Earnings Call: Q2 2020

Aug 10, 2020

Afternoon, and welcome to the Magnite Second Quarter 2020 Earnings Conference Call. All participants will be in listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to Nick Kormeluk, Head of Investor Relations. Please go ahead. Thank you, operator, and good afternoon, everyone. Welcome to Magnite's Q2 2020 earnings conference call following the merger of Rubicon Project and Delaria. You may recall, the merger closed on April 1, 2020, and this quarter's 10 Q will be the Q1 that includes the combined company results. The comparisons you will see in the 10 Q are listed as reported as they include the combined financial results in the Q2 of 2020, but for 2019, the results do not include Telaria. During the course of this call, when we refer to results and associated year over year comparisons with the phrase as reported, we are referring to the basis as reported in our 10 Q. When we make comments referring to pro form a comparisons, we are using combined company metrics for the prior year period in 2019 as the basis for comparison in order to provide additional detailed insights insights to business performance that management also uses to evaluate our business performance. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, CEO David Day, CFO and Tom Kershaw, our CTO for the Q and A session. I would like to point out that we have posted financial highlights slides to our Investor Relations website to accompany today's presentation. Before we get started, I 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 impact of COVID-nineteen 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, including with respect to the severity and duration of the COVID-nineteen pandemic. 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 2019 Annual Report on Form 10 ks and subsequent filings and including our 10 Q for the Q2 of 2020. We undertake no obligation to update forward looking statements or relevant risks. Our commentary today will include non GAAP financial measures. Reconciliations between GAAP and non GAAP metrics for our reported results can be found in our earnings press release and in the financial highlights deck that is posted on our Investor Relations website. We define cash flow as adjusted EBITDA less capital expenditures, which excludes changes in working capital. At times, in response to your questions, we may 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 to 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. Thank you, Nick. Before we get started, I want to take a moment to recognize that this is our first earnings call as Magnite, the leading CTV and full service omni channel SSP. When we announced our intent to merge in December, we knew that our combined company deserved a new name, a name that would capture the culture and drive of both companies, project our strength as a global leader, position us as the alternative to the walled gardens and highlight our ambition to unite the industry through innovation and transparency. The Magnite brand embodies all of that. And since we launched it in June, the excitement from our clients and partners has been phenomenal. I'd like to review the highlights of our 1st full quarter since completing the merger. We've seen a strong improvement in our business trends since our last call and are seeing very positive momentum since the start of Q3. But before we get to the current trends, which you'll be most interested in, I'll give a brief overview of the Q2 2020 results. Q2 revenue was $42,300,000 reflecting year over year revenue growth of 12% versus as reported Rubicon project only revenue of $37,900,000 in Q2 2019. CTV revenue was $7,900,000 in Q2, which represented an increase of 12% year over year. In Q2, adjusted EBITDA was loss was $3,500,000 much better than we originally expected. Since our last earnings call, we have observed a steadily improving revenue recovery. We noted in our last earnings call that we had revenue stabilizing in April early May at a level of roughly down 30% year over year on a pro form a basis. Revenue in May June continued to recover with June down only 17% year over year on a pro form a basis, resulting in a 24% year over year decline for the full quarter. Since the start of this quarter, we have observed even greater recovery with Q3 revenue quarter to date nearly breakeven year over year on a pro form a basis. And since the start of Q3, we have observed even more rapid acceleration in CTV revenue growth currently running at roughly 50% up year over year. I'd like to provide some color on where we are seeing signs of recovery. The top 3 performing ad sectors in Q3 to date are technology, home and garden and health and fitness. The lowest performing sectors are travel, retail and automotive. From a global regional perspective, we've continued to see significant APAC outperformance relative to Americas and EMEA. Q3 quarter to date, APAC is growing in the high teens on a pro form a year over year basis in both the Americas and EMEA are close to returning to flat pro form a year over year growth. We've done some additional work looking at ad spend trends in regions of the U. S. Impacted by coronavirus resurgence. Initially, we saw ad spend slow in regions where hotspots have been concentrated in April May. However, when new hotspots emerged in July, there has not been a corresponding slowdown in spend in these areas. We've in fact seen continued sequential growth in ad spend in all geographic areas led by the strongest sectors we mentioned earlier. Overall, as we step back and look at the main drivers of ad spend improvement, several trends emerge: Increased marketer confidence in the second half of twenty twenty, FPO or supply path optimization, which refers to buyers consolidating the number of supply partners they work with, the return of live sports, an uptick in political ad spend and lastly, ad spend shift from marketers participating and ad boycotts of social sites like Facebook. On the SPO front, we have seen a flight to quality that has benefited Magnite. DSPs, agencies and publishers are narrowing their programmatic partners to a handful of full service omni channel players with sufficient resources to weather the COVID impacted economy. We expect this trend to accelerate in the coming quarters and are also seeing a pickup in ad spend as a result of larger DSPs consolidating spend with us away from smaller industry players through SPO. On the sports side, we've seen the return of basketball, baseball, soccer, hockey and golf among others and very strong ad spend deployment against programming. We participate directly in the live sports market with CTV spend with Hulu, Sling, Pluto, Fox, Fubo and others, not to mention ESPN across all of their formats. Political spend is starting to grow less than 4 months until the November election. We expect that there may be an earlier spending surge, which primarily impacts our CTV business with more mail in versus live voting this year as compared to past elections. And as a result, we expect a more concentrated impact from political spending in Q3 versus Q4. Lastly, we've been tracking the spend of many large brands that made public statements of their social media boycotts. Since the boycotts began, we've seen a pickup in their specific spending that has continued into early August. I'll now shift gears to CTV. The CTV business is an important focus for us and we provide an industry leading CTV monetization platform to many of the largest players in the market. In Q2 2020, CTV represented 19% of our total revenue. In 2020, the CTV market continues to accelerate. The largest industry participants including Hulu, Disney, Roku, Peacock, Sling, Pluto and others have seen strong subscriber growth, increased consumer viewing time and solid ad spend growth. We are seeing these same positive trends in our CTV business, which we define as digital content viewed on traditional TV screen. Specifically, we have seen a significant increase in CTV ad inventory. This was driven by consumers watching more CTV content during the COVID-nineteen pandemic and by larger secular trends. These trends include consumers cord cutting or canceling satellite subscriptions to save money, consumer preference for the lower cost ad supported CTV content and marketers shifting dollars to CTV because of the expanding audience in its premium content. Together, these trends are driving continued solid performance of our CTV business, which as I mentioned earlier, is now growing approximately 50% year over year since the start of Q3. We gathered some additional color on CTV industry trends and predictions that demonstrate the strength of this growing market. Cord cutting is accelerating. By 2024, traditional linear pay TV subscribers are expected to decline by 27,000,000 or down 24% to less than half of all occupied U. S. Households, according to research from Moffett and Nathanson. The combination of high prices as well as loss of live sports contributed to an overall drop of 1,800,000 pay TV subscribers in Q1. That translates into an annual rate of decline of 7.6%, the fastest shrinkage of the sector on record, which we expect even further accelerated during the pandemic in Q2. AVOD platforms are growing. Downloads of the Pluto app more than tripled to 3,000,000 in April from 900,000 in January according to Sensor Tower, a market researcher. Sinister Tubi jumped 30% to $4,000,000 over the same period, while Vudu's left 55% to $673,000 dollars Finally, on the demand side, agencies plan to increase their OTT, CTV spending by 46% compared to 2019, while brands said they expected to boost budgets by 32%, according to IAB in their June 2020 report. As these and other trends continue to play out, we have seen business with our largest partners grow across the board that include the likes of Hulu, Sling, Pluto, Dish, Tubi and across many of the content providers like Discovery, Fox and NBC. We believe the future is bright for connected TV. Magnite and importantly our clients will continue to benefit from our industry leading technology and service as the CTV market evolves. I'd like to change topics and talk a little bit about privacy. There continues to be a lot of attention in our industry on privacy initiatives from both regulators and industry participants concerning the collection and use of individual user data. For instance, Google's recent decision to eliminate the use of 3rd party cookies and Apple's recent announcement requiring user opt in for IDFA tracking. First, we fully support consumer privacy efforts and believe a privacy first model is good for the health of our industry and our business. The new privacy paradigm is shifting responsibility for identification more squarely to publishers that have first party relationships with their consumers and are better positioned to get consent versus a third party that is operating in the background. This transformed the value a publisher has with their users and as the largest independent SSP, we are well positioned to help them capitalize on this industry shift. 2nd, while we expect there to be some short term disruption in the ecosystem as participants adjust to the absence of certain identifiers, we do not expect these changes to cause meaningful reductions in overall ad spend or revenue. We do not believe budgets will generally be reduced and we believe that spend will continue to flow to high value users on a mix of mobile, desktop and CTV. It may mean more volume trading at lower CPMs in some cases, but ad budgets themselves should continue to be deployed and there is no lack of inventory. Furthermore, CTV ad spend has never been 3rd party cookie dependent or dependent upon mobile identifiers like IDFA. So there should be little to no impact to CTV growth as the industry works towards a new targeting paradigm. In fact, more spend will likely shift to CTV, especially as our addressability efforts continue to roll out and allow buyers to find their audiences on these platforms. 3rd, we are actively participating in this industry shift to ensure that we enable our publishers to realize value for their first party data without sacrificing the security and control over that data. Some of the things we are doing include helping publishers pass through first party values such as demo, interest and subscriber types in the bid request, which allows buyers to incorporate this publisher info into their buys packaging publisher segments into deal IDs, which allows buyers to purchase segments rather than identifiers augmenting buyer segments with look alike segments created by 1st party publisher data, support for the SK ad network standard, which was released by Apple and augmented by IV specifications to allow for attribution on Apple devices and lastly beta testing our new vendor marketplace, which allows sellers to package their data and extend that to other publisher inventory. This is live with some accounts today. Beyond publisher first party data, we are also leading efforts through prebid.org with broad industry support to create an open community driven first party identity model and we are obviously Now an update on Demand Manager, where we continue to see strong adoption by leading publishers. At the end of Q2, we had 100 and 72 live contracts as compared to 156 at the end of Q1 and 86 at year end. Revenue continues to grow and we continue to meet or exceed our contract signing targets for the year, which bodes well for the future as publishers look to decrease costs and optimize revenue. The key growth drivers for our business remain the same. We are focused on continuing to invest in CTV as our fastest growth area, driving revenue in the combined non CTV video businesses to deliver growth, accelerating SPO as a transparent independent omnichannel partner, growing our publisher focused prebid offering with demand manager and lastly, playing a key supporting role in the changing landscape in Identity Solutions. I'm proud of the efforts that our team has undertaken to be productive and make huge strides to recover and further position us for success going forward. The merger of our 2 companies is a huge strategic milestone to position us for the future and I'm even more optimistic now than ever. With that, I will hand things over to David, who will go into greater detail regarding our Q2 financial performance, cost reductions and expectations. David? Great. Thanks, Michael. As Michael noted, we're very pleased with the significantly improving revenue trends since our Q1 call and our June 18 update. As Michael pointed out, Q3 revenue levels on a pro form a basis are nearing breakeven year over year quarter to date, which is up approximately 40% on an as reported basis. Most importantly, CTV has resumed a very strong growth trajectory, currently growing at roughly 50% year over year quarter to date. The Q2 2020 year over year increase in as reported revenue was 12%, attributable to the Telaria merger and offset, of course, by the negative impact of COVID-nineteen. As reported, Q2 2020 revenue declined 10% in mobile and 8% in desktop. CTV was entirely additive due to the revenue from the Telaria merger. On a pro form a basis, Q2 2020 revenue for mobile declined 32%, desktop declined 26% and CTV grew 12%. Revenue mix for Q2 2020 was 19% CTV, 45% mobile and 36% desktop. Operating expenses, which in our case includes cost of revenue, for the Q2 of 2020 were $82,900,000 versus $46,500,000 in the same period a year ago. Increases were driven by the inclusion of Telaria expenses, $12,500,000 of non recurring merger and merger related restructuring expenses and the purchase accounting impact of approximately $7,000,000 in non cash intangible asset amortization. On an adjusted EBITDA basis, operating expenses, including cost of revenue for the Q2 were $45,800,000 as compared to $33,500,000 in Q2 2019. This was below the $48,000,000 to $49,000,000 in total adjusted EBITDA operating expenses we originally expected, driven primarily by additional synergy savings and temporary cost reduction efforts, including the deferral of some non time sensitive projects. Our GAAP based gross margin for the 2nd quarter was 49%. Gross margin is lower due to the impact of COVID-nineteen on our revenue and due to increased non cash intangible amortization resulting from Telaria purchase accounting. Onetime deal and merger related expenses in Q2 were approximately $12,500,000 and are excluded from adjusted EBITDA. Deal and merger related expenses in the quarter were comprised of $6,800,000 in banking, legal and professional service fees and $5,700,000 in personnel related expenses, primarily severance. Net loss was $39,100,000 in the Q2 of 2020 as compared to a net loss of $8,300,000 in the Q2 of 2019. As I mentioned earlier, adjusted EBITDA loss was $3,500,000 which is better than originally estimated due to improving business conditions and adjusted EBITDA operating expenses coming in lower than our initial expectations. GAAP loss per share was $0.36 for the Q2 of 2020 compared to GAAP loss per share of $0.16 in the same period in 2019. Non GAAP loss per share in the Q2 of 2020 was $0.10 compared to non GAAP loss per share of $0.06 reported for the same period in 2019. There were 108,500,000 weighted average basic and diluted shares outstanding for the Q2 of 2020. There would have been an additional 5,800,000 shares included in the diluted share count had the company posted net income versus a net loss consistent with anti dilutive accounting rules. For purposes of estimating full year EPS calculations, please also keep in mind the impact of the April 1, 2020 closing date and the lower share count that should be used for Q1. Capital expenditures, including purchases of property and equipment as well as capitalized internal use software development costs were $3,300,000 for the Q2 of 2020, in line with our guidance. We closed the Q2 with $107,000,000 in cash, an increase of $36,000,000 from the $71,000,000 balance at the end of Q1. The cash increase was driven primarily by the addition of Telaria's cash to our balance sheet, offset by deal related cash usage of approximately $17,000,000 and operating cash burn of approximately $7,000,000 which includes adjusted EBITDA, loss and CapEx for the quarter, offset by favorable working capital impacts. 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 on a net basis. Note that as part of the purchase accounting related to the merger, we recorded intangible assets with a basis of roughly $103,000,000 and goodwill of $150,000,000 The intangible assets consisted primarily of acquired technology of $58,000,000 which will be amortized over 5 years in cost of revenue and $36,000,000 for customer relationships, will be amortized over 2.5 years in sales and marketing. We continue to expect total annual run rate from our cost synergies to exceed $20,000,000 At this time and based on current economic and business recovery trends, we're not planning on not planning any headcount related cost actions. I will now share some indications for our Q3. We expect revenue for the Q3 to be in the range of $51,000,000 to $55,000,000 These revenue expectations are based on the level of year over year revenue growth that we are currently experiencing, which is nearly flat year over year on a pro form a basis. It is, of course, challenging to handicap how revenue will respond in these still uncertain times, although we are cautiously optimistic that current trends will continue. We expect that adjusted EBITDA operating expenses in Q3, including cost of revenue, will be approximately $49,000,000 to $50,000,000 As a result, we expect to be adjusted EBITDA positive in Q3. We continue to expect that CapEx for the full year 2020 will be roughly $22,000,000 We expect cash balances to be lower at the end of Q3 than the potential Q3 decrease from adjusted EBITDA less CapEx would normally indicate. As a result of the benefit from working capital in Q2 that will likely normalize in Q3. We are very pleased to report on results and trends that are much improved compared to our Q1 call. The efforts we've undertaken position us very well to benefit from the continued improvement of economic conditions and to weather any additional pressures should they arise. We will continue to be extremely prudent with respect to cost, while also making critically important investments in the future growth of CTV, Demand Manager and in our tech stack efficiency. With that, let's open the line for Q and A. We will now begin the question and answer The first question is from Lee Krowl with B. Riley FBR. Please go ahead. Great. Thanks for taking my questions and nice work on the quarter and quarter to date trends. Thanks, Puneet. I wanted to start off just kind of on the quarter to date trends. You highlighted a few sectors that were performing well as well as a few sectors that were performing poorly due to the macro backdrop. Just curious what kind of the working assumption is for the impacted sectors to the downside in Q3? And then also, I know you kind of defended the IDFA impact on the business. Is there any impact from a revenue standpoint? Or do you guys fully believe that you can steer clear of any impact in the second half? Yes. Great questions. David, do you want to take the trends to date with the categories question? Yes. I'm not sure I fully follow that. So I apologize. So Lee, can you just expand on that question? Yes. I guess, is there an assumption that those negative sectors improve in Q3? Or do they kind of trend similar to Q2? Yes. We're basing our guidance on what we're observing today. So we're not assuming significant upsides in those lower performers at this point in time. I'm not saying that that's what will happen, but that's what we're basing our guidance on. Yes. And I can Lee, I can hit the IDFA and then also would love to throw that to Tom Kershaw as well, our CTO is on the call, who is far more expert at the impacts of IDFA, perhaps not monetarily, but from a technical standpoint. But yes, we feel comfortable, Lee, in that we aren't terribly exposed or have outsized exposure to any deprecation of IDFA. And of course, it's all a guessing game as to how many of the top apps are unable to get consumer permission. And so that all has to play itself out. But generally speaking, we think that the inventory is brought in diverse enough and the spend is broad and diverse enough that what we've seen on platforms whether it's GDPR or any of the other Apple initiatives like intelligent tracking prevention and the deprecation of cookies in the Safari browser that if there's a momentary imbalance, it's usually in CPMs, not in ad budgets. And there tends to be enough inventory where if you sold 1 unit at $1 you're now selling 2 units at $0.50 I'm not trying to minimize the impact that may have on specific publishers, but for our platform, generally speaking, we deliver the budgets and we haven't seen the budgets cut. Don't know Tom if you have anything further to add to that. Yes, I totally agree with that. I think the thing to note is this is going to be a phased rollout. IOS 14 rolls out in the middle of September and it's not going to be adopted on day 1. It will be adopted gradually by consumers over time. And the same way, the opt in process for apps is the opt in to IDFA tracking is per app and that will be rolled out again over a period of time. So you won't see like a one time impact, you'll see a gradual rollout of this. And with the introduction of the SKAdNetwork standard for attribution, we feel that spend will still flow to iOS devices. Many mobile buyers have been close contact with us on what's going to be necessary to maintain spend. So I think there will be some impacts here or there. But I think given the phased rollout, our experience with this because we've seen this before, it makes us pretty comfortable that we'll be able to manage this transition. Got it. That was very helpful. I think most investors just breathe a sigh of relief there. Thanks, Tom. The second question I had, just wanted to focus on the SPO share gains. I know we've talked about it several times in the past. It's always kind of been on the horizon, but it seems like the tone in this call has changed. And so it really seems like perhaps it is starting to materialize. I guess what is the catalyst for the change in tone? And I guess what is sort of the trajectory for SPO from here go forward? Yes. I'll jump on that and maybe David want to chime in, Lee. But yes, there's no question we're seeing better than average rebounding this quarter in the projections that the guide that we gave for Q3. And if you look across the industry and you look at the CPMs that we have trending on our platform, in the volume, it all seems to be beating the industry average with this COVID tamp down. So through the multiple initiatives that we've done over the last 2 years to the strengthening of the company's profile with the merger with Telaria, the strength of the balance sheet in terms of being able to assuage buyers and sellers that we're not going anywhere with our cash balance. There has definitely been an uptick, we think, in this kind of flight to quality. And I also believe that many of the initiatives are they're not bold. You would like SPO to be one day you wake up and 4 platforms go out of business and it's tangible and everyone recognizes that SPO is upon us. This is it's a gradual game and we've been seeing a gradual shifting, a gradual strengthening of the magnet platform and there's no question that there's countless examples of agencies or agency partners or DSP partners that we can point to where we're getting shift spend towards the platform. Got it. Thank you for taking my questions guys. Thanks, Lee. The next question is from Jason Kreyer with Craig Hallum. Please go ahead. Hey, guys. Good afternoon. Good to hear the improvement in trends. Just wanted to start on Connected TV. Michael, can you give any details on the cadence that you saw over the course of the quarter? And in particular, if you've seen any changes in the volume of CTV being purchased programmatically as opposed to direct? Yes. So we see what we can see, right, Jason? So it's not completely a macro insight. But what we have seen is what intuitively folks predicted and others have commented upon and that is, CTV was not immune from the pause in March. It was a drastic decline in growth rates, but it was still growing. And then we saw it as one of the fastest media types to recover and so outpacing the gains that we saw in the rest of the platform and those are even accelerated as we pointed out with the guidance for Q3. And we know that it's an increase in inventory that we are seeing not partially because of consumer behavior, but also because of how difficult it is in a world without upfronts, in a world that's been disrupted from direct selling, the idea that you can monetize these added impressions in the surge in viewership without having to marshal your direct team to do so in this backdrop, we've definitely benefited from that trend. And I think some of that's here to stay. The concern that programmatic would drag down CPMs, the concern that programmatic would take away arrest control of inventory from leading players, you can just sense it abating and that there's this new norm that it's going to be front and center with their distribution strategies and their sales strategies and it's now going to play a very, very important role pulled forward by, I would guess, 8 or so quarters in terms of what it would normally be the development cycle. Perfect. And you made a couple of comments that stood out to me earlier in regards to the privacy initiatives. 2 in particular, I wanted to see if you could just give a little bit more color on or maybe if Tom can give a little bit more color on. But one was just the establishment of publisher segments. It seems like almost kind of creating better capabilities to target individual groups. And then the second on launching a vendor marketplace. So any more color on those 2 would be great. Sure. Tom, you want to jump on this? Sure. So in the publisher segment, publishers leveraging first party data for the creation of segments is something that the industry has been doing for a while. We've been passing publisher data in the form of key value pairs to buyers for a long time, but they weren't really using that data actively. And what shifted now with this change in identity is that we're using deals and deal IDs to package up segments for buyers so they can buy their audiences without having to process the IDs themselves. And I think what this is going to represent is a shift of kind of control and responsibility to the sell side, to the publisher community. And those publishers are going to need to federate because a lot of them are too small to scale on their own. So these groups of publishers using tools like Prebid to be able to create standardized audiences for buy side of the clear trend we're seeing and we're super excited about it. And I think we're with Prebid and Magnite, I think we're collectively in a really good position there. The vendor marketplace is a new innovation that allows us to plug 3rd party data into our platform. So say a 3rd party provider has a bunch of information for segment creation or for targeting, they can plug that into our platform, we'll collect the money from the buyer on their behalf or from the seller and pass that on to them seamlessly, so they don't need to have contracts with thousands of publishers. And what this helps publishers do is it'll help them take their first party data and extend that to other publishers. So we think there's going to be a data marketplace as well as kind of a format marketplace that will be enabled as we move towards this first party environment. Okay. Since Tom's already got the floor, I'm going to throw one more out to you. But over the course of the quarter, I guess early in the quarter, we saw one of the larger DSPs starting to put some regulations out there to limit supply paths. And as we've gone through checks, we've heard that that's been a big tailwind for pre bid and they've seen better adoption. And just wondering if you can kind of connect some dots for us. I mean, do you see that as a benefit to Magnite with Prebid gaining market share or what's kind of the read through for you guys? Well, yes, I have to see it pretty positively for Magnite that Prebid has gained market share. I think it's just phenomenal testament to Prebid success that when publishers were asked a couple of months ago, you have to pick between Google, A9 and Prebid, they overwhelmingly picked Prebid as their preferred methodology for connecting to the rest of the world. And that's a testament to the open source nature and the control the publishers have. So, we definitely did see that trend. We see a continued movement of inventory into Prebid. The next phase of this is for that to extend to mobile and to CTV. But certainly that was one of the big trends in the first half of the year was just the continued acceleration of pre bid as the preferred method for most publishers to connect to demand sources. All right. Well, thanks a lot for all the color guys. And Tom, appreciate you joining the call. Thank you. Thanks, Jason. The next question is from Matt Thornton with Truist Securities. Please go ahead. Hey, guys. Michael, David, Nick, Tom, thanks for taking the question. Maybe first just coming back to supply path optimization, I guess, maybe this one's for Michael. I guess, did you see without getting into specifics, but are you starting to see in the second quarter, did you see developments that just gave you just proof points that this is starting to play out in the way that favors Magnite, meaning, obviously, you guys just closed this merger. Did you see a buyer or buyers come to the table and prune their supplier cohorts and favor Magnite because of the steps you guys have taken. So I'm just curious without any specifics if you've seen some of the evidence start to come to fruition there. And then just secondly on maybe on the revenue side, we've talked a little bit about some of the cost synergies that you guys reiterated for the deal. But I'm just curious if you've started to see again evidence of some of the revenue synergies that we've talked about in the past starting to come through as well as you start to cross sell the 2 different customer bases and the 2 different kind of geographic footprints? Any color there would be helpful. Thanks guys. Yes, Matt, I'll jump on that. So yes, the big vision, the promise of Magnite bringing together the great CTV capabilities of Telaria and the omnichannel capabilities of Rubicon. We see validation of that play on a daily basis. But to be honest, that's a longer term delivery in terms of then working with publishers on demand manager products or video management platform products and more of a software. We've always saw this, the big opportunity that Mark and I saw when we got together wasn't just being able to provide demand to publishers for all media types, that's very important obviously. But the idea was to take this to the next level and be able to combine some of the cool initiatives they've done with Hulu, with our demand manager project product, bring them all together and have this one platform, one software first approach. And that obviously takes time. And I'll be honest, it certainly isn't helped by not being able to be in the office meeting your colleagues and doing all the normal stuff you normally would do under business. But we are terribly encouraged, the feedback has been fabulous from clients. And as it relates directly to fruition of the deal promise, we definitely saw that the initial pause and spend that occurred and the concern from publishers about viability of certain demand sources and viability of certain platforms, given this combined strength of the 2 companies and the combined balance sheet, there was no question that played a significant role in this shift of spend in the calling of partners among leading publishers. And so we definitely benefited from that. And as it relates to revenue synergies, I think it kind of dovetailed into the first part of the answer of the first question, which was those are definitely longer term plays. We'll be shouting them from the mountaintop as they start to come to fruition. But I think that right now given what we're doing, we're just trying to excel at the CTV game, excel at the omni channel game and work behind the scenes of making it one cohesive pitch that we'll be able to deliver on the ultimate promise. I don't know if you have anything to add, David. I think you got it. Maybe just one quick follow-up, and then I'll jump back in the queue. I guess when you think about the landscape over time, obviously, you've come together with Telaria, which is a very pragmatic move. I'm curious, as we continue to see fallout here, if you think there'll be more opportunity for you guys to be a consolidator of the supply side. I know there's always been argument that maybe consolidation of the supply side didn't make sense, but obviously the world changing. I'm curious your views of that looking forward. Yes, Matt, I don't think they've changed. I think we're bullish on the consolidation. I think we're we look at deals constantly. And what took us so long to do the Tilawi deal was the market timing was right for both companies, But it was also, we're both winning and we don't want to do a merger or a roll up or an acquisition just for the sake of trying to do it for financial engineering. I think any company we look at has got to be playing offense has to be in a very strategic and valuable piece of the ecosystem, has a plethora of options themselves because they're doing well, but buy into the overall vision of this combined entity and running the table as the omnichannel FSP with a huge focus on CTV. And so we're I think you'll see activity from us in the future, but and we're as I said open to a lot of things, but we're highly selective and still don't buy the thesis of trying to roll up a bunch of general exchanges that were kind of born in the desktop banner era and trying to see if that adds up to more than the sum of the parts. Great. Thanks guys. Appreciate it. The next question is from Kyle Evans with Stephens. Please go ahead. Great. Thanks for taking my question. And this is Michael on for Kyle. I know you talked about the number of live contracts increasing now to 172 for Demand Manager. Do you feel like you're scaling to a user base and have a healthy enough ad environment to get to the original pre COVID goal of $5,000,000 in revenue? And just to tack on to that, are there any new competitive threats to demand manager outside of in house development of pre bid solutions that you're seeing? I'll jump the ladder and let David handle the revenue projection piece of it. But no, I don't think the landscape has changed much, Michael, and that was and thank you for the question. And that was kind of the belief that we had that our primary competitor in the demand manager space is going to be the free pre bid product and that has certainly played itself out. And why you see the acceleration is, Prebid is growing in complexity, Prebid is moving server to server and I think publishers are starting to look hard at internal costs and realizing that by taking a company like ours with a managed service software offering, it's a very attractive economic proposition base trying to run it yourself. So I think that that's really what we're seeing in terms of the uptick. As it relates to revenue and reaching the original $5,000,000 goal, David, do you do we have a Yes. I'll take that. Yes. I think there was well, first, as you noted on the sign ups, we're just we're thrilled and we're what's interesting is we're also getting more interest from, I think, some of the larger players that we thought would have taken more time to gain this level of interest because of COVID and because of the impacts on their revenue and they look at their cost structure. So definitely positive progress on the sign up side. From a revenue side, I think we're not formally updating our guidance, but we there's a big enough hole here that we don't expect to hit those levels this year. Of course, we've still got a runway here the rest of the year, so things could take off even more. But at this point, I don't think we're going to hit those levels, but I think we're going to be better positioned for 2021. Got it. Thank you. And just one follow-up. The one time deal and merger related payment that you guys were expecting in 2Q of $16,000,000 I know it came in a little bit below. Just wondering what the variance was here and if you expect any kind of more incremental expenses in Q3 or if that's going to be a little bit cleaner going forward? Thanks. Yes. And it was a little bit confusing. The part of the we're talking about cash outlays. We talked about that $16,000,000 and the cash outlay related to those deal expenses will actually be $17,000,000 So it's actually just ticked up. And it's just a quirk of some of the investment banking costs on the Telaria side actually aren't on the cost ledger, but they are on the cash flow ledger. So the we're proceeding as expected with both the costs and the cash outlays related to the deal costs. But yes, and then going forward, there's a lot of noise in this quarter and it should certainly on the GAAP side normalize significantly next quarter, this Q3. Got it. Thanks so much. The next question is from Chris Sakai with Singular Research. Please go ahead. Hi, everyone. Can you I know there was some weakness in the desktop and mobile channels. Can you just provide some color as to what was the main points of weakness there? And in the near future, How do you see these channels in the future? Why don't you grab that David? Yes. I'll well, I think the premise, I mean, obviously, COVID has impacted across the business. And actually, the results on both desktop and mobile, I think, are better than we would have anticipated. Certainly, even at the end of May for the quarter and certainly did not anticipate the momentum that we have coming into July. And so I wouldn't necessarily describe even though they're down, that's purely, we see as COVID driven and we think we're well on our way to recovery as overall ad spend levels lift across the industry. And as we get continued momentum on some of the things that Michael talked about with continued SPO. And then in particular, as some of the sectors, some of the low performing sectors do start to recover, for example, travel and retail, certainly not necessarily in the super near term, but we believe they will come back as well and those will certainly help lift our desktop and mobile business as well. Okay, great. And then as far as the proportion of revenues from CTV, by the end of the year, where would can you provide a good estimate, how much revenue is coming from CTV as compared to desktop and mobile? Yes. We're only we're not providing specific CTV revenue guidance going forward. But obviously, with 50% growth rate and a higher quicker trajectory, certainly that 19% that we experienced in Q2 is mathematically going to grow. So we're very bullish on that TTV business and think that the benefits that we're seeing are not just COVID related, but they're sustainable for the longer term. Okay, great. Thanks. Thank you. Thanks. This concludes our question and answer session. I would like to turn the conference back over to Michael Barrett for any closing remarks. Thank you, operator. And as David mentioned in his closing remarks, we're very pleased to deliver solid Q2 results and a view into the strength we've seen so far in Q3. We are optimistic about these trends continuing and remain very excited about the future long term growth prospects of our business, especially CTV. None of this would be possible without the tireless effort by every team member of Magnite. We closed our merger at the start of this quarter, have never had the opportunity to meet each other in person, yet through thousands of hours of Zoom meetings, the teams have bonded and not missed a beat. Don't get me wrong, we all hope one day to return safely to our office and resume a more regular business cadence. But if our team can put up these types of results under extraordinarily trying circumstances, I feel very bullish about the future of Magnite. Thank you all for joining us for our Q2 results call. We look forward to talking to many of you through virtual investor meetings in the coming weeks. And everyone have a good evening. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.