transfer, their shift into more bidded programmatic? It was only a year or so ago that there was this weird sort of fluctuation with a lot of direct sales, which I think coincided with linear TV advertising being soft and what was happening in the upfronts at the time. But now linear TV advertising is still soft. There's a lot more supply on the market from the likes of Amazon Prime and so on and CTV. And I think there's been a shift toward using more bidded tools, which should be good for you, for your business, and for your take rate. And I wonder if you could just give us an update on transitions in the industry, please.

Yeah, Tim, really good observation. And certainly publishers, I mean, buyers have always wanted to be able to activate programmatic buys in kind of a biddable fashion because they're very used to that and they think it derives value for their advertisers. And, you know, the top premium publishers have been reluctant to play in that game for a number of reasons, largely driven by that's just not what they've done historically. So they much prefer to try to sell everything direct. And I think in an environment where we've had a surplus of CTV inventory, as opposed to two years ago when it was supply constrained, you're not surprisingly seeing behavior shift more towards what the buyers want. And you're still seeing it definitely occur more on the OEMs, the fasts, the streaming first players. And then if you look at the plus streamers, the premium big programming, legacy broadcast folks, biddable programmatic is becoming – something that they're leaning into, but certainly still not the prevalent way they conduct business with the buyers. So a long way of saying there's still a lot of room to grow in there, which I think is good from a magmate economic standpoint.

And am I right in thinking that where CTV initially was a little bit, what's the word, dilutive to your take rate versus... online and mobile a few years ago, now with more bidded work, it should be actually positive for your take rate as this evolves?

Yeah, I think you're right. As it evolves, I think we've always made a point of saying that it's not that we're under extreme take rate pressure from the marketplace. It's just that the type of product that's been popular, mainly among the plus services, has been publisher-sold programmatic. which carries a very low take rate vis-a-vis Magnite sourcing demand and bringing it to those publishers. So I think you're exactly right. I think we're on the low end of our historic take rate in CTV, and that will only improve as more biddable becomes activated. Great. Great. Thanks very much.

Thanks, Tim.

Our next question is from Omar D'Souki with Bank of America. Please proceed.

Hey, thanks a lot for taking my question. So happy to hear about the extension of the Disney. And I was just wondering, you know, if you could talk a little bit about the economics and if you can't do so in absolute terms, possibly in relative terms, you know, versus the you know, kind of the prior deal or relationship you had with them, you know, in, in particular, um, you know, is the take rate changing at all? Um, you know, or were there any other kind of value exchanges in this extension?

Um, yeah, Omar, I, you know, obviously can't go into great detail on that, but, um, suffice to say, you know, Disney's, um, um, the products that we sell to Disney, um, carry with it, um, take rate bands that are similar to other premier clients. So in other words, Disney has predominantly sourced their own demand through their sales team, whether it's programmatic or if it's direct sold. And in those cases, that's again, the very low range of our take rate. As you look at the expansion of our opportunities, some of those expansion opportunities carry with it the concept of Magnite bringing demand in. And when that happens, it comes at a more attractive take rate, just like it would for any other publisher. So I think the expansion opportunities are great. It validates our partnership and the strength of it. But more importantly, it probably does carry with it more attractive economics when they start to light up. So I think net-net, We view Disney as a big revenue grower for Magnate in the years to come.

Okay, that's really good to hear. And if I could just ask a quick follow-up, you know, please feel free to skip this question if it's been asked before. You know, do you have any kind of update on your views, you know, given, I guess, the recent regulatory decisions and court decisions regarding Google and SSPs? And I apologize again if this question has been asked already.

No, Omar, it hasn't been asked. And, you know, no real update. Obviously, you know, the ad tech trial piece of it is, you know, remedies are going to be argued coming soon. I think there's been a slight delay in it. But, you know, listen, I think that, you know, as we all know, this is going to be several years in the making before the dust settles. We can't imagine that when the dust settles, it's not more attractive for Magnite to be able to compete in an industry where Google has a stranglehold on share on the DV Plus side. We've been very successful in competing against them on the CTV side. But on the DV Plus side, we think there's... significant opportunity for growth once some of the structural inefficiencies of the marketplace get worked out. Impossible to tell when that might be, but we think all in all, we're quite positive about the direction it's heading in.

Okay, good to hear, and thanks for taking my questions.

Thanks, Omar.

Our next question is from Dan Pernos with the Benchmark Company. Please proceed.

Yeah, thanks. Michael has kind of touched on this, and he raised the sort of confusion issue, which I think is very prevalent out there. Maybe it would be helpful if you updated your thoughts on, you know, given the increasing prevalence of 1P ad tech stacks, how much you think the split of volume ends up being between the two, how much they lean on kind of 3P versus 1P, And obviously there's been noise on, you know, who has better signal strength, you know, between the two. And I think you guys have argued that you guys pretty much win every A-B test. So I'd love to hear kind of your thoughts there. And then separately, we continue to hear from other e-com guys, Uber, Lyft, for example, that they're willing to test out more programmatic. So it feels like United is just scratching the surface of what you can do in kind of broader e-com, but Love to hear, you know, what you're thinking about incremental use cases as just the whole ecosystem continues to move more programmatic. Thanks.

Yeah, thanks, Dan. So on the first-party data versus third-party data, I think you have to look at it in two buckets. I think that third-party data will be very prevalent in DV+. You know, if you look at the traditional DV plus publisher, Whereas they do have a relationship with their end user, obviously, the consumer that consumes the content. Oftentimes, it's not a logged in registered relationship. And therefore, some of the fidelity of the signals aren't nearly as strong as if you were to have a logged in relationship or even a credit card relationship. And that obviously is the CTV world. And so I think in CTV, it will be predominantly a first-party world. And in the cases of third-party, I think you will see that's coming from the advertiser. So there's a lot of activity in clean rooms where you're matching Bank of America customers with a paramount audience and trying to create audience segments specifically for B of A. And that's just an example. It's not a real life thing. And so I think when you start to look at it, we'll play a very big role in creating signals in the DBplus world, but that's going to be a portfolio world. There's not going to be one killer data signal that's going to replace the deprecation of third party cookies. And we'll be part of that portfolio solution. But I think in CTV you're going to see a very, very strong first-party world and we'll be front and center in that. As it relates to commerce media, you give a good example of Uber and you can see it through across all kind of the travel industry per se. Anyone that owns their own screens, you're starting to see a real appetite to get into the commerce media business And I think that we are expertly positioned, as you look with the very contested RFP with United, we have a video ad server. We have video monetization capabilities in the programmatic area. We are extremely experienced in this stuff, and we can bring demand for them. And so I think that unlike some of the initial forays in kind of retail media networks, I think this commerce travel network business will be very much a sell-side focused business, and I think we're very well positioned to capitalize on that.

Super helpful. Thanks, Michael.

Thanks.

Our next question is from Shweta Kajaria with Wolf Research. Please proceed.

Hi, guys. This is Brian Croscow for Shweta. Thank you for taking the questions, and congrats on the quarter. Just wanted to see if you could provide an update on Trade Desk and Open Path, if there's any impact you're seeing there. I know you mentioned in the first quarter that you're gaining share in DV Plus and accelerated growth. Just any update on that commentary? And then we appreciate the color on the verticals in the quarter. Just wanted to see if you have any incremental color on how those turn the quarters today. Thank you.

Sure, Brian. I'll take the first, and I'll let David talk about the verticals. Yeah, no real update on OpenPath. Again, it's here to stay. We participate in the economics of OpenPath on the CTV side. And our share of spend with Trade Desk continues to grow on the DV Plus side. So we feel as though we're well positioned as a kind of leading omni-channel SSP. And David, I don't know if you have any more color on the verticals.

Yeah, I mean, I think a couple of things. I think first, when you think about verticals for us, we're not disproportionately dependent on specific verticals. We have such a big footprint that overall spend, advertising spend in general, our spend tends to mimic that. And so when we talk about strength and weaker verticals, It's more on the margin. They're not, you know, always huge, huge drivers. So some context there. I think obviously political, you know, being 3.5% of our total revenue for the quarter was significant. And news and retail were the other strongest verticals. News, we were joking about this earlier. Hurricanes, you know, drove a little more news and probably politics as well. So I think that's the insight that we have.

Our next question is from Zach Cummins with B Reilly. Please proceed.

Hi. Good afternoon. Thanks for taking my questions. Is there any way you could provide any sort of incremental update around the MediaOcean partnership? I know it was something announced earlier this year, but any sort of incremental update on that would be appreciated.

Yeah, thanks, Jack. You know, as we had said before, we think it's a great partnership filled with opportunity for both of us. But we caution that... from a sales cycle standpoint and an activation standpoint that it's going to take some time. And so I think we're pretty much right where we thought we would be. We have folks sampling the tool. We have folks, you know, actively coursing a spend through it. And it's more kind of a test mode and probably doesn't, you know, activate in terms of, you know, any substantial spend until you get into the, you know, kind of Q1, Q2 timeframe of next year.

Understood. That's helpful. And realizing that DBplus is facing some near-term headwinds, what's the right way to think about maybe the sustainable growth rate in that business as we go forward from here. Just curious of how you're thinking about incrementally investing in opportunities on that side. David, do you want to handle that? Yeah, sure.

Excuse me. Yeah, I think we feel good about DB+. There's no reason that we can't continue to be a share taker And depending on the strength of the macro and overall spend, we certainly think that our DV plus growth rates could increase from the level that they're at now. We're investing in new formats and the curation that Michael mentioned earlier. We think we have the scale and the footprint and the technology that that could be an additional driver for us both in the space and also for taking share.

Understood. Well, thanks for taking my questions and best of luck with the rest of the quarter. Thanks, Zach.

Our next question is from Matt Swanson with RBC Capital Markets. Please proceed.

Hey, guys. This is Simran from Matt Swanson. Thanks for taking the question and congrats on the results. For my first one, it seems like you guys have partnered with almost everyone in CTV. So what would you say is the strategy to grow these partnerships from here?

Yeah, great observation. There aren't too many folks that we aren't their primary programmatic partner. So I think what the strategy is is that – we ride the maturation of programmatic with our partners. So particularly for our top premium partners, the plus services, programmatic right now is almost exclusively sold by the publisher. And when we don't source the demand, our take rate is on the lower range of our take rates. But as it becomes more biddable, as more advertisers, not just linear broadcast advertisers, but advertisers that have traditionally done social or OLV in open web, as they start to test CTV and use it as a performance kind of middle funnel, bottom funnel advertising vehicle – That's where we start to pipe in the demand. We bring those advertisers in, and that significantly improves the economics. So I think that the idea is to partner with everyone out there, which, you know, check that's occurred, and now go with them on the journey and help bring them more monetization capabilities. And there you'll see the profile of the economics improve substantially.

Great. That's really helpful. And then one more for me. Do you see pressure on non-political spend? Do you see that towards the end of October? And how are you thinking about it coming back in guidance? And then speaking more broadly, how have trends looked one month into Q4 and has that momentum from Q3 kind of continued?

Yeah, so on the political side, there's always going to be dislocation, right? There's a finite amount of ad times in CTV, and when political comes in, it does push out other folks. Also, given the fact that it was, like most of the elections in this country, quite contentious, the mood of the programming industry generally speaking, was something that folks kind of shut down on. So we did see a shutdown of, like, general ad brand spend, which we anticipate to return. Obviously, you're going into the holiday season. The strength of Key4 has always been there. So we anticipate that that will come back. The second part of the question is, David, do you have any color as it relates to that?

Yeah. As I mentioned, political is about 3.5% of our total revenue in Q3. And since the election is over, I guess we can talk about the political in the past tense here. In absolute terms, we more than doubled Q3 spend concentrated in the pre-election timeframe. And so If I pan back, big picture, we had expectations of political coming in at around $20 million of contribution ex-tax for the year, and we came in right around those expectations.

Great. Thanks, guys. Congrats again.

Thanks.

Our next question is from Robert Kulbrith with Evercore ISI. Please proceed.

Hi, good afternoon. Thanks for taking our questions. I wanted to ask quickly if you have any update on the managed service business in the quarter, and then also wanted to ask a follow-up on curation, maybe from more of an advertiser perspective. Our understanding is that with one of the major DSPs and their sort of preferred ID solution, there's probably going to be a policy limitation on the use of third-party data segments. Are you seeing any advertisers trying to get ahead of that? And I'm wondering if there's anything you might be able to share in terms of ShareGain opportunity, if you're sort of lighting up these audience segments and a different SSP solution isn't, take rate opportunity or uplift opportunity, anything else you can tell us about that. Thank you very much.

Sure. I'll take the curation piece, and then, David, you can talk about managed services. Yeah, so again, curation relative to early stages really has gained popularity. You know, there used to be a ton of services, a ton of, I'm not going to say networks, but some were network models, some were, you know, more of an exchange model. But as this SPO has continued with major buyers, basically, let's just say you were a company that had player technology, that a publisher would use your player, your video player technology. In return, they would give you, instead of paying for the technology, or they pay a little for the technology, but they give you some ad slots in it. And so there's a case of technology, and then there's a case of unique ad units. So some folks have unique spaces on the page. Increasingly, what buyers are saying, and particularly the large agencies, is like, we would just as soon conduct that through our exchange relationships that we have in place, so why don't you just go to Magnite, and then Magnite will then activate through their marketplace these special units, this special technology, et cetera, and therefore we'll buy it that way. That's one way. quite common way of that occurring. The other is the targeting solution of us finding audience segments and banding them together. I'm not aware of any restrictions vis-a-vis a DSP allowing that to occur. Generally speaking, it's not coming from the DSP per se, but it's coming from the advertiser behind the DSP, and they're the ones that are driving that demand. So I feel hard-pressed to believe that they would limit that if they're finding success of that and trying to find the audience that they're looking for that's quite finite if we weren't able to stretch it across thousands of publishers.

Got it. Thank you.

And on the managed service front, in the third quarter, managed service was about 4% of our total contribution XTAC, and that's down about 20% year over year. As we look forward to the fourth quarter, we would also expect managed service to be down in those levels or perhaps even greater. So what's going on, as you recall, managed service is primarily our mid-market sales folks who are helping agencies and other buyers who don't have the in-house resources to run programmatically, but many of those agencies and buyers are growing in their ability to run programmatic. And so we're seeing some of those dollars shift into programmatic. The good news is most of the time they continue to work with us. And so these relationships are very important from our managed service team. But you are seeing, as we expected, that business activity becoming programmatic, which is at a slower take rate. So in the short term, you know, it hurts us from a take rate perspective and a contribution extract perspective, but we believe these players over time are going to continue to grow in their programmatic, and that certainly offsets the negative component of that over time. And, you know, so we'll continue, we believe that managed service will continue to become a smaller and smaller portion of our overall contribution at XTAC as we continue to move forward. Got it. Thank you very much. Thanks.

Our next question is from Alec Brandolo with Wells Fargo Securities. Please proceed.

Thanks so much. Could we maybe double quick on the 30% reduction in cost for ad requests year over year? That seems like, you know, a pretty meaningful, it is a pretty meaningful improvement. I think you called out filtering and traffic shaping as the two drivers in the prepared remarks. Could you maybe just spend a little bit more time just elaborating on what specifically that means or what functionally is changing there? And then secondly, just any feedback on how gross spend trended in the quarter relative to contribution next time would be helpful. Thanks.

Yeah, great. I'll touch on the efficiency gains on the DBplus platform and then have David expand upon that and talk about gross spend. But essentially, you know, our costs are when we receive an ad request, that carries the cost structure to it. But when you bring that ad request to us, the exchange and run an auction, and you're sending that ad request out to multiple DSPs, obviously that's a different cost profile. So what you really want to do is figure out what are the most sought-after ad requests, the ones that have been purchased in the past, whether it's a region, whether it's a device type, whether it's an inventory type. And for those that have never been bought, make sure that they don't make it to auction where your costs escalate. And so most of the filtering and the shaping occur when the trillions of ad requests hit the front door. And then you smartly allocate to DSP number two because DSP number two loves this type of inventory. We will send them that inventory first because we think we'll have a higher win rate. So all of this is going on in real time, every day, recalibrated every 10 minutes based upon the trailing 10 minutes of activity. And that has really helped us become so much more efficient with our on-prem boxes. I don't know, David, if you have more to add there or about the gross spend.

Yeah, no, I think you covered it. From an ad spend perspective, we'll look at DV Plus and CTV separately from a DV Plus perspective, in general, our ad spend grows roughly at similar rates as our revenue growth, as our contribution XTAC. In CTV, as we've talked about, ad spend continues to grow at higher rates than our CTV contribution XTAC growth. But the difference between those growth rates has narrowed as our contribution XTAC has lifted up closer to the ad spend run rates. And so we're starting to see a little bit more stabilization. There's still a gap between those growth rates, but we're seeing more stabilization.

Thank you so much.

Thank you.

Our next question is from Max Michaelis with Lake Street Capital Markets. Please proceed.

Hey, guys, just one from me. If we go back to the Disney renewal, and you guys talked about sourcing your own demand and taking a higher take rate on that, is that something you weren't previously doing? Can you help me understand, is that something new you're doing with Disney? I guess anywhere, any comments you can provide, thanks.

Yeah, I think, Max, good observation. I think the statement was more appropriate a statement about... It was twofold. Number one, it's just the growing evolution of premium publishers' willingness to do programmatic in a biddable fashion, where when the first foray into programmatic, it was very much audiences defined by the publisher, pricing set by the publisher, and a one-to-one relationship in terms, even though it was just executed programmatically, right? They knew the advertiser. They created the audience segment for them. It was just pushed through our pipes. So in that scenario, we're kind of providing value, but kind of the lower rung of value. And now that you're getting into more biddable opportunities, even if it's led by the publisher, when you're doing biddable, it carries a higher value perception. you know, invite-only auctions, even, you know, could be 80 advertisers bidding on the same segment. That's a different profile. So the maturation of the Disney relationship is not unlike any of the other relationships we have with the premium publishers. There's just a growing acceptance that a biddable is a very viable way to increase yield and please buyers. The some of the properties that we expanded our relationship with in Disney particular are in markets that are either A, emerging, you know, say, for instance, audio, or B, in international markets that may or may not have the same kind of sales footprint that you might have in North America. And they lend themselves more naturally to, to programmatic demand being sourced by Magnite.

Awesome. Thanks, guys. Thank you.

Our final question is from Tim Nolan with Macquarie. Please proceed.

With large road drivers, including the ongoing secular shift to CTV.

Tim, are you on the line?

Expansion outside North America.

We already had Tim question on four.

Operator, we can go ahead and move on to the next one. If there's no others, then we can wrap up.

Yes, this will conclude the question and answer session. I would like to turn the conference back over to Michael Barrett for any closing remarks.

Thank you, Sherry. Before wrapping up, I would like to thank the great MAGNA team around the world for their dedication and very hard work for delivering another strong quarter that exceeded expectations. Our team's success is publicly recognized by securing the highest score in the current offering category of the 10 vendors evaluated in the Forrester Wave sell-side platforms Q4 2024 report. So congratulations to all the Magniters. We look forward to speaking with many of you at our upcoming investor events. We are participating in or at Wells Fargo virtual meetings tomorrow, Truist Virtual Conference on November the 12th, SIG meetings in Boston on the 13th of November, Seaport Virtual Conference on November the 18th, Craig Hallam Conference in New York on November the 19th, RBC Conference in New York on November the 20th, Macquarie Conference in Sydney on November 20th, Wells Fargo Conference in Ranchos Palos Verdes on December 3rd, Wolf Conference in New York on December 4th, Evercore meetings in San Francisco on the 9th of December, and the Scotiabank conference in San Francisco on December the 10th. Thank you all for joining, and have a great evening.

Thank you. This has now concluded. Thank you for attending today's presentation. You may now disconnect.