Good day, and welcome to Magnite's fourth quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. 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, Senior Vice President, Investor Relations. Please go ahead.
Thank you, operator, and good afternoon, everyone. Welcome to Magnite's fourth quarter 2021 earnings conference call. As a reminder, the comparisons you will see in the 10-K as reported include the financial results of SpotX and SpringServe for Q4 2021. For the periods prior to the date of acquisition, the results do not include SpotX or SpringServe, which were acquired on April 30, 2021 and July 1, 2021 respectively. During the course of this call, when we refer to the results and associated year-over-year comparisons with the phrase as reported, we are referring to the basis as reported in our 10-K. When we make comments referring to pro forma comparisons, we are including Telaria, SpotX and SpringServe for the relevant pre-acquisition period in order to provide a like-to-like comparison.
Please keep in mind, as it relates to the SpotX and SpringServe acquisitions, prior quarterly results are estimated and unaudited. 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 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 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 that may cause our 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 2021 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 revenue ex-TAC or less traffic acquisition costs, Adjusted EBITDA and non-GAAP income per share. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release and in the financial highlight stack that is posted on our investor relations website.
At times, in response to your questions, when we offer incremental 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 and access our press release, financial highlights deck, periodic SEC reports, and 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. 2021 was a transformational year for Magnite. We are now the largest and leading independent sell-side platform across all programmatic channels and specifically in CTV. Through organic growth of over 50% in CTV and two very strategic acquisitions, SpotX and SpringServe, we vaulted Magnite to become the clear leader in CTV among independent SSPs. We posted a strong Q4 and have started this year with similar growth rates in CTV and improved growth rates in DV+, and we are optimistic about 2022. In addition, we believe that our quarterly year-over-year growth rates will improve as the year progresses. As we stated previously, we continue to expect full year 2022 revenue ex-TAC to come in well over $500 million, and we continue to maintain our adjusted EBITDA margin target of 35%-40%.
Let me cover some quick 2021 full year stats that highlight the scope of our transformation. Total revenue ex-TAC as reported came in at $416 million versus $220 million in the prior year. For full year 2021, revenue ex-TAC from CTV as reported was $143 million versus $34 million in 2020. I'm sorry, in 2020. On a pro forma basis, CTV grew 52% and accounted for close to 40% of our total revenue ex-TAC, and DV+ grew 20% on a pro forma basis year-over-year demonstrating strong growth. Now I'll dive deeper into the state of our CTV business. Ad-supported CTV is in its early days, and like any developing market, revenue growth measured on a quarterly basis can be choppy. Why is that?
In addition to being an early-stage fast-developing market, it helps to understand Magnite's major buckets of CTV revenue by product. The majority of our CTV revenue is generated by three buckets. All three have different take rates and ad spend growth expectations, and often spend can shift intra-quarter between these buckets depending on seller and buyer desires. The first bucket consists of ad-serving fees and publisher-sold deals that run through our platform. Ad serving and publisher sold deals represent the largest portion of ad spend, but also carry the lowest take rate for Magnite. This product represented over 40% of our CTV revenue ex-TAC. As we've discussed on many occasions, the largest CTV publishers have established direct sales teams and predominantly transact with trusted buyers through reserve options where they can exert tight control over their inventory.
Ad serving software may carry a low CPM-based fee, however, it is essential software for publishers and allows us to establish a stickier relationship, which we believe leads to additional ad spend through our SSP. This bucket is highly differentiated and has very strong potential for growth. Our second bucket of revenue consists of deals sold through the Magnite CTV Marketplace. Today, these Magnite-led deals comprise over 40% of revenue. We believe this bucket also has very strong potential for growth because first, publisher sales teams are largely focused on the top 200 linear TV advertisers. CTV will significantly expand the universe of TV buyers to thousands of advertisers who never advertise on linear. Publishers will rely on Magnite to access this new pool of advertisers. Second, CTV-first ad-supported streaming services are continuing to gain traction.
These services do not have a history of legacy sales teams and rely on Magnite as a primary source of demand. Third, live stream programming. Every major sports league is getting into live streaming. These avails are much more difficult to forecast for directly sold campaigns and often lead to more opportunities for programmatic ads. Just yesterday, we announced the launch of Live Stream Acceleration, or LSA, a technology designed to help CTV publishers optimize their live inventory programmatically. This is an industry-leading innovation, which is being used by Sling TV for its live sport inventory. While using LSA, Sling saw a 47% lift in ad conversions compared to the previous five weeks. Our last bucket of revenue comes from our managed service insertion order business. Managed service accounts for approximately 15% of our CTV revenue ex-TAC and carries the highest take rate.
It's also by nature, the most valuable piece of our business because it relies on direct sales efforts with brands and agencies. We believe it's an important differentiator for Magnite as it allows us to capture video dollars that have yet to make their way to programmatic CTV and thus bring fresh demand to our publishers. Because managed service is often an entry point to programmatic, we do see a shift from this bucket to our programmatic buckets, which can result in short-term hit to revenue due to the lower associated take rates. However, we generally find that once we land a managed service client, we are able to migrate them through our ecosystem and keep them as a programmatic client, which in the long term will drive more consistent spend and growth through our platform.
We believe this is a validation of our technology and the value that programmatic brings to advertisers. Overall, I feel very good about how we position our CTV business. On the sell side, we work with nearly all of the largest programmers and broadcasters, virtual MVPDs, digital-first streaming services, and device manufacturers. On the buy side, we work very closely with the largest agencies such as GroupM, Havas, and Omnicom in deploying their upfront and programmatic buys. We also work directly with brands such as Bayer, Activision and HP as they grow and expand their CTV advertising efforts. We reach over 80 million households every month, and we believe we have more than 20% market share as measured by ad spend. Shifting gears, our DV+ business performed well in 2021, and we've doubled down here to drive growth going forward.
We continue to focus on the high-end reserve market, but also have renewed attention on expanding our share in open auction as well. In open auction, we are onboarding inventory more quickly, tuning our systems for speed, improving our auction mechanics, and providing our DSP partners with new bid signals to improve their efficiency. Finally, our commercial work with the buyers and publishers to deepen our already strong supply path optimization partnerships is setting the table for a strong year. Now, I'd like to talk about some recent industry news related to our DV+ business, starting with The Trade Desk's announcement that they will stop spending on Google's Open Bidding service, and separately, that they've launched a service called OpenPath that lets publishers connect to them directly to monetize display and online video inventory. Let's take these one at a time.
Though Magnite will continue to support Google's Open Bidding, we think that The Trade Desk shift away from it is good for the ecosystem, good for Prebid, and good for us. There are many other SSPs that are over-reliant on Open Bidding and generally don't add much value. We believe this move will leave The Trade Desk to readjust their ad spend onto platforms like Magnite, where Open Bidding represents a very small portion of their business with us today. Regarding OpenPath, though the name is new, we've been seeing The Trade Desk and other demand sources offer direct connections to publishers for some time. In the end, most publishers find it insufficient to rely solely on a direct connection versus the breadth and depth of what a full-featured SSP like Magnite offers.
I'm not just talking about capabilities like yield management, inventory curation, ad quality tools, billing and reconciliation, or access to seasoned monetization experts, though all of that is critical. Magnite also facilitates demand for publishers across all formats, in many cases, directly from brands and agencies. This view is shared by many of Magnite's key publishing partners, including Paul Bannister, Chief Strategy Officer at CafeMedia. Paul, who was also included in last week's announcement from The Trade Desk, had this to say about OpenPath, and I quote, "For CafeMedia, OpenPath and other direct connections to buyers are part of a holistic approach to monetization that includes the unified auction.
We see Magnite as a critical and growing part of that strategy, helping us to oversee and yield optimize across a range of our demand. For select publishers that want a direct connection to buyers, the approach can be additive to the unified auction, potentially lifting a publisher's revenue. Demand Manager, our header bidding software based on Prebid, makes it easy for publishers to activate direct connections to buyers such as The Trade Desk. Lastly, I want to provide an update on our audience strategy. Increasingly, the role of audience creation is moving to the sell side because publishers have direct relationships with consumers. This is true for web publishers that will be most impacted by the deprecation of third-party cookies and other identifiers, as well as CTV media owners, for which first-party data has always been an integral part of addressability.
You saw that we completed a small deal in December for Nth Party, which added talent and tech to speed up our ability to bring audience creation solutions for the sell-side to market. We will continue to make investments in this area and play an increasingly important role in identity targeting by offering scaled solutions that create value for publishers in both CTV and DV+. We look forward to updating you on this critical market need in the months ahead. If you look at the year we've posted from a top-line, bottom line, cash flow, and strategic M&A perspective, I am very, very proud of what we've accomplished. In addition, I'm very excited about our long-term growth profile and the durability of our model to be the top source of publisher monetization as the leading and largest independent omni-channel sell-side platform.
With that, I will hand things over to David, who will go into greater detail regarding financial performance and expectations. David?
Thanks, Michael. We are pleased to close a record year for Magnite. We posted $416 million in revenue ex-TAC for the year on total ad spend of roughly $3.5 billion. We also posted an adjusted EBITDA margin of 35.7% for the year. This resulted in non-GAAP EPS of $0.55 for the full year 2021. Q4 revenue had a solid finish in line with our guide, and Q4 adjusted EBITDA came in well above guidance, which resulted in strong earnings per share. Total revenue for Q4 was $161.3 million. Revenue ex-TAC was $142.1 million, up 76% from Q4 2020 on an as-reported basis, and up 10% on a pro forma basis.
CTV revenue ex-TAC was $54 million in Q4 2021, up more than three times from $15.3 million last year on an as-reported basis, and it was up 23% on a pro forma basis. Mobile revenue ex-TAC grew 6% and desktop revenue ex-TAC grew 1% year-over-year, both on a pro forma basis. Our revenue ex-TAC mix for Q4 2021 was 38% CTV, 36% mobile, and 26% desktop. Operating expenses, which in our case includes cost of revenue for the fourth quarter, were $157.7 million versus $74 million in the same period a year ago. Increases were primarily driven by the inclusion of SpotX.
Adjusted EBITDA operating expenses, which represents the difference between revenue ex-TAC and adjusted EBITDA, were $74.6 million for Q4, close to flat sequentially and up versus the $50.9 million in Q4 2020, also driven primarily by the addition of SpotX. Costs were lower than expected in the quarter, driven by postponement of our return to office, lower than anticipated marketing event spend, and reduced travel and entertainment costs. In addition, hiring challenges continue to persist consistent with the overall labor market. Net income was $0.5 million in the fourth quarter of 2021 as compared to net income of $5.9 million in the fourth quarter of 2020. The decrease in net income was primarily attributable to an increase in amortization of acquired intangibles related to the SpotX acquisition.
Adjusted EBITDA was $67.5 million, resulting in a margin of 48% as compared to an adjusted EBITDA of $30 million or a margin of 37% in the fourth quarter of 2020, driven by continued organic growth and by the addition of SpotX. Note that we calculate our adjusted EBITDA margin as a percentage of revenue ex-TAC. GAAP income per share was breakeven for the fourth quarter of 2021 compared to GAAP income per share of $0.05 in the same period in 2020. Non-GAAP income per share in the fourth quarter of 2021 was $0.26, which was up 37% versus non-GAAP income per share of $0.19 reported in the same period in 2020.
There were 132.1 million weighted average basic shares and 139.5 million weighted average diluted shares outstanding for the fourth quarter of 2021. Capital expenditures, including both purchases of property and equipment and capitalized internal use software development costs, were $7.3 million for the fourth quarter of 2021, in line with our expectations. Operating cash flow was $60.2 million in the quarter, which we define as Adjusted EBITDA less CapEx. Our interest expense for Q4 2021 was $7.3 million, of which roughly $5.2 million was cash. At the end of Q4, we had $230 million in cash on the balance sheet, which represented a $42 million increase from Q3.
As a reminder, our cash balances can swing disproportionately both up and down compared to the run rate of our business since we collect and pay the gross amount of flow through to our sellers while we record revenue primarily on a net basis. In 2022, we expect to generate over $100 million in free cash flow, which we define as operating cash flow less cash interest payments. I'd like to make a few comments on our priorities and potential deployment of capital. Regarding M&A opportunities, we believe that we have the core assets that we need at this point in time, although we always consider tuck-ins or small M&A activity that would expand our talent pool or accelerate our product features and functionality. On the debt front, we have an objective to reduce our net leverage ratio.
That ratio has been reduced significantly to slightly above 3x at year-end. This represents strong progress towards our ultimate goal of 2x. With respect to share repurchases, we believe there is a significant return opportunity for shareholders given our current share price compared to our intrinsic value expectations. As a result, in mid-December, we announced a program to repurchase common stock with an aggregate value of $50 million through mid-December 2022. Under the program, in Q4, we repurchased almost 350,000 shares for $6 million, leaving $44 million remaining in the program at December 31.
In addition, for our regular RSU vesting during the quarter, we utilized the withhold to cover method to cover employee taxes owed, essentially retiring an additional approximately 290,000 shares for $6.5 million, or a total retirement of about 640,000 shares during the quarter. We expect to continue a balanced approach to these objectives in 2022. I will now share our future expectations. To reiterate what Michael said earlier, we expect 2022 revenue ex-TAC to be well above $500 million. We expect revenue ex-TAC for the first quarter to be in the range of $105 million-$109 million, an improved pro forma growth rate from Q4.
We expect revenue ex-TAC attributable to CTV for the first quarter to be in the range of $40 million-$42 million, representing a similar year-over-year growth rate versus Q4. We expect Adjusted EBITDA operating expenses in Q1 will be $83 million-$85 million, representing an Adjusted EBITDA margin in the low 20s%. The sequential increase in Adjusted EBITDA operating expenses is primarily driven by our decision to move our annual compensation cycle from April 1 - January 1, from some higher than normal wage increases for market and retention reasons, and from the normal Q1 return of corporate matching payroll taxes. The remainder of the increase is due to the return of some marketing expenses and new office lease costs. For the remainder of 2022, we expect quarterly Adjusted EBITDA operating expenses to increase roughly $3 million-$4 million each quarter.
These increases are primarily the result of return to office costs and increased headcount and other technology operating costs to support our growing business. We expect that CapEx for 2022 will be between $40 million and $45 million, and as I stated earlier, in 2022, we expect to generate over $100 million in free cash flow after CapEx and cash interest payments.
We continue to target annual revenue ex-TAC growth of 25% and adjusted EBITDA over revenue ex-TAC margins of 35%-40%. We are very pleased with our results in 2021 and optimistic for continued growth in 2022. Our financial model remains very attractive as you move down our P&L and ultimately to free cash flow. We expect that our adjusted EBITDA will grow faster than revenue due to long-term margin expansion. We also expect that our free cash flow will grow faster than adjusted EBITDA based on financial leverage and a positive cash conversion cycle. With that, let's open the line for Q&A.
We will now begin the question-and-answer session. To ask a question, you may press star then one 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 two. At this time, we will pause momentarily to assemble our roster. The first question comes from Shyam Patil with SIG. Please go ahead.
Hey, guys, it's Shyam. I had a couple of questions. First on CTV, Michael, can you talk a little bit more about just what you're seeing there, especially with managed services? How you're thinking about growth in the second half and long term. I know you guys have said, you know, many times over the past that growth can be volatile. Just curious, kind of when you look out, you know, in time, just what kind of growth rate do you think is reasonable for CTV? Then second question on OpenPath, when do you think you start to see the benefit of that? You know, how have you reflected that in your outlook? Thank you.
Yeah, both great questions, Shyam. So what are we seeing in CTV? You know, as we talked about it, CTV performed we thought extraordinarily well in 2021. You know, as we exited the year, we saw some weakness, as others did in the certain sectors, advertising sectors. For us, it was auto and travel. Unlike the general platform where that probably is made up in an open auction environment in CTV, it's a little less fluid and it's insertion order driven. Our mid-market team is there's a high dependency upon those two categories. We had kind of signaled coming out of Q4 that you know, we thought we were gonna be battling those headwinds as long as supply chain and the Omicron existed.
It seems like from what we're seeing is that as you look ahead and you see bookings things are turning much more positive. I think that the worst is behind us in many of those issues. I think that you know CTV will be another bright performer for us this year. You know we talked about the buckets of business you know and Magnite sold deals, publishers sold deals, ad serving. If you look at those buckets they're performing you know at or above expectation. It really has been a bit of a drag to the overall growth rate from that one segment the mid-market.
Now that we see that freshening, I think that we feel good about exceeding, you know, market growth rates. You know, the next question is, what's the market growth rate? You know, you hear anything from, you know, 30%-50%. I don't know, take a midpoint if you want. You know, that's exactly what we completely believe that what we've built here should grow above market, right? As far as OpenPath is concerned, you know, I think we've seen. One of the things we'd mentioned is that The Trade Desk spends very little through us on Open Bidding, and that's by design.
The Trade Desk is, you know, they've optimized their pathways to publishers over the course of the last 6-8 months, and they really started to work with us more in Prebid than they were in Open Bidding. I don't think there's going to be this whoosh of dollars that are going to come from that piece of it, right? The switch from no OB to going to Prebid. I think what we might see is an increase of spend because there's hundreds of platforms in OB that are SSPs that provide zero value. They're just there to arbitrage the publisher and the buyer in Open Bidding.
When you take those out of the equation, and those budgets aren't going to be cut, those dollars have to flow somewhere, and we think we're well-positioned to grab those. That's kind of a combination of them pulling out of Open Bidding, OpenPath. You know, I don't think we've factored that into any kind of increase in guidance or numbers. But you know, I think we're watching it closely, and these things take a while to evolve. You know, as they signal they're not turning it off until April. And so, you know, we'll see how it plays out.
Great. Thank you, Michael.
You bet.
The next question comes from Laura Martin with Needham. Please go ahead.
Hi guys, I have two. Thank you so much for breaking out the CTV buckets. I'm gonna push you on take rates. On Telaria, you used to have about an 8% take rate, so I'm sort of assuming that's bucket number two. Then the direct, I'm assuming, is about half of that at 4%, and then the high-end bucket, which is managed service, about 12%. I'd love you to comment on sort of the take rate, like if I'm close or if I'm really far off on one of those buckets. Then on operating expense outlook, I get you that hiring CTV engineers is nearly impossible. My question is, can you really grow operating expenses at $3 million-$4 million a quarter if head count is so hard to acquire?
might we get sort of an upside surprise on margins this year because there's a labor shortage, especially for our CTV engineers, but really across the board? Thanks, guys.
Thank you, Laura. As much as I like talking with you, these sound very much like David questions.
Okay, fair enough.
All right. Laura, on the take rates again, you know, we for important you know competitive reasons we don't you know we don't share our take rates publicly. You know, the ranges that you mentioned you know as an average, if you average those together, that's not too far off. I guess we're gonna just we'll refrain from commenting too much on the low side and the high side. On the OpEx front you know we think that we can achieve the hiring plans that are embedded in those cost estimates. You know, you're right.
If you know, it is a challenging market and if things you know, get worse than what we're seeing today, you know, there could be a little headroom there. Overall, you know, it's important for us to get those resources in and we're going after it from a recruiting perspective in a very heavy way.
Thank you very much.
The next question comes from Jason Kreyer with Craig-Hallum. Please go ahead.
Thank you guys. Wanted to stick with the theme on the CTV buckets. Mike, I wanted to see if you can maybe provide a snapshot of if we look out, you know, one or two years down the road, if you've got any projections on how you expect that mix shift to change and then maybe even a little bit more near term. Are you hearing anything, as you have conversations with partners about, you know, maybe some more near-term changes in those buckets as we go into this year's upfront cycle, maybe where there's more scenarios where you could bring in demand?
Yeah. Hey, Jason, great question. Yeah. I think that our belief is that the role of an SSP in the CTV environment, and you have to keep in mind it's a segmented market, right? We have the broadcasters at the top with their legacy teams, and then you know you have the need for the medium guys and the device manufacturers and the virtual and MVPDs. I think that each one is a different segment, a different category.
Generally speaking, I think that over time, if you're looking at a two-three-year horizon, that for some of those reasons that we spoke about, whether it's an explosion of non-TV type linear buyers, advertisers rather, live sports programming now, you know, becoming a staple of streaming and the needs to fill ad slots because of things like timeouts and, you know, reviewing the call and overtime games and, you know, something like our LSA that we built is perfect for that. So I do think that bucket number two, the Magnite lead deals, the traditional SSP function is the one that benefits the most from that.
I think that that's good for the business because that carries with it a very decent take rate, and it also is kind of core to what we do, right? We have the software business bolstering, you know, the ad serving piece of it, the pub sell deals. Then in the middle you have the growing, you know, traditional SSP role of Magnite sourcing demand. Then on the far right, I still think you have a managed service business. I do think that over time, that's more of a shrinking business because keep in mind, we're chasing dollars that aren't programmatic yet, and once they become programmatic, we kind of feed them into the ecosystem.
I think that's probably how it plays out in the next, you know, several years. As it relates to this year's upfront, you hit the nail on the head and, you know, we've never been more involved in discussions with our agency partners, the big agencies, about assisting them when they go to publishers, CTV platforms, to say to them, "Hey, okay, here's our commitment to spend $ blank million. We would like 40% of it to go through these rails, because we want it programmatic and we want the advanced targeting that comes with it." Yeah, this is a real seminal year.
It'll be interesting how it plays out, but we're deeply involved in discussions across the breadth of the holding companies, with the holding companies going to our publishing partners. It's a market change from years prior. I will certainly say that.
One follow-up for me on connected TV. It seems like we've started to see some interesting new announcements from you guys where you're winning some more like exclusive or preferred deals. I know you had announcements with Samsung and Fubo recently, but I'm just curious, you know, are you seeing more activity within connected TV of a formal RFP process? Just curious, you know, when you come out, you know, with better relationships on the other end, when you're seeing these wins, what are the key components that are allowing you to get these wins?
Yeah, another good one. Again, they're all, you know, they all are slightly different, but I will say one thing that changes in our product suite to be able to strike these types of deals is the increased breadth of it. To that, I'm specifically talking about SpringServe. You know, kind of by definition, ad serving is exclusive. If you are able to bundle ad serving along with the other services, that's the whole goal, right? To be able to put the whole product portfolio in front. I think that's where you're seeing an uptick on that.
It's not necessarily kind of an RFP-led process as it is, you know, generated from our going forward to these clients with that suite of products that we hadn't had before, putting them together and showing them what it would look like to work with this leading independent, CTV-focused, SSP. You know, I think we're gaining traction on that front.
All right. Perfect. Thank you.
Thanks, Jason.
The next question comes from Shweta Khajuria with Evercore ISI. Please go ahead.
Okay, thank you. Let me try two, please. On OpenPath, could you please, Michael, you talked a little bit about it. Could you please give a little more color on why a publisher would want to go directly through Trade Desk, and work with an agency versus an SSP and even consider that option? Also, why an advertiser or agency was requesting this from Trade Desk to have this direct relationship. Understood that SSPs play a very important role, but where do you think that will trend over time? What's in it for each of those two, publishers and agencies and advertisers? That's the first one. Then the second one, could you please talk about just the puts and takes?
You reiterated your long-term EBITDA margin, 35%-40%. For this year, could you please help us with what the puts and takes are for EBITDA margin? Thank you.
Thanks, Shweta. I'll jump on the OpenPath, and then I'll let David talk about the puts and takes on EBITDA. So on OpenPath, obviously we're intimately more familiar with the publisher world than the advertiser world, if you will. So from a publisher perspective, I think it's pretty simple. If you're a sophisticated publisher and you are approached by Trade Desk that says nothing's gonna change. I'm gonna continue to bid through the supply sources that you have in the header. So you have Magnite there, you have PubMatic there, you have Index, et cetera, et cetera. Trade Desk is gonna continue to participate in those auctions. Nothing's changed. But I'm also going to move outside that auction with a direct connection and compete against those auctions, sometimes compete against ourselves.
In a publisher's way of thinking is, you know, that could just be increased bid density and it could lift yield. Therefore, the only reason why I wouldn't wanna do it is if Trade Desk came and said, I don't wanna participate in a unified auction. I wanna be put, you know, as a tag in the server, and I wanna be first look on everything, and then everyone else gets to look at everything. You know, that's the world of non-header bidding that used to exist in the SSP world. Publishers have spoken. They want it as part of a unified process. Interestingly enough, a lot of publishers, as you know, through our Demand Manager project, product, don't have the wherewithal to even manage a unified auction in Prebid.
In a weird way, economically, The Trade Desk moving as another source of demand in the header helps us economically from Demand Manager, because as you know, we get paid on every successful auction, whether it's a Magnite auction or not. If it's more demand inside the header and it's going through Demand Manager, it actually works out well for us. I think from a publisher standpoint, they just view it as a possibility if someone can make it easy for them to increase yield. From an advertiser standpoint, I think it falls underneath and whether or not OpenPath accomplishes this or not, I'll parking lot that. I think advertisers are looking for clean paths to supply. They want, you know, fewer touch points.
They want to have a closer relationship with the supply. We are seeing this play itself out with advertisers coming directly to us, agencies coming directly to us. Existentially speaking, you know, on some occasions, they can go around a DSP and go right to the SSP. On other occasions, it looks like they're going around the SSP directly to supply. But I think that generally speaking, it's all under the heading of fewer touchpoints, a more streamlined supply, more streamlined access to supply. David, if you wanted to
Yes.
talk about the puts and takes on either of them.
Yeah. Regarding our margin targets, we have a few factors that are impacting kind of the pace of our margin growth. If you think about 2021, you know, those margins were slightly benefited from work from home. We had lower office costs, marketing and events. There was no, you know, travel going on. Some of those costs, as we now move into 2022, are going to return. In addition, as I mentioned, we moved forward our annual raise cycle from April 1st - January 1st. On an annual basis, we've got an extra quarter's worth of costs in there. We've got some incrementally higher personnel costs, which includes some additional headcount.
Stepping back, I think that will slow the pace of our margin growth this year a little bit, but no real changes to, you know, the core leverage that we have. We don't see any changes in the long-term trajectory to our 35%-40% margin targets.
Okay. Thank you, Michael. Thanks, David.
Yep.
The next question comes from Nick Zangler with Stephens Inc. Please go ahead.
Yeah. Hey, guys. Great quarter. Lots of good details on the call. You know, Google announced some Android privacy changes to come in a blog post last week. You know, the move obviously looks similar to what Apple has done with iOS ATT changes. I imagine that such a change will have minimal impact to Magnite, as obviously has been the case with these iOS changes, but I'm interested just to hear your thoughts on Google's announcement and if you feel there's any potential impact to Magnite.
Yeah. Hey, Nick. I think that it's a little different than Apple's approach. Apple was kind of, hey, in 4 weeks it's going away, and poof, it went away in four weeks, and there was no real thoughtful alternative. They came up with kind of an audience product, but that didn't meet the needs of just about any marketer, right? Therefore, I think Google learned from that the Android team probably feels as though from a privacy standpoint, deprecating device ID makes sense, but they're gonna do it very thoughtfully. It's over the course of two years. They're doing it in concert with the ecosystem. They're getting feedback. They're actively looking for advice. It's a little like the deprecation of cookies, even though it's gone on interminably long.
It has been a relatively thoughtful process where they're trying to come up with an alternative. It may not be perfect, but it's a lot better than, you know, what Apple did. As it relates to Magnite, we don't like any of these changes that we've talked about, Nick, whether it's deprecation of cookies and/or IDFA, our exposure is somewhat limited. If budgets don't get cut, which they don't from the types of advertisers we work with, you see that happening in, you know, the folks like, you know, the Facebook ecosystem, where budgets have been cut and shifted. Generally speaking, we're dealing with more upper funnel advertisers, and these folks are looking for targeting parameters that aren't nearly as, you know, cost per acquisition-focused as an app download guy.
We're somewhat insulated, and we don't view this as a threat to the business.
Very helpful. That's what I expected. Quickly, one more. You know, you mentioned it, but obviously, you know, verticals like for instance, auto retail, you know, that ad spend runs through the managed service offering for Magnite, and I know that's been soft due to supply constraints. You know, was that a $3 million-$4 million headwind in the quarter as you guys had originally expected? You're not mentioning any ongoing headwind there into 1Q, or at least you're not calling it out like you did last quarter. Curious, just thoughts there, you know, if you were able to convert any, you know, new managed service clients in the quarter as resources may have diverted from that sector, or if specifically within that sector, underlying trends have significantly improved. Just looking for some clarity there. Thanks.
Yeah, Nick, and I'll lean on David for a little bit more color. The other thing we had said, and you accurately pointed out, it's through the managed service group. You know, when an insertion order gets canceled on, you know, December 15th for, I don't know, make up the number, $500,000. If that was open auction, you know, dollars are just flooding on that inventory. You know, it might not be the same value of $500,000, but you'd sell it no matter what. Insertion order business is a little bit longer lead times. If it cancels, it's harder to fill. I think what we're seeing is, as the quarter progressed, the ability for the teams to find, you know, different types of advertisers to fill what would traditionally be auto bucket or travel bucket.
Maybe nowhere close to the exact amount, but at least there's progress being made there. Then of course, things do seem to be getting better in that sector. Multiple folks have kind of commented that Q2 might be a more return to spend in those verticals. Not to mention that we also know that political is gonna start to heat up in that quarter, and we feel as though we're well-positioned, and that team particularly is well-positioned to capitalize on those dollars. David, I don't know if we're attributing a specific number or anything like that to it. Are we?
No. I guess the takeaway is, as you mentioned, Michael, Nick, there's no significant uplift from a revenue run rate perspective in Q1 versus Q4 of last year. You know, it's still, you know, in the doldrums. As Michael mentioned, we're seeing, you know, on the horizon some increased, you know, bookings that have these longer run rates. That's where we're getting some of our, I think, you know, hopefulness, as we look forward to future quarters. Not a lot of lift in Q1.
Got it. Great. Thanks, guys. Much appreciated.
Yeah.
The next question comes from Matt Thornton with Truist Securities. Please go ahead.
Hey, good afternoon, guys. Maybe a couple quick number questions for David and then one for Michael. David, when we think about political and how much of a headwind it was year-over-year in 2021, wondering if you can quantify that, and is that a reasonable way to think about, you know, what type of dollars come back in 2022? That's the first question. Second question, can you just remind us currency for you guys? I don't think it's material, but maybe you can remind us any meaningful headwind from currency. Then, Michael, I think you guys have talked about the CTV 2.0 platform, you know, kind of bringing the best of Telaria with the best of SpotX.
I think you talked about launching that maybe 4Q 2022, 1Q 2023 timeframe. Just wanna see if that was still the right way to think about that. Could we see any incremental synergies once that platform is actually launched? I'm not sure if there's any, you know, costs that perhaps go away when that platform does launch. Thanks, guys.
Sure. I'll hit the first two. On political, we talked about for the impacted quarters, sort of a low- to mid-single-digit % impact from political. If you recall, political was primarily connected television and our online video. From a quantification perspective, you know, that was the level of headwinds there. From a currency perspective, over 90% of our activity, almost 95% of our activity is transacted in U.S. dollars. We have very little exposure on the currency front.
Yeah, Matt. On the CTV platform front, you're right about the timing, although you know, throughout the year, clients will be shifted over to the new platform, and then you know, final migration on some of the more intricate implementations will take place as the year winds down. You know, if the clock runs out because of code freezes in Q4, it could you know, bleed to Q1. As far as it relates to synergies, I think most of that's been captured in the cost synergies that we've shared.
I think what we're really focusing on is the revenue synergy piece of it, the idea that you take a pretty sophisticated audience engine that's running on the legacy SpotX platform, and that now watches all the inventory on the new platform. I think we can see, you know, lift there. We're super excited about, you know, the state-of-the-art platform and the implications it's gonna have on the revenue side of things.
Great. That's helpful. Maybe I can throw one other quick one. I guess just maybe any thoughts on the Xandr-Microsoft kinda coming together? Just kinda thoughts on implications for the market. Thanks again, guys.
Yeah, no, I think that it's becoming clearer and clearer. I think when it was first announced, we kinda collectively all kinda scratched our heads a little bit. You know, they've had a long time history. Microsoft was a very early investor in Xandr, and Xandr's monetized some of Microsoft's inventory since then. If they were ever going to get bigger into ad tech, Xandr would be a logical acquisition for them. It appears that they are getting bigger into advertising as a whole with the proposed purchase in terms of the whole gaming area. I think it's going to be an attempt by Microsoft to try to organize all their inventory to have kinda end-to-end solutions for advertisers.
You know, I think that Xandr as a viable third-party SSP probably isn't at the top of their list in terms of priorities. I guess net-net it's a positive from that respect, but you know, it remains to be seen. It's obviously still you know, wet clay and it hasn't molded yet.
Was there a follow-up, sir?
That's it for me. Thanks, guys.
No, I think that's all. Yep.
Thank you. The next question comes from Tim Nollen with Macquarie. Please go ahead.
Oh, hi. Can you hear me okay?
Yes, you bet, Tim.
Great. Thanks. Most of my questions have been taken, but I have one other one which is fairly broad, and I'm hoping you can help us understand about the subject of media measurement. You know, given the role that you play in how much TV viewership and ad delivery and therefore tracking of ad delivery is changing, and given all the changes coming about in the measurement landscape, I just wonder if you could help us understand from your perspective what this all might mean for the market and what it might mean for you, given all this move away from a Nielsen standard to lots of other things potentially. Thanks.
Yeah, Tim. Yeah, fascinating times, right? I guess at the highest level, I think it's our belief that the industry, our clients, don't want us grading our own homework, so to speak. The idea of, you know, Magnite entering into the measurement space with a proprietary measurement system is just not in the cards for us. I know you weren't intimating that, but, you know, just take that off the table for Magnite as a primary. Our role is to work with every measurement company out there.
If a buyer wants to use that type of measurement, if a seller wants to use a different type of measurement, we need to have the APIs, we need to have to work with them, we need to have formal agreements with them. Where we can play a role in helping is through our ad server, because we'll see not just on-platform inventory for, you know, a certain publisher, but we'll also be able to see their distributed inventory. From a simple kind of reach and frequency balancing, which is the, you know, the bread and butter of measurement, if you will, we can assist there. Our plumbing, our platform, our serving will be able to assist the industry in helping get cleaner signals.
I think it'll be up to buyers and sellers to agree that this is the new standard, this is how it's gonna go. I think that, you know, for a digital world, anything that's not entirely panel based inherently has an advantage to, I think, broader adoption and broader use. I think that's a good thing for us. You know, it's evolving and we'll play our right role in that, if that answers the question.
Yeah, that's very helpful. Thanks very much.
The next question comes from Matt Swanson with RBC Capital Markets. Please go ahead.
All right. Thank you, guys. You know, Michael, you mentioned on the call, and I think we talked about this a little bit at the RBC conference, was the reinvestment into the DV+ side. Do you mind just giving us a little bit more color on, you know, what exactly that means and maybe some of the history of what necessitates the reinvestment? Then maybe for Michael or David, how do you think this business can, you know, affect that guidance for 2022? Basically, you know, how quickly do you think those investments can start to pay off?
Yeah, Matt, you betcha. Yeah, I think that you know, in terms of the broader areas that we discussed, in terms of the kind of earnings scripts, that's probably about as far as we wanna kinda drill down on those areas, because obviously you get into you know, competitive challenges talking about your product roadmap in a very open setting like that. I think that you know, as it relates to the work that we're doing, and we've been pretty open about onboarding you know, broader swath of inventory, and you know, then fine-tuning it and improving auction mechanics.
You know, I think that's as close as we'll get to talking about specifics, although you know, internally we have an incredibly detailed roadmap with you know, 30+ projects in flight. It takes a while, right? These things, you're dealing with a tremendous amount of scale, 300, 400 million auctions a day. I just think that we're getting better at it. Growth rate's improving. It's not where we want it to be. I think it's gonna be a 2022 project, but I very much am confident we exit 2022 in a far better state than we entered into it. You know, we've got some real talented engineers and a real focus on it from a product standpoint.
Feel good about the direction, you know, less than satisfied about where we are right now in terms of growth, but very good about the plan we have in place and about our ability to execute on that.
First of all.
On the guidance side, the reinvestments that we've talked about, they're certainly included in the kind of expanded cost guidance that we gave. We've got some international expansion, we've got some other things going on, and those have been factored into, you know, the cost guidance that we've given, and I think Michael's covered it on the expectation for higher growth rates as we move through the year.
The next question comes from Vasily Karasyov with Cannonball Research. Please go ahead.
Thank you. Good afternoon. Michael, I wanted to ask you to talk about how your competitive position evolved last year, and specifically if you estimate that you gained market share or held or lost it in the channels, including Connected TV, mobile, desktop. In general, is the competition getting more intense, less intense? How do you look at that?
Yeah. Hey, Vasily. So I think that, you know, taking CTV first, no question, we created a greater deal of separation between us and the competitive set. If by that we define that to be, you know, independent SSP primarily focused on CTV, right? There's just nothing out there that looks like what we've been able to put together by, you know, first merging with Telaria going into 2021 and then closing the SpotX and SpringServe deals. You know, we are this full service CTV company that no one else can offer other than perhaps this company called FreeWheel. I think that it makes us very clear about what we need to do, where the focus is.
You know, FreeWheel is a dominant ad server in the industry, certainly dominant in the broadcast sector. You know, we've got our game plan in place, the product suite in place, and you know, now we're focused on that. I feel very, very good about you know, the evolution of our market position in CTV. In DV+, I feel good that we outgrew the market you know, by any market estimate, if you bundle in mobile and desktop and you know, all the other forms, audio, all the other forms of what we consider DV+, we outperform market, but nowhere near what I think we can do.
I think that competition is severe, fierce in that it'd be just by the nature of header bidding, you know, most of it is open market. We made a choice to focus a lot of our energy resources and products on the premium side of that. You know, PMPs, the PGs piece of it, we've been quite successful there. You know, you can't do that at the expense of under-investing in open auction. Yeah. You know, doubling down, as we said in the script, refocusing internal engineering efforts and product efforts on open auction. Couple that with our Demand Manager and our premium strategy, I think we exit 2022 in a different and more enviable competitive position.
Thank you.
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 so much. I'm so very proud of how hard our team worked in 2021 to deliver a strong performance. We see clear areas for growth in CTV, DV+, and audience and identity. We've established ourselves as a critical long-term partner for many of our publishers and buyers, especially in CTV, and believe much of our future success lies in our execution. We've never been more excited about the opportunity we have ahead of us. Thank you for joining us for our Q4 results call. We look forward to talking to many of you at virtual investor meetings hosted by Cannonball Research tomorrow, conferences by Berenberg on March 1st and SIG on March third. Thanks again and have a great evening.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.