Magnite Aktie

Okay. All right. This is Omar Dessouky. I'm a senior analyst at Bank of America covering U.S. Internet, focusing on advertising technology, video games and consumer subscriptions. Some of the stocks that I cover in the ad tech space are Magnite, whose CEO we have today, Michael Barrett. AppLovin, Unity, DoubleVerify and a couple of others.

So Magnite. We've been following Magnite for a long time. Well, actually, sorry, since 2024. We turned bullish, sort of late '24, and we've been bullish ever since. And it seems like much of the thesis that we had expected has just simply played out.

So one thing, for example, is CTV. They have 2 businesses: the CTV business and the DV+ business, which is focused on the open web. We've always been looking at CTV as your business -- as a business that could outgrow the CTV market in general, which seems to be -- CTV advertising seems to be growing, I think, kind of like mid- to high-teens expected long term. Yet you grew 36% year-on-year in the third quarter (sic) [ second quarter ]. Your top 10 advertisers grew 40% year-on-year.

Yes.

Right? So that's even faster than the rest of your business, probably because of upsells. Your upsell process is working.

Yes, no question. I mean one of the benefits we do or most of our clients are global in nature. And so when they expand to different countries, we get to go along for the ride and help them monetize their inventory in those areas. So you find that it's kind of a land-and-expand with the big media owners.

Got it. And I think what I'm most interested in is you talked about the potential for kind of 25% annualized growth long-term. And I was hoping to double-click into that. So are you saying that it's going to be sort of like a 25% CAGR or a minimum 25% year-on-year growth, what you would look for even with years where there are tough comps?

Yes. No, I think it's very fair. Again, it's a longer-term goal, but I do think that most of the industry experts peg the growth rate of streaming, the ad-supported streamers, in that mid- to high teens. And we have every expectation, given the breadth of the relationships that we have in streaming, that we'd outpace the industry growth. And so I think if you look at a 25% growth rate compared to our 36% versus low- to mid-teens growth rate for the industry, we feel very comfortable pegging that as not just aspirational but something that we feel is very likely for -- to occur.

Okay. Got it. So this year, I think there's potentially like a big political cycle coming up.

Correct.

And to us, I think your guidance looks kind of a little bit conservative. But I still want to kind of get back to that question. So even in the context of like a big year, which, for example, could be this year, depending on how political does and other factors where you're doing well, is that sort of -- are we supposed to look at that 25% as sort of more of a floor or like a CAGR?

Yes, I think a CAGR. Yes, I mean you mentioned political. Political is very interesting for us. We're new at it. We're not Scripps, right? And so we have 2 cycles to go off of: a national election 4 years ago and a midterm most recently.

And the challenge is that it was so new -- streaming was so new as a medium mix for political advertisers that it's a little unknown what to expect this year. To date, we've been pleasantly surprised with the amount of spend, but we know it's heavily backloaded, and it really does come down to: are the competitive races, are the races in the right market, et cetera. And so I do absolutely think we'll be talking in 2027 about ex-political from a comp standpoint, but I think we feel very good about where we've pegged it right now.

And how penetrated are your services in the CTV TAM at this point, do you think? The reason I ask that is because there's this push and this pull where your more seasoned advertisers -- or excuse me, your more seasoned publishers, you have upsold them, and that's one of the reasons why, for example, your top 10 accounts are growing faster than the rest. So you've talked about positive kind of pricing mix shifts very recently, and the 40% growth on your biggest publishers, that's higher than the overall 36% growth.

So I assume you're still penetrating the market, right? And the newly onboarded publishers are going to start off with lower take-rate type services, which eventually will go up. So there's probably some latent pricing mix in your model, which I think analysts have to think about further off. Eventually the take rate will improve, right, while the top line may -- sorry, with total ad spend may moderate. But how do you...

Yes, it'll be closer. So today -- and again, our take rate is a contractual agreement with publishers, so it's not as if, if we talk about scenarios by which there's lower take rates or higher take rates, sometimes people immediately go to, "Oh, they're under pressure. The market is forcing a collapse in take rates." What it is, is it's a product mix.

So generally speaking, when someone that has a legacy advertising business gets into streaming and hires Magnite, they're very much inclined to kind of go at it on a walking pace and say, "Hey, we've been selling advertising for 100 years. We're going to continue to sell the exact same way we sell linear. We're going to do the same with streaming, because we want complete control. We've always had complete control. And we just want you, Magnite, to operate as our plumber. So we'll go find the advertiser, we'll negotiate the price and then we'll just execute it automated, so programmatically."

And so that carries with it a lower take rate. It's a product that we offer. It's publisher-sold programmatic. And not surprisingly, every large media company starts off that way because they're a little concerned: Is the programmatic ads going to ruin the consumer experience? I don't know that advertiser. Is it going to be cheaper CPMs?

And so it's just this journey that most folks have to go along until they get comfort. And of course, at the same time, the buyer is coming at the media owner saying, "Go programmatic or you're going to lose dollars." And so that accelerates the uptake of a service by which we bring the demand, of which we get compensated higher.

So this is super interesting because I remember speaking with you about a year ago after the Cannes conference, and I asked you: is the mega bull case here just simply the entire industry moving to biddable programmatic? And I recall your response, which was that it's not necessarily the holy grail, right?

Now recently, you did, kind of, cite that there was a shift towards biddable programmatic from, I think, programmatic guaranteed. So is that still how you think about it, or like, is adoption picking up, and can you kind of see a path to biddable programmatic, this very high value-added service, being the, I don't know, the majority or eventually the entire market? Has any of your thinking changed on that?

No, I think that if I were to -- I'm going to say definitely I think biddable programmatic is where the whole market's moving to. I think sometimes when we say biddable programmatic, we think of the open web, which is trillions of ad requests, billions of impressions going to auction and random advertisers winning and showing up, but no one really cares because it's ephemeral, it's a banner, what's the big deal? Where there's a big difference between that and a 30-second spot running in a million-dollar-produced streaming series.

So I think what you're going to see as the majority for the top-tier streamers is invite-only auctions. So it'll still be biddable, it'll still be an auction, but they're going to want to know who those advertisers are. They still have 2 floors at Disney of people who review advertising creative. So it's not for the faint of heart to be able to get an ad on TV and have it approved. So we've done this automated through technology that allows them to feel comfortable about the ad and the quality and whether it meets standards to appear on their shows. So I think invite-only, and that's for what we think of as the centerpiece major streamers.

As you go further afield and you talk about device manufacturers like Roku, LG, VIZIO, Samsung, they have tremendous amounts of inventory. Even the Disneys have inventory in FAST channels that they don't consider the same as something like The Handmaid's Tale or whatever the case might be. So when you deal with that type of inventory, that'll be much more democratic, much more open to biddable, and that's where you see the world of the small- to medium-sized advertiser that is the bedrock of Instagram, the bedrock of Alphabet, start to come onto the CTV environment.

Got it. And I should have been more clear. There's like, open auction biddable and then there's invite-only biddable -- just clarified. And when you mentioned to me last year that it's not the holy grail, you were talking about open auction programmatic.

Correct. Yes.

Okay. So that would be a very interesting world we would live in for Magnite if that were the case.

Yes.

And who knows, maybe it'll happen someday. So then let's maybe move on to your margin profile, which has just basically continued to get better. Part of it, I think we already alluded to, was kind of the mix shift to higher-value services, right? You had talked about potential for the -- you've always talked about 30%, 35% to 40%?

Correct. Potentially.

And the potential to exceed 40% at some point in the...

Yes, that's certainly not a cap, yes.

Right. So is that mainly a function of all the businesses you have in place today, that potential to exceed that 40%, or is it also -- or is it mainly a function of what's going on with DOJ and DV+?

Yes. No, all those statements about the aspirational margin profile of the company had been stated long before any DOJ Google investigation. So we feel -- listen, seasonally, almost every fourth quarter, we exceed 40% in adjusted EBITDA. So it's really a question of just revenue growth on top of a pretty consistent cost model.

Where our biggest cost, like most technology companies, is people, and I think we've done very judicious growth in that area. We haven't outpaced what we needed. We'll always add on 50 or so bodies a year, but in order for us to drop another $1 billion onto the platform, that doesn't require another 1,000 people added to the company. So we've had a very stable profile of employees.

And then the other cost is the serving costs, the cloud costs. Our volumes continue to surpass every expectation that we had going into budgeting, but our teams have been doing a great job of processing 3x the amount of impressions at the same cost that we did the previous year. So in order to do that, we pulled forward some CapEx into last year's fourth quarter to build out another data center, taking as much traffic as we can off the cloud onto our own boxes and modulating costs that way. So I think keeping our cost structure where it's at and just dropping more revenue on top of it naturally gets you a four-handle in terms of margin profile.

Did the potential to have market share gains in DV+ factor into your decision to take that -- to make that additional investment to move away from the cloud and build out more of your on-prem?

In the back of our minds. Mostly the investment that we're doing in taking cloud off is almost all streaming. So streaming was a 100% cloud business that we are now doing a hybrid model to. There are certain aspects from real-time reporting that cloud is absolutely essential, but there are other low-value things that we're doing in the cloud that can easily be done on boxes at much less expense.

Now to answer your question about the DOJ and the recent release of the opinion, or the closed opinion, there's no question that those boxes will come in handy for that if there is any increased volume of bidding from Google that we weren't seeing previously. We're going to have to absorb that capacity, and those boxes will come in handy for that, for sure. And then that's the whole idea of being able to burst to the cloud. So if all of a sudden you have this profitable traffic coming in that's crimping your bandwidth on your own proprietary boxes, you can jump to the cloud and buy bandwidth there.

Got it. And right, so I think if we just move really quickly, I do want to talk about mobile on DV+, but let's since we started talking about the DOJ and the potential outcome there. So first of all, there is potentially a redacted version of the ruling coming out at some point?

Yes. So the ruling came out, the opinion came out this week. It was closed, sealed, only for DOJ and Google to look at. They have a 14-day window where they can redact any sensitive -- they obviously can't redact the remedies, but they can redact any sensitive information that was used in the findings. That probably then leads to another 14-day journey with the judge looking at it and saying, "You're a little heavy with the black pen there. Open that up, open that up." And then maybe in a 30-day window, it gets posted and everyone knows what the remedies are.

We know that the remedies aren't structural. We've known that for some time, the judge signaled that that wasn't going to be on the table. And the behavioral remedies are real, and if she said that most of them are going to be adopted, and in that case, it'll make a more fair and efficient auction at AdX. It'll make a more fair and open ad server from Google, their DFP, and all that should benefit the ecosystem, including Magnite.

So I think this is really interesting because we -- like I said, we at BofA have been bullish on your CTV business for a while now, and that's playing out. The DV+ business has kind of been a laggard, more -- growing somewhat inconsistently and, I think, probably on average like mid-single digits or so. Open web advertising is not known as a growth business.

So for us, we're interested in figuring out a couple of things. Obviously you're not going to tell us all the answers, but let's talk about it a little bit. So there's a margin impact, and there's also a potential for this entire industry to become a growth industry again, okay, because of additional competition, similar to, I think, what happened in mobile when a lot of these mobile ad tech players started innovating and improving their models to drive growth for mobile game developers.

So I think, first of all, about -- maybe about a year ago, I remember putting out a piece where we sized the, sort of, the ad spend through the SSP market on open web around $25 billion. And this was all from research from 2025. And we, sort of, estimated that a 1% market share gain, which would be like $250 million, I guess, could result in a really significant increase in net revenue like, I think would increase EBITDA by 67%, right? So can you just walk us through your thinking on what that sensitivity in terms of market share gain is, if you have those numbers handy in your mind?

Sure. So it was through the discovery process. It was estimated that Magnite had the second-largest share of programmatic open web spend. The Google's share was close to 60%, and ours was 6%. And we were by far and away the largest of the second -- we're the second. Everyone else after that way long.

We estimated that for every 1 market share gain, so we eat into Google's 60%, that could represent $50 million in margin to the company. And so I think that it's safe to say that we're not going to lose share post-remedy. I think it's safe to say that we'd win it based upon the share that we already enjoy in the market. So we'd be the outsized beneficiary of the ruling given our second-place status.

We have deep relationships. One of the things we've always invested in, even in the early days when we were Rubicon and became Magnite, was our publisher sales team. It's incredibly well-respected, incredibly knowledgeable. And a lot of our peers have cut down their sales team in that area because in the open web, as you know, it's kind of commoditized. It's this header bidding, you're always going to get slotted in the head, so why do you have to have a deep relationship with the publisher anyway? But we've always maintained those deep relationships, largely because of our streaming business also.

Long story short, I think one of the biggest unlocks is going to be if they are -- they will be allowed, I can't imagine the judge wouldn't rule in this capacity. Right now, your data is locked within the Google ad server, you can't bring it anywhere. And they desperately want to work with us to do their private marketplace deals. They don't want to have to put them in AdX, they don't want to have to keep them in GAM, but they can't. It's just such a heavy lift. They've even tried it, and they've tried to cut and paste, and it's just a mess.

So we think that Magnite could really be an outsized beneficiary there because we have deep publisher relationships, they want to do more business with us, it's probably going to be better terms than they're doing currently, and we're sized to catch that business.

Yes. There are several levers, I think, that could potentially help your business. I mean, the one that I had pointed out a year ago was to simply improving your win rate, because your infrastructure is already in place, so I don't think there's much else to spend. But simply having a higher win rate because Google doesn't get first look or last look would flow directly through. Like, any kind of revenue there would flow directly to EBITDA, and you'd have 100%...

That'd be the fastest win. Yes, because we don't have to process one more impression. We take 2 trillion ad requests a day...

Simply a huge efficiency, like, increase.

You're doing the exact same thing you're doing; you're just winning more. You're taking 500 billion to auction, you're auctioning 500 billion a day, your win rate goes up 0.5%, it just drops to the bottom line.

So that's just one lever, though. There are others.

Yes, correct. That's -- yes, that's right.

Right. That seems to be like the lowest-hanging fruit. But the one that I'm most interested in in terms of potentially the market may reprice the DV+ business is: can innovation kind of reaccelerate growth and help the open web grow again? Because if indeed Google was anticompetitive, then I would understand that they were probably underserving their customers, the customers didn't get as much revenue, and they couldn't invest in content. And that virtuous cycle that we've seen in mobile gaming recently could potentially happen in the open web. What are your thoughts on that topic, in that breaking the monopoly could actually reaccelerate and rejuvenate this open web ecosystem?

Well, yes, couple things there. Just for the sake of everyone, DV+ is kind of this portfolio of non-streaming media, right? It's open web, browser-based traffic, which has, as we know, significant headwinds from these generative answer engines that aren't sending search referral any longer. There was a time when, at the height of it, Google would scour your pages twice to feed their search engine, but send you one referral for every 2 times. Pretty fair balance. I think Anthropic now is 900x they scour your site and they only send one referral. So it's -- that's not going to change. Nothing -- the DOJ does, nothing -- that is just consumer behavior changing, and the balance between sharing content and getting referral back is broken.

Our business, that's a portion of our DV+ business. As you pointed out, in that bucket is mobile app, which isn't browser-based, which isn't search-referral-based. So in-app, digital out-of-home that isn't browser-based, audio, which is a big growing piece of our business, podcasts, et cetera. That -- none of that has anything to do with the open web. So it's a pretty healthy, diversified bucket.

So with the DOJ ruling and the changing growth profile of the open web perhaps, it would change what you would think about as DV+ as a grower, because we've pretty much told everyone think of it as flattish. Which a lot of people were elated about that because they were afraid it might be going down 30%. So now all of a sudden, this could be a growth profile, it would change a lot of the dynamics of the company.

As this being a savior for the open web, as I cited before those terrifying numbers about lack of referral, I personally would love to think that it could help. But I'm not so sure if what we're talking about here is redistributing where the money -- current money goes. So in other words, the current money all sits with Google. If we reshuffle that current money and don't expand that money, the publisher is kind of left in the same plate that they are today in terms of the amount of revenue they're going to get. Their partners, their vendors might have a different revenue profile, but I'm not certain I've seen anything that changes the dynamics of the open web from that particular ruling.

Okay. Now is, for example, open web potentially -- the structure of the open web changing? Obviously it already sort of has changed because of how the LLMs direct traffic. But is potentially the, sort of, end state of that structure change the market dynamics in favor of you? For example, in CTV, I think we've pointed out that whereas open web has traditionally been fragmented, CTV is highly concentrated. Therefore, the market power, in our view, is like more on the supply side, which helps you as a supply-side partner. So would you potentially see something like that happening in the open web where it becomes more CTV-like, there's more concentration among publishers, which I think would ultimately be better for your distribution model?

Yes, I think what you're seeing is a real bifurcation in terms of the type of media sites that are doing okay on the open web. And the ones that are doing okay are, generally speaking, destination sites in and of themselves...

Like The New York Times.

So more well-known, more of a logged-in user base, bookmarked user base. And those are the types of publishers that we thrive on, that we've always historically worked with. So I think you're going to see a shrinking of the longer tail and a consolidation among more premium-type publishers in the open web.

Are you already engaged with all of those sort of...

We have deep relationships for decades with those players. Those are the -- that's the core profile of a Magnite publisher, thus requiring the need for an expensive and super talented sales team to be able to work with them as their partner to increase their monetization.

And I guess, just getting back to the technology question, I think, for example, the agentic stack that you have recently commercialized is an example of stuff that's going on. But one thing, and just thinking about -- and we move to mobile after this -- but just thinking about how this sort of unlock where there can be competition again will spur innovation, what are some of those innovations that like could have occurred in the past but haven't, that you maybe foresee over the next, like, 3 years, let's say, that could really like make open web and mobile a better place to be for publishers, in specifics?

Yes. No, so I think that discoverability will play a huge role in it. And so I think that when you're dealing with the current world that exists, and you're a buyer and you're hopping through 18 different dashboards to try to find the profile that you're looking for, the young family with kids under the age of 4 that buy diapers at a big-box store, it's sometimes not that easy. You're going to your DSP, you're bringing data, they're bringing data. Each publisher has a slightly different definition. You're going to an SSP to get that.

Now you think about an agentic world where you can just, natural language, put that into the interface of your agent that already has your algorithm in it, that already has your data, your first-party data in it, and its ability to go through someone like a Magnite and communicate with 10,000 seller agents to be able to pull all that together and make it easier to be able to target, make it more efficient, make it more working media going towards that. I think agentic really is a huge unlock in terms of the ease of use that a trader -- what the trader has to go through today and what a seller has to go through today to make this all work. We think of programmatic as this easy button, it's anything but. That really takes a lot of the operation frictions out of it, and I think you'll see more and more dollars going to that media.

So I was struck by suggestions made by the -- I think there were suggestions made by the DOJ, and then there were also suggestions made by Google themselves. One of them was to make auction data available or data in general available to rival SSPs, right? And I was kind of interested in how that specifically would lead to more innovation and a more efficient market, and basically drive yields and returns for publishers, whereas it hasn't before because of that monopoly.

Yes, well, there are many ways to make it more available, make it more fair. But just essentially, the dynamic that was hurting publishers was the fact that Google gave away the ad server for free, but in return you had to use their ad exchange as your primary ad exchange, which was AdX. Then you had the Google buy side that had an unfair advantage because they were getting all this information that other folks weren't getting. So I wasn't getting the same information from the publishers that AdX had that they were sharing with DV360 or AdWords or whatever the case might be.

So what it resulted in was a pattern of we have absolute knowledge about floor pricing, we have absolute knowledge about where the last bid came in, and now we can beat that bid by $0.01 if we want to win it, or we can -- we're the only bidder because there was a floor on it, and we could bid below the floor and the publisher's going to take it because they'd rather take $1 than have it burn. And so there was all sorts of price manipulation that they had access to -- that we didn't have access to that very same knowledge to be able to bid more fairly and accurately into it.

So a lot of that's been taken away already. But by open sourcing the data, it would make our decisions far more informed about how we would go about our bidding strategies to win this inventory. And so in theory, it should raise pricing on the margins for publishers.

Got it. And you -- I think, Magnite made its own, kind of, statements to the DOJ public, I think last September or so. There's a pretty big document if investors want to read that; quite interesting.

Okay. So then let's move on to mobile for DV+, again thinking about how DV+ could be a long-term growth business. You said that mobile is bringing DV+ back to growth, I think on your last call. And we've covered mobile ad networks for quite a while now -- for 5 years, I guess, if that's a while. AppLovin, Unity, Moloco -- sorry, Moloco's private, but definitely AppLovin, Unity; we used to cover Digital Turbine.

What, I guess, in mobile ad tech space -- first of all, what inventory do you work with on the mobile side? Is it mobile games, or nonmobile games, or both? How specifically do you enhance the sort of mobile publisher and the mobile ad network efficiency and technology?

So to be clear, there's 2 types flavors of mobile, right? There's mobile web and there's mobile in-app. And we're -- when we talk about what excites us, it's not the browser-based mobile web; it is in-app.

And what has changed in in-app, for the longest while, it was very, very difficult for brand advertisers to compete against mobile advertisers that were typically game download guys. They were super sophisticated, it was very performic, and they could outbid a brand advertiser on an adjusted CPM basis because they just knew the value better and they knew that downloading games -- the lifetime value of that person that downloaded the game meant more to them than an ad from Procter & Gamble.

That has changed. I think it's been the broadening of: it's not just gamers anymore. Mobile app is much broader. So not surprisingly, some of the mobile apps that we're having the most success with aren't games. They're more content-driven, experience-driven, more brand-friendly. So brand advertisers also are seeing this decline in the open web and mobile web, and they're saying, "Hey, where am I going to put those dollars to work?" And so there's this kind of confluence between the decline here, the rise here and an awareness of brand advertisers that that's an attractive area to be in.

And so what we contribute, essentially, is a profile of an advertiser that typically you won't find at an AppLovin or a Liftoff or a Moloco, because they're very much focused on the performance-oriented brands. And they're branching out too, from gaming apps to direct-to-consumer advertisers. But the type of demand we bring is quite different. And so the mobile app owner is excited about the prospects of getting that type of demand in because they've never had it.

Got it. So it sounds like we're not really talking about arbitrage models.

No. The tech lift on our part is we had to build an SDK, and we had to get that SDK adopted. That has been going extremely well. And we think that we're at very early stages, but we think this is going to be a very attractive set of inventory in our DV+ portfolio.

Got it. And -- okay. So that's -- have you discussed -- outside of just based on mobile sort of acceleration, like, have you discussed how much of your business mobile is currently -- of the DV+ segment, mobile is currently, and how much it could potentially grow to? It sounds like you're pretty early in the penetration curve there.

Yes, we talk about -- what was the mobile split? 2/3? Got you.

Got it.

Okay, so he said...

2/3 of DV+ is mobile, and about half of that is app.

Okay. That's great. I think that's -- those are most of the questions that I have for now, Michael. I appreciate the time. And obviously exciting times. The thesis continues to play out, and we'll look to see in a couple weeks what we learn about the DOJ and where you can enforce there.

So like just one -- maybe one last question with the time here: in terms of enforcement, right, so there's a decision that comes out, we all learn about it. Are there any roadblocks to enforcement, or will whatever the judge says simply be enforced easily? Is there any risk down the road to that?

Yes. I think that was a debate early on before it started to look -- because the trial went on for some time. And so early on, I think, one of the consistent objections of the DOJ to behavioral remedies was just that. But I think, over the course of it, and with Google by all means playing relatively fair with their ideas on how behavioral could change, I think everyone's kind of on board now that there's not going to be any chicanery going forward, that these are enforceable, however Judge Brinkema decides to enforce it or how the DOJ decides to enforce it.

But the other interesting aspect was none of it's a real heavy lift. I mean, I think of all the behavioral remedies, only one Google said that it would take more than 12 months to make the technical change. Almost all of them were instant and/or policy-driven, so it's not tech. Or if it were tech, 6 months of tech. So that was the other appeal to behavioral, because this thing wasn't going to go on for another 10 years and the open web vanishes. So the idea is this is going to be enacted quickly, fairly and hit the ground running.

Well, that brings me to another question, which is since I think this has been brewing for maybe about a year now, have you seen publishers and customers prepare for this moment yet? Like, what have you been hearing from them in reference to this and how they might change their practices?

Just in terms of all speculation, because keep in mind, at any given point there were 20 behavioral remedies in play. And so I don't think it wasn't one that everyone saw coming and that they're ready to flip the switch tomorrow. Even in the ones where it's as simple as, "Now I can port my deals from GAM to Magnite," even that, in a normal way, you have to pick up the phone. The deals expire. There's probably a thousand deals in a deal library; some of them expire in 15 days, some of them expire in 30 days. You've got to call the buyer, tell the buyer to bid at Magnite, not bid here. So there's always going to be a lag associated with it.

Yes. I mean, this sounds to me -- and I'll finish one this. It sounds to me -- and tell me if you think differently, this is kind of typical reactive ad tech clients that wait for the news to come out and then sort of react and change their business.

Like the GDPR, deprecation of cookies. We've been through it.

Which, I mean, for me as an analyst, I think, that's quite interesting because it sounds like a lot is going to happen over the next 12 to 24 months, and it's going to be very interesting to analyze and see how it improves your business.

And I think that's the key takeaway: it's a 12- to 18-month, 24-month story. So no one should expect all of a sudden Magnite's share goes from 6% to 10% overnight. This is going to be a growth story for years to come, which I think is encouraging. It's not going to be all of a sudden, "Oh no, Magnite has a comp issue because in Q4 of 2026 they got that huge whoosh and now it's a one-time whoosh." This is just going to be a growth story going forward.

Sounds good. Well, we'll end there. Thanks so much, and we look forward to covering you.

Pleasure. Thank you.

Let's get started here. I'm Jamesmichael Sherman-Lewis, and I'm on the Internet team here at Citi. Joining us today are Sean Buckley, President of Revenue and Market Strategy; and Nick Kormeluk, SVP of Investor Relations. Thank you both for being here.

Let's start with CTV. Growth accelerated sequentially to 36% in Q2, fairly broad-based strength across the segments. Against that backdrop, has anything changed in budget conversations over the last few years that could suggest programmatic is increasingly becoming the default method for transacting in CTV?

Great to be here. I would say programmatic is just up and to the right in terms of becoming the default mechanism for transactions in CTV. With that being said, I think there are some pockets where the market has leaned on more of the traditional direct sold model. For example, historically speaking, business tied to the upfronts with the largest players would fall into that bucket. Increasingly, though, the negotiations between the big buyers and the big media owners through the upfronts are moving money toward programmatic transactions as well, and that's a relatively new trend. And so that's a historically untapped pocket that's moving toward programmatic.

And then live events would be another example. That's probably even earlier on, but historically speaking, either linear pass-through as in the same ad experience you'd get if you were watching on linear, even though you're watching via streaming or traditional IO-based transactions dominated that space. And now you're seeing more and more business there move toward programmatic as well. So we have some of these untapped pockets that are moving toward programmatic in addition to the historical video on-demand.

Yes, that's helpful. We've talked about this dynamic of demand fragmenting and broadening out across new buyers. But also on the publisher side, roughly 30 global publishers control 80% of CTV inventory. How do you see the CTV market kind of growing and evolving from here? And how is Magnite specifically sustaining this CAGR of above-market growth?

Yes. So just to start on the buy side, for sure, the national television business was dominated by a relatively small number of large advertisers. We're now seeing more of these small businesses looking for niche audiences, direct-to-consumer businesses opening up the funnel and moving into streaming television, the addressability and targetability just -- and also the measurability provides that in terms of what those advertisers are looking for.

We've seen a bunch of dedicated companies pop up on the buy side and some of which you're probably familiar with. So the likes of a MNTN or a Tatari or a tvScientific. And we've worked very closely with all those companies. And I would say we're one of, if not the largest supply sources for those businesses. And they've worked hard to help onboard those small and midsized businesses, which is a very broad category into the space. I would say a more recent development that we find very interesting is some of the M&A that's happened there.

So Walmart with Vibe, Pinterest with tvScientific. I think one of the big challenges has been, how do you go out and attract that mid- and long-tail advertiser at scale and also retain those advertisers. And doing that as a start-up sustainably over the long term, I think we've had some questions about. But certainly, you see Walmart getting involved, Pinterest's getting involved. They have those connection points with those types of advertisers. And we think that can really turbocharge the broadening on the buy side of advertisers in the streaming space.

Yes, that makes a lot of sense. I mean Magnite has this streamer.ai that lets partners help smaller advertisers create, buy and measure campaigns without a direct sales force. So how do you view Magnite fitting into this SMB landscape?

Yes. So you bring up an interesting point. So we acquired a company called Streamr, and the core business model there was bringing down the creative barrier. So how do we help small and midsized businesses get through that process, which was historically a big blocker. The time and the cost around building a TV creative was an issue. Now using AI, we have tools that bring down the time and cost dramatically.

We made the strategic decision not to go directly to those small and midsized businesses, but to license that technology to companies who in turn do. And so it's a little bit of a different approach from our side, but that technology has been hugely popular as part of our portfolio, and we're working with tons of companies out there to help do that. In addition, I think at the end of the day, all of those advertisers need to purchase supply through a scaled and effective player. And I think we're very well suited to be that home regardless of the type of advertiser.

Do you think creative is still kind of the gating bottleneck to broader SMB TV adoption? Or given the advancements in generative AI, are there other pieces in the landscape that are preventing smaller advertisers today?

I certainly think it was, but I think the capabilities are coming along very well there, and I think that's starting to become more appreciated by the market. Also, those advertisers are often coming at it with a little bit of a different angle than a big television advertiser. And so they have more of a performance focus. And so making the process of buying streaming look more like what they're accustomed to in other channels like social is also a big part of it.

Makes sense. I want to hit more on TV and the growth drivers. But before we do that, let's talk Google very quickly. Last week, the court ruled in favor of behavioral remedies instead of structural remedies in Google's ad tech trial, which I think is consistent with your view that behavioral remedies would be the more meaningful lever going forward. Now that we have a ruling in hand, which behavioral changes are you maybe focused on? And what do you think about the path from here?

Yes. Great question. And yes, we've all been waiting, Wall Street ourselves very impatiently for a long period of time for this to come through. Now what we do have at the moment is a 1.5-page order, which is, again, still cryptic and still not the full set of behavioral remedies that we -- that has been shared with both parties. So what's been shared with both parties is sealed. It's sealed for 14 days. At that point, what we know is Google and the DOJ will have a chance to redact anything that they would not like seeing. The judge will rule on that. And sometime between day 14 and 30, we'll get a full viewing of what the remedies are and what the behavioral remedies will be.

So I think at the moment, we know no structural, as you pointed out. We know there are behavioral remedies and everybody is overanalyzing and rightfully so, overanalyzing that most of the behavioral remedies proposed by the parties will be ordered, right? So we are guessing at what that might mean. The Street is trying to guess at what that might mean. The industry is guessing what that might mean. So today, we know nothing more than that, but it's encouraging, right? To hear most, right, is an encouraging word.

What we also know is some of the remedies proposed by parties are in conflict with one another. And I won't go through those, but we don't know how those tie breakers work as well. But the word most give us encouragement that, is it just the ad server that will be changed and how it works with the exchange? Is it something on the demand side that will be changed? We honestly do not know. We would like to think the word most suggests that, but we'll find out more as there's more information shared. And there -- as a reminder, there's not a whole lot that changes from how we run our business to what this means.

So the reason I'm answering this question as opposed to Sean is there's nothing here today that Sean can say, "Hey, I'm going to take action against this and do a lot of things with my partners, customers and buyers to be able to influence what this outcome is until we know what that is." Even then, a lot of what changes on the auction side is a more fair auction that can transact. That means our win rate in those auctions can increase. We already see and have at bats there. So we already play in that ecosystem.

This simply means our win rate goes somewhere higher than very, very, very low single digits, where in the trials, Google's win rate was much higher than double digits. So again, understanding what exactly that means, what countermeasures might be taken, we don't understand if this affects the demand side, that would be a very good guy for our industry and our business. But we don't know if that will be inclusive or not. So we sit here kind of waiting to be able to react.

What we have shared in the past is that for every market share point that we would win as part of this, we believe it's $50 million in contribution ex-TAC. Today, as a reminder, we sit at 6% to 7% of overall market share. Outside of Google share, we sit at 16%, 17% of rest of market, excluding Google. So we think that there's an opportunity here, obviously, for that to move. And that $50 million in contribution ex-TAC, which is really net revenue.

In that case, that flows through at very high incremental margins, 90%, 95% incremental margin. So this is meaningful. We don't know the answer yet. So hopefully, as the next couple of weeks, past 3, 4 weeks past, we'll have more information on it, but that's the best that we can share. And again, overanalyze that one set of words that I think everybody is laser-focused on.

Makes sense. So consistent execution from here regardless of what happens.

None of this is baked into what Street numbers have, what our expectations around the DV+ business would be. So again, none of that has been kind of priced in, if you will, for expectations, yet.

Understood. Let's move on to SpringServe. It's evolved into this, kind of, OS for CTV monetization, extending into mediation, demand facilitation and yield management. What SpringServe capabilities do you think are delivering the greatest value today? And how are they translating into deeper relationships with Magnite?

Yes. I mean SpringServe has been a transformational acquisition for our CTV business, in particular. I think first and foremost, at a foundational level, when we integrate with media partners in the streaming space, so publishers, there's really 2 main models. We either integrate as the ad server, which is relatively straightforward. And SpringServe in particular, has done very well there with regards to new media.

So if you look at, for example, some of the OEMs like VIZIO or an LG, we use SpringServe as the ad server and run their ads business kind of wire to wire on our technology. The other model is what we call a mediation platform. And so this is different than what you've historically looked at an exchange or an SSP, right? This is more of a control center where they operate most or all of their programmatic business.

And so we integrate with an existing ad server, it could be home built or could be another player in the space, but then they house their programmatic business more holistically in our platform. That would include other exchanges and SSPs, some of these DSP direct integrations that are talked about in the market. And they also use us for other capabilities like creative review and things like that. And so at a foundational level, I think we have a very differentiated integration point with virtually all of the partners we work with in streaming.

And we work with virtually all of the ad-supported streaming services, certainly here in the U.S. And so that foundation gives us massive differentiation between what most others are doing in the space. You can then obviously layer on unique capabilities. For example, more recently, we've come to market with a bunch of agentic capabilities, which we'll talk about. But that foundation is what gives us the ability. We're so deeply embedded in their workflows, and we're such a big part of how their business operates. It gives us a unique launch pad for all the other things that we do.

There have also been some applications on the buy side. For example, our ClearLine technology, the direct buying UI that we offer for specific purposes was built foundationally on the SpringServe technology, and we've developed marketplaces for some of the big buyers, for example, some of the holding companies, which we have announced, which is also foundationally built on the SpringServe technology when it comes to CTV. And so yes, that acquisition, albeit small in the onset, has unlocked a lot of potential for the company.

Makes sense. Let's move if we can to live sports -- banner year this year, World Cup, et cetera. It represents about 40% of TV ad spend, but relatively low programmatic penetration. Even as I think you've noted, 56% growth year-over-year in live sports ad spend from January to July, which was fascinating. What are the primary barriers here keeping programmatic from becoming a more meaningful part of live sports monetization? And how is Magnite positioning with some of your newer tools like Live Scheduler?

Yes. So there's kind of an additional step that I'd like to clarify with folks as the sports monetization moves from traditional television into streaming. So you'll hear stats that a huge part of the audience watched it -- watched X event on streaming. But the reality is there's an additional step, which is you have to move from linear pass-through, which I touched on earlier, to dynamic advertising.

And the media owners, even though the audience has moved and is viewing through some streaming service, they have to flip another switch, which is, okay, we're going to enable dynamic advertising in this event, not just pass through the linear ad load. And once the switch is flipped for dynamic advertising, that is what then enables programmatic to move in and capture that opportunity as well. And so obviously, we're working closely with the major media owners to help them understand.

It's a sizable transition. There's a business decision. There's a high level of technical sophistication. And so there's folks both looking at the user experience and also crunching the numbers to say, like, does it make sense to flip the switch on this event and it can literally be done event by event. So we're working closely with media owners to help give them confidence that, yes, this will be a net positive for you financially, and we're ready to support very high concurrency, high-profile live events with our technology, and you're able to do it dynamically.

You mentioned one example of a recent product release, which was a scheduling capability to have people go in and sort of manually one by one set up all these live events, which are often happening when nobody is in the chair from a trading perspective, right? It's happening at night, it's happening on weekends. So creating a more robust scheduling capability for media owners to go in and do all that -- a lot of that work in advance and bring some automation to that was a huge deal.

Before that, we had released a product called Live Stream Acceleration, which if we were to just take the traffic on a live event and send it out to DSPs as is, it creates a lot of issues around pacing or there's -- essentially, you can bet that if we were to do that, it would not function properly. And so we have a suite of tools that spreads that traffic, makes it more digestible for the buy-side technologies and therefore, helps live events monetize much more smoothly and effectively. And so those are 2 examples of technology we've built to help bridge this gap and bring live into the programmatic ecosystem.

Yes. I think the topic of sports and flipping the switches brings us to a very parallel subject, which is data. Ad tech data historically being concentrated on the buy side for targeting, but also first-party data CTV now increasing sits with publishers. How is the balance of power really shifted between the buy side and the supply side and advertising? And what role does Magnite play in the data landscape?

Yes. This is an important trend that I think the market is really starting to pay attention to. So if you go back in CTV, we've been doing this for a long time. The cohort I mentioned earlier, the OEMs, smart TV manufacturers, they have historically done it this way for a long time as in taking their valuable first-party data, their ACR, automatic content recognition data, and enabling that through the supply side technology, Magnite and saying, okay, a buyer can come and say, "I want to target this segment."

But when we activate that segment, we're going to do it on the supply side preemptively and then send that traffic out through a deal, and that traffic is already refined against what the buyer was looking for versus take that data and hand it over to buy-side technology and then start to lose control of how that data is used.

Except for very, very few exceptions, the OEMs have remained very firmly on the supply side track in terms of how they activate that valuable first-party data. What we've seen happen over the last 18 months, 2 years is other folks are seeing the value proposition of activating on the supply side, commerce players, for sure. And even the major buyers, like we've done a bunch of work integrating the data assets that have either been built or have been acquired at the major holding companies, and they're seeing the value in integrating and activating audiences on the supply side.

I think the Walmart announcement that we did with Walmart a few months ago was a big signpost for the industry that was like, wow, with Walmart's moving in that direction. This is probably a trend we need to pay close attention to. So that's accelerated this conversation meaningfully. But we see it basically from happening from all constituents now evaluating, okay, if I can activate decisioning and audiences on the supply side, I'm starting to really see the benefits of doing that.

Yes, makes a lot of sense. As we think about that kind of future of buying, you have buyer and seller agents that are being tested with a handful of partners, a handful of millions also of transactions to date. And today, you just launched your first agentic campaign in EMEA, I think, with Amnet France. How do you view the broader like adoption curve for agentic advertising capabilities and moving advertisers from really kind of experimentation to a true scalable channel?

Yes. The first set of announcements that we had. We brought our own buyer agent, our own seller agent to the market, so enabling partners to use our tools, tap into the efficiency and natural language capabilities of the LLMs and start transacting that way. So very different workflow, like you're prompting and the buyer is, for example, prompting and pushing -- or pushing or uploading a campaign brief and saying, "Hey, here's what I want to execute on."

More recently, we announced our orchestration layer, which this is, I think, a unique setup in the market because it builds on the foundation that I discussed earlier. I really think you have to have the right depth in terms of your partnerships with the major media owners, and you really have to work with everyone that the buyers want to reach, and we're uniquely positioned in that way. And so what we're doing there is we're enabling the media owners to upload their full inventory footprint, all the packages, the different offerings, and they can even customize it by buyer.

And so we have this amazing repository of all of the inventory intelligence from the major media owners now around the world. And that gives buyer agents, whether it be our own or we're interoperable on this front. So we're allowing buyers to bring their own tools, agentic tools and integrate. And we put it in a machine-readable format. So essentially, those agents can now evaluate the broader inventory landscape and execute on campaigns.

Most of the transactions have been one-to-one in nature to this point. So it's been one major buyer interacting with a major media owner. We certainly see a world where it moves, for example, to one-to-many, where it's a buyer who wants to interact across with many media owners. And I think that enforces our position and makes it even important.

You think one-to-many is the future of agentic buying? I think we heard from the last speaker that MCP is now table stakes. I think you've certainly shared that view. But how do you see the ecosystem evolving one-to-one versus one-to-many over time?

I think the reality is, particularly in CTV, you'll see both. There's certainly an opportunity for agentic to transition some of the remaining traditional direct sold, right? There has been some barriers with programmatic, and I think agentic could create sort of a streamlined option to tap into that pool of budgets, which would also be upside for us. But I also think you're inevitably going to see the multi-publisher and optimization across media owners for sure. So I think both.

Makes sense. The flip side of LLMs and advertising is, call it, the traditional web. I know you've spoken to the open web and display portion of DV+ has faced, I think, it was high single-digit declines from referral traffic pressures potentially in part from AI overviews, even as your mobile in-app and Commerce Media returned DV+ plus overall growth. How do you think about the rate of change within DV+ portfolio mix? And how are you helping publishers adapt?

Yes. So I would probably classify the web category. It's facing structural headwinds, not necessarily specific to us, but industry-wide, as you alluded. And it's a meaningful portion of the DV+ business, but it's not the majority. And we certainly have other areas of the business like mobile app, audio, digital out-of-home. And those, for the most part, are material growers.

And so I think what will be interesting from a perspective standpoint is as you look out 2 or 3 years into the future, I have little doubt that as a percentage, web will be a notably smaller part of that business and mobile app in particular, but certainly audio and digital home will be -- a digital out-of-home will be a notably larger part of that business. And I think that will perhaps change the perspective on the DV+ business. And we think those other formats have material long-term growth opportunities.

Makes sense. Can we talk briefly about Commerce Media, more than 20 deployed Commerce Media partnerships across DV+ and CTV, very long kind of enterprise list. How do you think about the growth opportunity here, maybe the go-to-market and the path to scale together?

Back to your earlier point around supply side decisioning, I think this is a category where that is showing up in spades and increasingly, the major commerce players are choosing to activate their data on the supply side. There are a lot of reasons for that, as we alluded to earlier. In this case, just to highlight one, workflow flexibility is becoming very important for this cohort.

So if you were to integrate your data into a DSP, you kind of have that as the workflow model you have to bring to your end customers, which are brands and agencies as a commerce player for the most part. If you integrate your data with a supply-side technology like Magnite, your buyers can then show up with their preferred workflow, for example, whichever DSP they're currently using.

And if they're not using the one you had selected, you no longer need to sort of make -- go through a workflow process change, which can be very challenging in our industry. And so that workflow flexibility aspect is one of a number of reasons as to why the commerce players are drifting in this direction. I mentioned the move or the announcement we had with Walmart, which obviously, is one of the largest constituents in that space, and we've made a number of announcements there. And so we have a lot of momentum in that category.

Great. Should we hit on financials now? Your EBITDA margin guidance was raised to at least 37% with free cash flow guidance, I think, at the high 40% range. How do you think about capital allocation, in particular, following your deleverage with the debt pay down, ranking buybacks, organic reinvestment and potential tuck-in M&A?

Sure. I'll start with the operating leverage and touch on capital allocation. And because we have paid down debt to 0, I'll punt that over to Sean, which will play a bigger role in capital allocation now that we have fee -- a lot of free cash flow. But on the operating leverage side, we've talked about for a long time that at roughly 7% to 8% annual revenue top line growth, we cover our costs. We're about margin neutral there.

What we've said is once you start getting above that range, you'll start getting a little bit of margin contribution. And for the last few years before this one, we grew in the 10%, 11% range and started to see about 100, 150 basis points of margin expansion. This year started with EBITDA margins in 30 -- high 34s, 34.89% from a Street expectation perspective. But as revenue is inflected to now get to the, call it, 13, 14-ish range above 11%, you've seen the operating leverage really play out as expected.

And I think why it's caught a little more attention, and that was a bit of the surprise question that came in following this earnings report. We know that it performed as expected and our $10 million revenue beat on the top line in Q2 translated to an $8 million EBITDA beat on the bottom line. The operating leverage played out exactly as we indicated it would. But now that we actually performed it versus just said it, I think it got a little additional attention.

So we think that, that will hold. We think, above 13%, 14% growth rates, there is 80-plus percent flow-through for top line revenue beats down to the EBITDA margin line. So that's -- you've seen it in the operating -- in operating and EBITDA margins. You'll continue to see that as we're growing at a sustained elevated rate. What that allowed us to do over the last several years is to be able to pay down our debt, right?

So -- we started and rightfully so for some investors with a 6x leverage scenario to buy acquisitions that we did. We haven't been in market doing any large deals for the last 4 years. So it's really been organic growth since then, but we've paid down. We're now net debt 0. So we've gotten to a position where the vast majority, especially when our shares were at far lower levels than they are today to start off the year with fairly aggressive buybacks in the market, both from a withhold to cover perspective as well as open market purchases.

We've also said that greater than 50% of our free cash flow will be targeted towards buybacks. The rest of that is really towards any M&A. And there's not significant M&A out there. I'm not trying to signal that we're doing anything different in market today. Streamer was our latest deal that we did. But I'll turn it over to Sean to maybe talk about the types of things really from a tuck-in and a road map perspective that we might be interested in things that levers our market position. But let me turn it over to Sean to speak on that in that regard.

Yes. I mean, just to jump on that. Look, we feel really good about the technology that we have in-house, and we're fortunate that we aren't absolutely in need of something here or there. We feel great about our stack and what we're able to do with our customers and what we're able to build -- continue to build organically from here. With that being said, we always have our eyes open for the bolt-on type of acquisitions, particularly adjacent technologies.

We talked a little bit about SpringServe and how fundamentally positive that has been for the business. Nick mentioned Streamr. And I think one interesting part about that acquisition was we talked about the capabilities in terms of what they -- the product that they provided to the market in terms of what we initially purchased. The reality is the knock-on effects of the way we've been able to leverage those capabilities and the team, it has dramatically impacted and accelerated our agentic road map more broadly across the company.

And we've been able to expand their product, for example, from purely video to the home screen environment on the OEMs and solve some major problems for those constituents, leading to that environment likely becoming much more programmatically enabled than it has been in the past. And so we've been able to take a relatively small team and a specific set of capabilities and then apply that across many other areas of the business, which has been hugely beneficial to us. And so those are the types of things we are always on the lookout for.

Yes. Perfect. I mean I have so many different areas to follow up from that, but I want to make sure we take some audience questions if there are any. So raise your hand if you have a question. Otherwise, I can keep going. All right. Perfect.

We've hit on improving incremental margins. AI is kind of efficiency, but also a product velocity lever. I think you've spoken in the past about some benefits from the internal load balancer, saving $20,000 a day, agents replacing ops contractors. How do you think about this equation of leveraging AI internally for efficiencies, but also trying to drive a little bit of faster product velocity? And with that, if I can squeeze one more. How do you think about open versus maybe closed frontier models?

Yes. I guess to answer your first question, we kind of -- we do have it broken out. There's internal efficiencies and then there's external customer-facing products. We talked a lot about the external side. From an internal standpoint, we certainly are seeing material value. One example would be that we created our own in-house platform. And what that's enabled us to do is things that historically we've had to send through the full product and engineering pipeline, which has a resource demand and also has a time line against it.

We've used those capabilities to put in the hands of our broader team outside of products and engineering, folks like our operations group giving them the ability to now develop those tools without going through the full engineering and product road map. And so if there's a need to develop an internal capability, efficiency or tool, they now are able to leverage the AI programming features to do that themselves without having to go through that full internal pipeline.

And we've seen -- we started to see material benefits from that in terms of the speed -- our team's speed to market in terms of releasing those internal capabilities and making our internal teams more efficient and effective based on that. And so we're starting to see material internal benefits as well.

On the AI build-out, you have a new North Carolina data center coming online. But at the same time, your $60 million CapEx guidance is, I think, a step down from some prior years. How sustainable is that lower CapEx level against the backdrop of a market that is seeing real price inflation from AI buildouts?

I think Northern California, but...

Thank you, sorry.

Yes. So we've released some documentation recently to the market around our hybrid architecture. And so we'll talk to some folks in the market and they'll say, fully on-prem is the only way to go. There'll be other opinions where it's like, everything in the cloud. And in our view, you need a hybrid setup. Obviously, the cost effectiveness of the on-prem side is critical. But there are capabilities. We talked a lot about live events. I think that's certainly necessary in terms of supporting those huge spikes in concurrency.

But to give you a more extreme example, I mean we did the Cricket World Cup in India. And so having cloud capabilities to be able to handle that effectively for our partners there was absolutely critical. And so we are very centered around this sort of hybrid approach.

And obviously, one of the things we continue to work on is taking the CTV business, which was historically completely on the cloud and balancing that across, "Hey, what's our more typical sort of baseload need and operating that increasingly on-prem. But then, as I mentioned, continuing to leverage the benefits of the cloud where and when it makes sense for things like live events. And so I think that's kind of our philosophy on a go-forward basis, and we feel very confident in that architecture for our business.

Related to the -- this investment...

Yes, to that $60 million number that we've given for this year, we think that's a relatively safe number to use kind of going future. So we'll get additional CapEx leverage. What we've quoted is that using and running things on-prem versus cloud, especially to the base load that Sean mentioned, we get a 4x efficiency for being on-prem versus cloud.

So everything that we can do on-prem at a base load where you know exactly how predictable your loads are, there is a massive financial benefit to doing so. To the degree that our business continues to elevate and grow at a faster rate, that base load could grow. So CapEx could follow in support of growth of the business, which again is success-based capital. So that's really the only linkage to that $60 million going number, but we'll get our number going higher, but we believe we're in the right range as we look at towards next year.

Great. Last 20 seconds. CFO in transition. David Day is set to retire at the end of September. Any update on succession timing or the potential profile?

Not yet, but imminent.

Perfect. Thank you, Sean and Nick for being here today. This was a great discussion. I really appreciate it.

Thank you.

Hi, everyone. Good to see everyone. And for everyone, if they could mute themselves if they're on the Zoom. Thanks for joining. Just wanted to welcome everyone. I'm Jill Hall, Head of Small and Mid-cap Strategy within BofA Global Research. So we're very fortunate to have a great 2 days of executive insights fireside chats with almost 20 small and mid-cap corporates. It's a great annual event we have every year. And our analysts have really great breadth of coverage in the small and mid-cap space. They cover about 1,000 small and mid-cap U.S. companies.

So excited to continue to hear from them. Feel free to reach out to me or to corporate access if you need the schedule, if you still want to join any of the sessions that you're not already signed up for. I've had some people reach out to me today, so not to wait, or if we can help you getting in touch with any of the analysts for any follow-up or if you would like to sign up for any of the research on the companies today as well as our small and mid-cap research or we also put out a daily compilation on some of the small and mid-cap research from our analysts.

So with that, thank you for joining. I hope you're able to join some other sessions as well, and I will pass it over to Arthur to do some introductions.

Thank you, Jill. So good afternoon, everyone. My name is Arthur Chu, and I'm on the U.S. Internet team here at BofA. I work with Omar Dessouky, who leads the video game and advertising technology coverage. The ad tech stocks we cover are Magnite, AppLovin and Unity. So we're going to have some time for a live Q&A later. But if you have any questions in the meantime, you'd like to ask, feel free to e-mail me at arthur.chu. That's [email protected] or you can just use the raise hand function on the Zoom call anytime you have question.

So it's a great pleasure today to have Nick Kormeluk, Head of Investor Relations at Magnite with us. Magnite is a leader in programmatic advertising on the supply side, particularly on CTV. And we're buy rated on the stock. We think it is well positioned to be one of the biggest beneficiaries from the CTV industry's transition to programmatic advertising.

So welcome, Nick.

Thank you, Arthur, and thank you, Jill, for having me today.

Yes. So Nick, we have some generalist investors on the audience -- in the audience today. Maybe just for people less familiar with Magnite or supply-side of platforms in general, can you introduce Magnite to the audience?

Sure. So Magnite is what's traditionally labeled as a supply platform, right? So effectively, where we initially kind of enter into the industry is really working for publishers and working for publishers that have inventory across the open Internet, connected TV. Think of any digital ads that are serviced. Those are ads that we are in market trying to bring demand to, right? So we operate a marketplace. We bring in demand to match up to be able to get inventory sold for publishers. But our strategic value is really making sure that we can bring it to as many buyers as possible, make a very active bidding on that inventory.

A lot of that's tied to bringing and importing data in to allow data to find users that buyers and brands are specifically looking for. So in doing so, that's the value that we inject into the market and the value that we drive for publishers. So whether it's in connected TV, streaming, broadcast, TV OEMs or whether it's mobile app or mobile web or even web browser or digital out-of-home, we service all markets as an omnichannel player.

I think the area that's most exciting that has a much different market setup than historically the web has is connected TV, where the amount of inventory is really concentrated in the hands of 30 large global partners that represent about 80% of the world's inventory. And it seems like every week that goes by, there's less of those people because they're consolidating like a Roku, Fox, for example. But we have relationships with all of them with the exception of YouTube. So we've become the de facto place that anybody that wants to buy connected TV comes to, to access the CTV market, which is a far cry where we were a couple of years ago.

Got it. So you guys definitely have a very diversified sort of business. I think if you look at the ad tech industry probably like 3 to 5 years ago, I would say the industry has obviously changed a lot since then, so has Magnite. And I think you guys have transformed yourself from a traditional sort of open web SSP to now I think you're more of a programmatic CTV ad leader. Maybe just tell us a little bit more about that evolution.

Yes. I think the beginnings of CTV, and we made a few acquisitions to get into CTV. But I think it's the nature of relationship of many partners that view themselves as walled gardens have brought us in as a trusted technology partner, right? So I think that's much different than simply looking at a supply side platform and saying, "Hey, we'll invite you guys in, throw a bid in. If you guys win, you'll get paid for it. If you guys don't win, then go away and try again next time," right?

So I think the strategic nature of the relationship that's evolved is -- comes from initially working with a Disney or a Roku or others in our early days, call it, 3, 5 years ago and showing that we've been brought inside. They want to operate and sell their inventory, but they don't want to simply allow everybody to bid on their inventory. They want their data protected. They don't want anybody to see their user IDs leak out to buyers, but they want to monetize better than they can on their own, either through a direct sales force and insertion orders or doing something self-service on their website.

They want to capture programmatic demand from all sources. And their aspirations to grow revenue more has had them lean on us to be the one party that's invited in to be their tech partner, which is why we define the market as almost a winner take most. You may have a couple of partners that you use.

But for the vast majority, whether it's ad serving, whether it's mediation, whether it's demand generation, whether it's yield management, whether it's identity strategies or audience creation, you don't choose 2 partners for that. So that's where we've won. And I think what's happening is our evolution over time that people believe or investors may have believed that there was risk to and this industry grew up, right? Connected TV grew up.

There was always the risk or the fear that people would either, a, do this themselves or b, go to a much, much larger player. Now there is not a larger player in the space. Our market share has expanded dramatically. Our position in programmatic is large, and we've expanded our Disney relationship. We've expanded a Fox relationship. We've dramatically expanded Roku. We've won Netflix during that particular time. So we've shown that we are that partner that can execute and bring people to the programmatic market. And the very interesting component to that kind of rewinding to the past was it's also had a halo effect on the DV+ market.

And the reason that I say that is you now have people on the DV+ market that looked at how we've partnered on the connected TV side that look at DV+ and have never relied on programmatic demand. And they have said, "Hey, can we have that type of relationship with you?" In the past, in open web and in, what we call DV+, which is everything excluding CTV, we would be one of a bidder and then you -- it wouldn't be exclusive and you'd have 5 or 6 other guys also trying to sell and rep that inventory. What's happened by that halo effect that I'm describing is people have said, we want the same kind of relationship with you that Netflix has.

We want you to protect our data, you be the one that connects us to demand. We don't want to have 5 SSPs. We want to hire you exclusively because we trust you, and we think you are best positioned to monetize and bring in all the demand, and we don't need 2 people to do the same thing. That inserts risk, that inserts confusion.

So we want you to be the partner. So our list of Commerce Media partners has exploded from a United Airlines to a Pinterest to a Best Buy to a Redfin, to a REMAX to an Expedia to a PayPal. All of those things have exploded recently to now 21 partners that are now relying on us exclusively to be their programmatic partner bringing in new demand once they've decided that, that is a path or a source of revenue that they'd like to be able to tap into.

Got it. So it sounds like in the CTV world, the supply side is much more consolidated because a lot of inventory are either with these premium streaming partners or companies like Netflix. So you mentioned some of the key partnerships like Disney, I think you mentioned Roku, Netflix. I think the latest -- for the latest, you guys also added Samsung ads as a key partner. Samsung is adopting SpringServe, which is your ad server for placing programmatic ads on home screen.

And I think you talked about retail media and I think Walmart recently also like pick you guys as the sell-side partner. So it really seems like Magnite has become like the go-to for these big brands when they're looking for CTV opportunities. Maybe tell us a little bit more about these recent announcements. Like what are you hearing from partners that they're looking for that perhaps they can't get elsewhere? Like what makes Magnite offering unique?

Sure. No, absolutely. So let me do it maybe in reverse order since we were talking a little bit about Commerce Media. Let me tackle Walmart-VIZIO first. So they've been a long-standing partner with VIZIO, and we've helped -- we've been their ad server. We've been their primary SSP selling inventory for them, and that's been a phenomenal relationship, and they've been one of our strong customers. What's changed recently is they, in the past, used a white label DSP that they use from Trade Desk, right?

And they kind of parked all their data in that DSP so that you had to buy through that path essentially to be able to access Walmart shopper data on all their VIZIO inventory. They kind of broke that data lock a while ago back in April and said, "Hey, now you can get that same Walmart data on VIZIO inventory from a handful of different parties, basically meaning it's not just going to be centered in one DSP." Then it turns around towards Cannes, which just happened in June, they announced that they're buying Vibe. So clearly, they bought a DSP. They're focused on having and owning their own DSP versus using a white label DSP.

And they tapped into us to say, we are going to use Magnite to be able to take our user data and be able to take that not only on their own inventory and bring in new DSPs like Yahoo! -- that was announced at the time, but also be able to use their data across being a DSP they could buy on other sources of inventory, open web inventory, non-owned and operated inventory from VIZIO. So that's a very, very big expansion of kind of what they would like to do in the market, none of which is running through our numbers as of Q2. So again, that's a future opportunity that we think has a lot of promise.

And clearly, I think they've got aspirations to want to do something similar to what Amazon has done and to stand up and buy a DSP, one that's very tightly integrated with what we're doing with them is a very, very good guide to our long-term prospects of continuing to grow with Walmart Connect. Samsung is another one that you referenced. I think because Samsung was a prior customer, I think to a large degree, the Street really is like, oh, that's great. You got some home screen inventory from Samsung from an ad server perspective. Just to clarify, historically, we've done no ad serving with Samsung.

There's -- they use Publica, which is private equity owned part of IAS and it's kind of the only account that Publica has served recently, but they went to market to bring in somebody to do ad serving for their home screen. Their home screen historically was sold through a direct sales source through insertion orders, and it was ads that they actually ran without having to tap into an ad server to do so. So they went to market, ran an RFP. We won that business for their home screen.

You say, "Hey, great, that's fantastic. You get a little bit of fees for doing that." Samsung has the largest amount of television, smart TVs installed globally at hundreds of millions of televisions. Some numbers say 100, some say 300, it's their number to post and publish, so you can publish the number that you find from whatever source that you have. But they are the largest installed base of televisions globally, smart TVs globally. For other TV OEMs, what we have seen is the home screen can represent up to 30% of their ad revenue.

So there is a very established channel of buyers who are buying home screen inventory and a track record of that inventory performing from Samsung being the publisher of that inventory. The fact that we are now the ad server and we are able to sell that inventory as their primary SSP to do so opens up a tremendous amount of additional growth within Samsung as an account for us that, again, had no revenue contributing from ad serving and SSP in their home screen in Q2. So that's another future growth opportunity that's pretty sizable that I think is probably bigger than what the Street has recognized or realized when the announcement hit because folks recognize that we have a relationship with them already.

Got it. That's super helpful. And I think, Nick, you mentioned something that's really interesting, which is like platforms like Magnite, they allow they allow like the data on users to be activated across a variety of different platforms for the buy side. I think you're talking about like audience creation -- curation. Historically, I think audience curation is a value sort of accretive component that used to happen like primarily on the buy side, right?

It contributes significantly to DSP take rate, I think north of 10%. But increasingly, we're seeing the audience activation taking place on the supply side. Maybe can you talk a little bit about some of the drivers behind that shift? Why is sort of audience creation moving from the demand side to the supply side? And secondarily, how accretive do you think this could be for SSP take rate?

Yes. No, it's a great observation, and you're 100% correct. A lot of it has to do with what we talked about earlier is market structure, right? So in open Internet, when you have millions of websites and you have millions of apps, it's really, really hard to scale. If you're a large marketer like a P&G, it's really, really hard to find scale within one publisher, right, because the market is so broad and so diverse. So you really looked at -- you looked to DSPs to be able to find signal across thousands of different publishers and find the users that you wanted to be able to effectively run your campaigns.

So you kind of leaned in there. Publishers were more open to sharing their user IDs on the other side and embracing different identifiers so that they could get access to that demand. And if they had their preference, they would never share their IDs because they believe that, that data leakage and loss leads to somebody else being able to buy their user without them having to come back to the same website over and over, whether it's an ESPN or it's a Disney website or a New York Times or Wall Street Journal, you name it.

If you learn that ID, you can find Arthur in 5 other places, maybe cheaper than the Wall Street Journal, and they have the ability to now target you outside of just their website. So in CTV, because the market is so concentrated, that fear that they have in open Internet, now they can mandate that, that ID does not pass to a user. They have the control and they're controlling how data is used and they will import identifiers into their walled gardens, but the match is happening inside and then they report out that, yes, the users were found.

So because of where the IDs sit and where the matches take place in CTV, DSPs do not have the same ability to charge for data sets and build data sets to identify users. They still have their IDs of who their buyers are looking for that they can pass, but they're not being sought after for those data sets. The other element that exists there is you have buyers that have decided they want control of what inventory they are buying.

In DSPs, when you would plug in what you're looking for, you might not always know on the other end of that black box where your inventory or what the preferred inventory sources were. Buyers have wanted more control. So agencies have played a role in becoming data providers and even bought data assets like a LiveRamp in market out there. You've seen them partner with other data vendors and providers.

So as agencies have tried to play a bigger role in data, that's also moved it in that direction. And I think they've started to curate and sought to connect with us to be able to then say, "Hey, we want to -- on the other end of that, we want to make sure we have which data sources, which publishers we are seeking. We want to make sure that those paths are visible, seen and we can buy across what we would like and more importantly, what they would not like," right?

So in that seek for control, that's also moved DV+ to have more creation by the agencies playing an increased role and brands playing an increased role in doing so. So for us, there's 2 parts of our data business that I would reference. If we're using somebody's first-party data, which we think is the most valuable data, meaning a publisher knows most about their users, they have credit card info, they have addresses, they have e-mails, they know shopping behaviors, they know intent, they know viewing patterns. They know a lot about them.

So that first-party data is extremely valuable. We do not charge that first-party data. We don't charge a fee for that first-party data. There is a benefit. The better we are at clearing that signal and making it and matching it up with buyer demand, you get a higher CPM for the publisher. So our incentive is to drive higher CPMs to have better targetable inventory to be able to bounce up against.

Our take rate then, for example, if you had a Pinterest ad at $4, on top of that, if we could refine and have a very clear signal of who that viewer is and who that Pinterest user is, and we could sell that impression for now $6 because a buyer really -- Restoration Hardware really wants it. For that increase, and I'm just making it up, if our take rate was 10%, now we would capture $0.60 as our revenue per impression as opposed to $0.40 if it was without their data signal coming through.

So we get a nice lift from selling the inventory for a higher price and the publisher gains most of those economics by carrying, again, the higher CPM lift that they're getting for us doing so. What we're also doing is allowing data vendors, whether it's a United Airlines or whether it's a Best Buy or REMAX or Expedia, we're also helping them monetize their data off O&O, off their owned and operated inventory. And in doing so, LG is a perfect example. So LG has ACR, automatic content recognition data from all the information and all the video that's seen through that glass, they capture that data. We help them sell that data to non-LG inventory.

What that does is you might find a category that you're looking for or a viewer that you're looking for, for something that you'd like to market in open Internet, on another streaming channel, on another TV device. So we will sell their data. And in that case, we will actually get a rev share for them for reselling their data and driving and contributing new revenue to them that they ordinarily wouldn't realize. And because we're as broad as we are, as omnichannel as we are, we're the best positioned to be a reseller or a data broker for that data elsewhere and sharing those economics with them.

Got it. Understood. And Nick, if we think about like the traditional sort of DSP pricing model out of, let's say, like take rate of 20%, maybe like 10% of that is like data bundling and all these like audience activation. Are we talking about like a pricing lift or take rate lift in sort of the same -- similar magnitude? Or how should we think about that?

Yes. We haven't quantified it, particularly like -- so it's really hard to understand and try to tease out what CPM lift is with that higher take rate, right? So in that case, it wouldn't be any higher take rate for us. It's just CPM lift, right? So that CPM lift comes through and 0 difference to the take rate, where we're selling that inventory off property, right? So in that, you could have very favorable rich economics, a 50-50 split for reselling their data in other locations and other places.

That's something that's becoming a very nice contribution to overall revenue. It's not massive. So by no means is it anywhere close to half of our overall take rate and revenue. But it's definitely been a very nice addition, and it's something that has other partners seeking us to be a data broker and vendor on their behalf because it is revenue that comes to them as a new source from nothing.

Sure. Got it. Understood. Maybe just switch gears a little bit to AI, which is obviously a very highly sought topic. I recall back at the BofA Tech Conference in June, we talked about this new agentic ad buying app that you guys were just rolling out. I think you guys branded as Magnite Orchestration. So maybe just to start for investors who aren't as familiar with the agentic development in ad tech, what specific problem does it aim to solve? And why is Magnite uniquely positioned to solve this problem?

Yes. Embedded in that kind of series of lots of questions, we probably have a 2-hour webcast that we could go into and stay at a level, make the key points that I need to, but not get too far into the weeds. So we play agentically, and we made some announcements back in April with real partners that when they signal that they're a partner of yours, like they get a lot of customers hitting them consistently and investors asking, where are you in your journey because you're willing to put your name in a press release.

So we announced capabilities across mediation, agentic capabilities across seller agents and across buyer agents. And then we follow that up in, call it, the June time frame right around your conference with an orchestration layer on top of that. So broadly speaking, even if it's not -- and again, we think we're positioned really well to have our buyer agent, seller agents and mediation agents used.

But even if we're not used in those cases and it's a transaction where somebody's buyer agent is talking to a seller agent, we are the ones that are sought out after in order to be the infrastructure layer on which to monetize. You still need things like privacy protection. You can't just share an ID and publishers can violate privacy risk, and they're the ones that have to pay fines across the globe for doing so. We don't -- those agents don't know how the money is going to transact and who's going to pay what funds through what workflow and then who's going to end up with the money as a publisher at the end of the day. So there's a lot of infrastructure even if you make the assumption that we are not involved in a buyer or a seller agent.

That being said, we think we have a lot of traction, and we've announced a lot of partners from an agentic capability. The mediation part of it, right, the ad serving component from an agentic workflow makes a lot of sense, right? That's just optimizing inventory and ad units to perform the best that they possibly can with demand, different criteria, different workflows, speed to setting those campaigns up, et cetera, et cetera. That's something that makes a lot of sense for what we do daily because that's in our purview and that's our general workflow.

The other side is the seller agent, the buyer agent. Because we are the end-to-end broker to get somebody desiring to buy to somebody desiring to sell, we sit across that. So if you're a buyer only, all you see is your component of the workflow. If you're a seller only, you only see your component. The fact that we sit across the entire transaction from intent to offering inventory and the match between them, we are able to solve the workflows across start to finish.

Now that being said, we do not have religion of whether it is our buyer agent, our seller agent. We do have them out in market. And you can use Azure, you can use ours, you can white label ours. We can give you some of the features that we offer. What our benefit is, is removing friction and then taking share in the agentic world. So we will optimize anybody's buyer agent that connects to ours or another seller agent.

Our orchestration product make sure that they all work seamlessly and very, very well together. And you're thinking about this and you're like, well, Agentic is really a workflow solution. And you're right, and our workflows generally are people setting up and removing friction from APIs. So really, what Agentic is replacing is APIs that require a lot of manual configuration, monitoring and compliance and change. We are ideally set up to be the agentic replacing APIs and workflows of all end-to-end solutions.

So what I would tell you is that if we're successful in doing that, as Agentic share increases over time, whether it takes it from programmatic, which doesn't bring us any net new spend and gives us the same take rate, there may be a cost advantage. But if we're able to take disproportionate share in Agentic versus where we sit in programmatic, that's a good guy from a market share perspective to us. If we fail, then there's some risk in market share and that others could start to peel that away.

So I think we're advantaged from the amount of inventory we represent. There's a lot of unique exclusive inventory that we only have access to, especially in CTV. So there, I would bet -- I would say that the probability based on the supply that you have and where you can optimize is probably in a much, much better market position. There's some risk in the non-CTV side because others have access to a lot of similar inventory that we do. So I would say that market share gains are probably the opportunity from the easiest perspective, broadly speaking.

The one opportunity that we're really targeting that we talked about at the conference is in agency spend today, there is a significant amount of money that is still tied into manual buys that are coming in through insertion orders. That's tens of billions of dollars that still live and sit within agencies. So let's take a step back and peel back what that means. So today, there are brands that walk into their agency partner and have a campaign goal that they'd like to achieve.

They hand that over. It's normally a 2- or 3-page brief that they hand over to the agency. The agency spends 2 weeks running around and finding and creating a media plan based on all their extensive history and all the brands that they've worked with and all the campaigns that they run and new inventory that's out there and all the upfront presentations they've listened to, they come up with a media plan. That's the secret sauce is, hey, this is where we think you should run your ads to give you the highest ROI of your ad spend.

They do that, they come back. The brand then says, yes, looks good, we approve. Let's run a test. They run a test where they then knock on our door and say, "Hey, we'd like to do a test campaign. It's only a few thousand dollars or $10,000 or $20,000 or $100,000 and let's run it." Then we want to do a very, very deep dive on how this is performing, how is the creative performing? Are we hitting the right audience? Are there refinements that we can make? Are there certain inventory that's not performing? Are there others that are performing at a really high level?

Let's run a test and then analyze those results, refine that campaign and then rerun a test based on joint adjustments to that campaign that we've now agreed to. They do that 3 times, each of which is another 2-week process. So now you're looking at 8 weeks from the time that you walked in the door with your campaign goal to the time that you're actually comfortable that you're deploying and running your full ad spend that you'd like to, and it's not this quarter anymore, it's next quarter.

What we do is that entire process in 10 minutes. But because we're connected to inventory, any LLM and an agency can do this on their own, you can convert a proposal or program goals into a media plan quickly. But without being tied to inventory to real live inventory, you can't test, run, rerun and then modify your creative because we give you your creative tool as well, to version it anywhere it needs to go or create different versions of your creative, A/B test those in real time.

So the fact that we're doing all of those things, and you can run 3 tests in 10 minutes and redo all of your creative and have it ready to go, that's what we're solving for. And that is new spend that already exists within the insertion order market at an agency and allows them to be better, faster, cheaper and bring it into the ecosystem quicker, and it's all net new revenue or net new ad spend to us that runs through agentic workflows. That's really the initial area that we think has dramatic inefficiency and what agencies have told us they want help and assistance in unlocking.

Got it. Understood. And I think your ClearLine product also sort of aims to target at the agency spend that's currently tied in IOs orders, right? Like is this agentic buying path sort of considered as an upgrade to the existing ClearLine product suite? Is that how we should understand it?

Yes. So ClearLine for us now is an entire product line. There's ClearLine curation. There's ClearLine audience activation. You can effectively run an entire deal where if the deal is negotiated in an agency marketplace, they negotiate the price, the volume and what inventory will be purchased. We execute all that programmatically, make sure we find your targets, make sure you find the users that you're looking for -- what ClearLine allows you to do is, at the end of the day, be a payment method for that agency, right?

So the brand then says, okay, I've done my transaction and either ClearLine or the DSP basically becomes a payment method at the end of the day. That's really kind of what that final role is. So yes, you can do that without having to pay a DSP take rate or do it at the DSP that you'd like to, to either, a, get credit for that ad spend as part of a commitment or be able to run it most efficiently for purposes of reducing your ad tax.

Got it. Got it. Can you talk a little bit about the economics of these buying solutions? Like obviously, you're monetizing your supply better, you're gaining share there. Does the agentic sort of have or the agentic tool also carry some sort of economics by itself?

I would say today, if you're -- even if you're running it programmatically, which the thinking is it's all machines running it, there's still a degree of friction that is involved and matching up or sharing deal IDs and making sure those pass through appropriately, there's more on the cost of revenue side in order to support those from an economics perspective. We don't charge more or less of a take rate to the publisher. Our deals with publishers are -- we get a take rate from them.

They're interested in what CPMs we're able to drive for them and how much overall spend we're able to deliver. So if we're continuing to grow their spend and grow their CPMs and be an effective partner on the base criteria are measured, they generally don't come to us and say, we'd like you to do it for a lower fee. They're really happy that revenue continues to outpace and grow relative to other players and that market share position is something that is highly attractive to them. So it's really more on the cost of revenue side than there is an incremental pricing to using those tools versus using our people.

Got it. How -- so how should we think about like agentic buying versus like DSPs as sort of 2 different routes of ad purchases? Like do they compete with each other? And I guess, just based off your client engagement so far, have you seen advertisers sort of moving -- consider moving some of the budgets over from DSPs to agentic?

Yes. Let me -- maybe even take a step even further back, right? So I think what traditional DSPs have done, especially in CTV is they've done a very, very nice job of converting very large enterprise-type clients, whether it's large brands and large agencies, trying to move and migrate budgets from linear into connected TV.

They also have done a very nice job in -- for those same clients to be able to access and find their users in the open web in order to be able to broadly target and satisfy their campaign goals largely through brand advertising. Much of that hasn't necessarily been mid-funnel or lower funnel. So they've done a masterful job of being able to service that customer cohort, which is very concentrated from a buyer perspective, right? And it's logically who you'd go after.

Why wouldn't you spend your time going after the whales out in the industry and secure that business? I think that has been -- that has played itself out in open Internet, right? So you kind of had a maturing of that space and that industry in open Internet. I think in CTV, you've also started to see that cohort mature, right? They migrated over.

They're actively spending and now you're kind of subject to what happens within specific verticals, whether CPG is up or down or autos are up or down or financial services or health care or drug manufacturing, like you're really subject to how those verticals are performing to kind of what your future is. What's happening in connected TV specifically is you're having new demand come into the market. And that new demand doesn't necessarily come through a traditional DSP path, right?

So small and medium businesses don't even know what a DSP is, right? So they want to be able to transact. They want to be able to find an audience. They want to be able to generate their creative. And at the end of the day, they just want to find the fastest way to spend their ad dollars for the highest return to generate demonstrable and visible increase in sales and earnings and performance, right? So they don't go to market and as a small and medium business and say, I need to hire a DSP, I need to hire an agency. I need to hire somebody to do my creative. I need somebody to version it.

I need somebody to be able to tell me -- analyze this data, tell me if it's working or not. They can't hire 5 different vendors to do that work like a large brand or a large agency can. So what's happening is agencies are trying to cater to some of this on their own, small, medium and midsized agencies by offering all those tools and being a one-stop shop. You're having DSPs like a MNTN or a tvScientific or a Moloco try to do that in market. Amazon is trying to do it because they've got a large installed base of customers.

You've got many of our publishers that say, we don't even need that path. We want to offer this self-service. You have Roku's curated marketplace, you have Warner Bros. Neo marketplace, you have Disney DRAX. I would assume that every large streamer out there and broadcaster will eventually have a self-service buying option. And by the way, those are marketplaces that we white label and build for them to allow for that self-service to take place and then mix that demand with all other demand sources.

So from a demand perspective, we are agnostic to where that demand comes from. And in fact, we're tapped as a partner to help build out all those different demand paths and have no blind spots of how demand enters into CTV. What they're all doing, however, is they have to access that supply from Magnite.

So our relationships and being effectively the mediation layer through which the world accesses CTV supply has become increasingly important and doesn't just relegate us to a few DSPs, either ups or downs or a new entrant isn't a risk or a benefit to us, it all flows. So what we've seen in our inflection in overall CTV growth rates is really demand has broadened. SMBs have entered. You guys like Genius Sports entering into the market as specialists in buying sports -- live sports inventory. So the market really is broadening, but they're all coming to us to access the inventory, which is the good guy from the market position that we hold in CTV.

Got it. Understood. So I have some questions coming through from the audience. The first one is, what are the overall targets or KPIs for how you manage the business? How should we think about the building blocks of the earnings algorithm in future years?

Yes. I would say that at the very highest level, like we are very, very motivated to grow ad spend. So from an ad spend perspective, that is our lifeblood. That is our fuel. I don't think you'll ever see us in a position where we're willing to sacrifice ad spend and market share loss for take rate expansion. So I think even now when we -- we're probably in a position from how strong our tech is and the breadth of our partner relationships, we probably have room to raise prices on our rate card for services that we offer in CTV, but we have not and we don't plan to. So I think we're very, very comfortable.

Our take rate is something that's not really an important KPI for us, to be honest, because we are not trying to influence or push buyers to buy unnaturally where they don't like to because generally, that doesn't end well. So I think that where we'd like to play is being the best tech at the best price. And even when you start to consider, do I want to do this internally? Do I want to build this myself, we always want that answer to be, no, for this cost, there's no way we'd even consider this doing internally or doing this ourselves or hiring somebody else to be able to do this.

And we're measured by how much revenue we drive, and it's not really a, hey, I'm really evaluating this as a service that I could easily solve for, and I could do it for a cheaper cost. So I think for us, really, it's ad spend, it's overall revenue growth, those 2 things being heavily linked together, but again, not doing it with take rate expansion or trying to push price increases through. We will bring new services to market that drive new value and things like doing home screens for a Samsung and a VIZIO and an LG, that's an ad unit that they did internally on their own. That's new incremental revenue.

We'd rather define our revenue growth and our success by doing more things for them that we can do more efficiently, drive more revenue and do it for a cheaper cost. Yes, we'll share in those economics, but that's also not a take rate increase. That's just broadening the purview to service more inventory for them. So I think margins, we've talked for years about our margin performance, right? So we said, what does the operating model look like? We've said above 10%, we start to get very, very high flow-through from revenue conversion to EBITDA.

This quarter is a great example of what we've said all along is we think that above 10% growth, you start to get about 70%, 80%, even higher percent flow-through from revenue to EBITDA. Our beat in Q2 was $10 million on the top line, and that equated to an $8 million EBITDA beat. That's exactly that 80% flow-through that we've talked about. So we'd rather continue growing revenue.

And as a result, we've taken our EBITDA margin guidance up now 3x. We started the year where the Street was under 35%. Now we've guided to at least 37%. That's a pretty attractive way to see that flow-through happening commensurate with our revenue that's inflected higher. We do look at internally very, very carefully. We don't share a whole lot of this externally, but we look at cost to serve an impression.

We are constantly inserting rigor to how do you best serve, most efficiently serve each impression that you have in the business, whether it's DV+, whether it's CTV, whether it's live sports, so that's a critical function. You've seen us move to a hybrid model in connected TV from being cloud-based before. Even though being cloud-based is a bit more agile, the cost benefit of being on-prem for a predictable load and a predictable volume is it's a 70% to 80% cost reduction for your predictable load. So we'd love to hit the cloud for inventory spikes and peaks that we hit.

But for our base minimum load annually, we'd like to service that all on-prem because the cost advantage there is massive. Same thing on DV+, we do almost that entire market because you don't have those spikes as you do. You have a more predictable pattern of ad impressions that you're supporting and then auctions that you're running.

So there, it's all on-prem because you don't have those massive sport events where your volumes can go from 2 million to 50 million when people get an alert about a particular game. So we also look for cost per impression to continuously drive that down. And generally, that's been dropping in the very, very strong double digits, meaning 30%, 40%, 50% on an annual basis as we continue to drive cost out of the ecosystem and get more efficient.

Got it. Got it. And then the second question is, what are some of the main areas of pushback on the story that you hear from investors?

This quarter, we didn't get many. So that's a nice place to be at least this quarter. I think the one question mark that people have is, look, what is the long-term trajectory of our DV+ business? There's a part of the business that's open web that may be declining annually in the, call it, high single digits to maybe 10-ish percent. There's a part of the business that's mobile app. Mobile app actually grew 17% last quarter. Mobile in total grew.

The streaming parts of our business in DV+, TV streaming over desktop and mobile is healthy. Audio streaming over those devices is healthy. Digital out-of-home is healthy. Commerce Media is healthy. So I think not the one pushback, but the question is how do we -- what do we underwrite for growth in -- and I would say in the near term, as you saw this quarter, flattish is probably the best way to kind of underwrite and derisk what your outlook is for DV+. We might get a good quarter where it's up or 5% or so or more.

You may get a quarter where it's down to a similar amount like we've seen. But thinking of that generally is flattish. And then over time, the good parts of it will continue to get bigger and the small parts, which are about 40% of DV+ will get smaller, you'll get a nice healthy trade-off that skews you towards growth from a mix perspective.

And that's excluding if we get any Google remedies that come through or we sign any AI search-related partners that we're actively trying to market and sign. I think that's absent any of those type of growth vectors that start to contribute in that market that are, again, completely outside of numbers today.

Got it. That's super helpful. And just a reminder if you would, please feel free to raise your hand or just e-mail me at [email protected]. Okay. Cool. Let's keep going. So Nick, you mentioned some of the pushback from investors. I think 1 or 2 years ago, there were a lot of discussions or maybe I should say a fear around these premium publishers like Disney or Netflix potentially like building out their own sort of programmatic tech stack.

I think we've all seen that sort of not being the case. And I think some of these streaming services they are increasingly reliant on tech partners like Magnite. I guess, first, are you still hearing some of the same sort of concerns from investors? And number two, like what are some of the takeaways from that episode?

Yes. Let me just say, I love that we live in that fear every day. And that's what makes us better. That's what makes us hungrier. That's what helps us innovate. That's what helps us develop new products and features and to continue to push programmatic. The more and more people rely on us and the more spend we're pushing through programmatically, the lower the chances are that somebody is willing to completely rip and replace and take a chance of doing that on their own.

Not because they couldn't -- could somebody try to do it on their own even if the cost -- like we would challenge anybody that our tech spread over all of our clients. If you were one client trying to stand up a similar amount of tech to do that, not leveraged over 30 large partners in the industry, it would cost you dramatically more. So from a cost equation standpoint, I don't think it makes a whole lot of sense.

Our modest take rates, I think, is also something that plays to our favor that we can still generate very healthy margins on. And the speed of feature development and touching more inventory, I think, is also the thing that just starts to dizzy people to think, how can I -- maybe I could do these 1 or 2 things, but Magnite just came up with 10 other things on their road map that they can deliver in the next 3 months that's going to unlock more revenue. I can't possibly keep pace with that if all I see in my purview is what I'm doing myself.

So the reason I said I love that is, again, it drives us to continue to innovate. Our history has been that fears existed, but we've never lost a partner. We have not -- we have expanded every single partner relationship that we've had either geographically or vertically or more services that we provide. And we've probably won every account that we've pursued in the last 2 years. I asked our Chief Revenue Officer, could you recall a single pursuit that we haven't won? And his answer was no. And maybe there was on the tail end, something that we didn't necessarily win.

But I think that speaks to our continued innovation and our continued fear of just what you mentioned happening and living to make sure that we ensure that doesn't happen by being on the cutting edge of bringing more to market, developing more and leaning in with more and driving more revenue for partners.

Got it. Let me pause here to see if we had any questions from the audience. All right. Let me start with one more. So Nick, you mentioned the sort of the in-app part of the business within DV+. We've seen some of these like LLM companies like OpenAI or Anthropic venturing into the advertising business. I think over the past 2 years, we've all seen how search referred traffic declined. I think with the rise of agents, there's a possibility that we could potentially look at the future where even apps could be reduced to like APIs or MCPs.

So I guess just curious how you guys think this could evolve over the next few years in terms of impact on the digital ad ecosystem? And also, as you guys have these conversations with the model companies, what do you think their strategy is? Like do you think they want to become the closed ad ecosystems like the walled gardens? Or could they be like more open source, open platform where these traditional ad tech intermediaries can also play a role?

Yes. No, I think it's undecided. So I think everybody is going to have their own path. I wouldn't say that there's an opportunity within Google who has the entire stack and has ad server and SSP capabilities and demand capabilities. But I think all others have kind of open territory for how they choose to build up their own ads business, either it's on a short-term, medium-term or a long-term basis.

So I think the fact that you've heard that some of them have talked to DSPs out there is a good sign that they're exploring that source of demand. And I think that plays to the advantage of say, hey, how do you reach the world demand quicker? How do you start covering some of these infrastructure costs, not through financing in the debt and equity markets, but do so with actual revenue.

I think that's a helpful accelerant and a question that's posed that allows an opportunity at least exists for us to pitch. So I think the market is one that we never played in historically in web search, right? So we play in open web, but we've never had any business in search, right? So if we get tapped, that would be a new incremental market that, again, we've never serviced and played in historically. I think that the -- our view at least is that the app market is pretty well insulated and secure and everybody providing access to their apps through an LLM is probably a lower risk than obviously what exists in the open web.

And we're clearly seeing open web traffic reduced in the marketplace, and that's what kind of drives that area that we talked about earlier, about 40% of our web business that is seeing some degree of pressure out in open market. But even things -- even if you're trying to create an advertising plan, the recommendations of LLMs are that you should not spend all your money in one medium and you should look at different mediums and the ROIs, if you're augmenting a CTV, a search and a social program with some open web advertising, probably even bring some dollars back into open web advertising because they carry low CPMs and they actually have a decent return and they may actually be performant in lower funnel.

So you've got different, I think, ebbs and flows that I think exist from the market. But we don't see it as all risk. We see there being a definite possibility for opportunity. And to the extent that they end up as front-end engines to be able to start creating campaigns like we're using it, we're using LLMs as the front end of our buyer agents. I think to the degree that we sit and connect that to inventory that exists, either existing or new, I think there's a role for us to play.

Got it. I think we are at time. So let's maybe just wrap it up here. All right, Nick, thank you so much for your time, and I really appreciate your insights today.

Yes. Really appreciate the time, and look forward to talking to any and all of you in the near future. Thank you.

Absolutely. Thanks, everybody.

Hello, and thank you for standing by. Ladies and gentlemen, welcome to Magnite Q2 2026 Earnings Call. Please note that this call is being recorded. [Operator Instructions] I'd now like to hand the call over to Nick Kormeluk, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Magnite's Second Quarter 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, CEO; and David Day, our CFO, for his final earnings call prior to retiring. I would like to point out that we have posted financial highlight slides on our Investor Relations website to accompany today's presentation.

Before we get started, I will remind you that our prepared remarks and answers to questions will include information that might be considered to be forward-looking statements, including, but not limited to, statements concerning our anticipated financial performance and strategic objectives, including the potential impacts of macroeconomic factors on our business. These statements are not guarantees of future performance. They reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties and other factors that may cause 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 quarterly reports on Form 10-Q and our 2025 annual report on Form 10-K. We undertake no obligation to update forward-looking statements or relevant risks.

Our commentary today will include non-GAAP financial measures, including contribution 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 our financial highlights deck that is posted on our Investor Relations website. At times, in response to your questions, we may offer additional metrics to provide greater insights into the dynamics of our business. Please be advised that this additional detail may be onetime in nature, and we may or may not provide an update on the future of these metrics. I encourage you to visit our Investor Relations website to access our press release, financial highlights deck, periodic SEC reports, and the webcast replay of today's call to learn more about Magnite.

I will now turn the call over to Michael. Please go ahead, Michael.

Thank you, Nick, and thanks, everyone, for joining us today. I'm pleased to report an outstanding second quarter for Magnite. We significantly exceeded expectations across the business. Contribution ex-TAC came in well above consensus, driven by strength in both CTV and DV+, and that translated into meaningful bottom line outperformance. We expect this momentum to continue, and based on our first half results and the strength we are seeing across the business, we are raising both our full year contribution ex-TAC outlook and our expectations for margin expansion.

Total contribution ex-TAC exceeded consensus by approximately $10 million. CTV contributed roughly $6 million of that outperformance and grew 36% year-over-year. DV+ contributed approximately $4 million of the beat and returned to growth, increasing 2%. Adjusted EBITDA exceeded consensus by $8 million, resulting in a margin of 37%, demonstrating the operating leverage in our business.

These results were broad-based. CTV represented 51% of total contribution ex-TAC in the quarter, continuing the momentum that began in the second half of 2025. We believe the market has reached an important inflection point as programmatic becomes the desired way to transact on streaming television. We saw strong growth across many of the industry's largest media owners, including Disney and ESPN, Netflix, Roku, VIZIO, Walmart and Warner Bros. Discovery. Across our top 10 CTV accounts, growth accelerated to the mid-to high 40% range year-over-year.

While the secular shift of advertising dollars towards CTV continues, we are encouraged by the improving trajectory of DV+. In particular, mobile in-app grew 17% year-over-year. We continue to believe mobile in-app is an attractive long-term growth market, supported by deeper DSP integrations, new publisher onboarding and our SDK strategy. To be clear, this is both an industry and Magnite share growth story. Our results demonstrate that we are expanding our share with growth that is outpacing the broader market as customers increasingly choose our platform.

Stepping back, there are 3 structural trends driving our business today. First, SpringServe has become the operating system for CTV monetization. Second, audience enablement and decisioning are moving from the buy side to the supply side, and we believe Magnite is leading that transition. And third, as AI reshapes advertising, our newly announced Magnite Orchestration shows early signs of becoming a critical infrastructure layer for agentic advertising. Taken together, these 3 trends are improving our long-term competitive position and growth prospects.

SpringServe remains our primary differentiator. What began as a best-in-class ad server has evolved into the operating system for CTV monetization. It has become the intelligent control layer for premium streaming, combining ad serving, mediation, monetization, demand facilitation and data enablement. And these functions are increasingly being enhanced by agentic tools. Publishers want to work with a trusted partner capable of maximizing yield while preserving control over their inventory, data, pricing, business rules and viewer experience. Buyers want direct, transparent and scaled access to premium streaming supply. SpringServe uniquely sits directly between those objectives.

The power of SpringServe is evidenced by a string of major new wins and partner expansions. On the publisher side, we announced Samsung selected SpringServe to power ad serving for its premium smart TV home screen inventory, reaching hundreds of millions of smart TVs globally, and to open this inventory to programmatic buying for the first time through our DSP ecosystem. We are excited to add Samsung as another key home screen customer, solidifying Magnite's leadership position among OEMs in this increasingly valuable environment. On the buy side, WPP has expanded ad formats in its media supply hub enabled on SpringServe to include Pause ads and has validated Magnite's ability to seamlessly pair CTV ad formats with WPP's open audience segments via ClearLine through a custom real-time data integration.

Moving to the second structural trend, the acceleration of supply-side audience enablement and decisioning. Historically, many of the most important optimization decisions in digital advertising were made on the buy side. Today, publishers and buyers have access to richer first-party data, commerce signals, AI, pricing intelligence and much more workflow flexibility. And as a result, more valuable decisions are moving toward the supply side, and the breadth of our relationships and technology position us well to capture the shift.

One of the most compelling applications of supply-side audience enablement and decisioning is commerce media. Commerce media continues to scale with 21 partners now deployed and actively ramping across DV+ and CTV. Partners, including Fanatics, CVS Media Exchange, Best Buy and PayPal Ads are all using Magnite to activate valuable first-party data across owned and operated inventory and the broader open Internet. And with our partnership with Walmart Connect, we are helping combine Walmart's first-party commerce data with premium CTV inventory, including VIZIO supply, while supporting offsite execution and closed-loop measurement.

Now turning to AI. Earlier this year, much of the discussion focused on whether companies like Magnite could be disintermediated. Today, the conversation has largely changed. Our customers are increasingly leaning on us to develop and deploy AI capabilities within our platform, converting AI into a tailwind. Buyer agents and seller agents will become increasingly common across digital advertising. But agents do not eliminate infrastructure; they increase the need for it. As thousands of agents from publishers, marketers, data providers and measurement companies interact simultaneously, someone must coordinate those interactions. Someone must discover inventory, interpret campaign objectives, package audiences, enforce publisher controls, protect privacy, optimize monetization, clear transactions and provide the trust required for advertising to function at scale. We believe Magnite is uniquely positioned to play that role.

Last quarter, we announced our seller and buyer agents. Our seller agent allows publishers to seamlessly create custom inventory and audience packages that are discoverable and purchasable by buyer agents, while our buyer agent enables buyers to create custom media plans from simple RFIs, generate ad creatives, and activate and discover audience opportunities. This quarter, we took the next major step by introducing Magnite Orchestration. Earlier, I described SpringServe as the operating system for CTV monetization. As AI reshapes advertising, we believe Magnite Orchestration has the potential to become the critical infrastructure for agentic advertising.

Rather than simply introducing another AI agent, we are building the orchestration layer that enables any agent to work together in a trusted environment across a scaled independent marketplace. Disney Advertising, Spectrum Reach, Kepler, MiQ, Publicis Media Exchange, Dentsu, and DIRECTV are already working with different components of our AI suite. These partnerships provide early but meaningful validation of agentic advertising operating across both the buy side and the sell side.

As advertising evolves with advancements in AI and becomes more automated, more data-driven, and more interconnected, the value of intelligent decisioning and trusted orchestration only increases. We believe Magnite is uniquely positioned to lead in these areas. If CTV has been the defining growth story for Magnite over the past several years, we believe supply-side audience enhancement, enablement, and decisioning and AI orchestration together have the potential to define the next chapter of our growth.

Before I conclude, I would like to recognize David. As previously announced, David plans to retire at the end of September after more than 13 years of outstanding leadership and service to Magnite. David has been an exceptional partner and a trusted adviser. His financial leadership helped guide Magnite through transformational acquisitions, significant industry change, and tremendous growth. Just as importantly, he has built a deep and talented finance organization that will provide an excellent foundation for his successor. Our search continues to progress well, and we are evaluating a strong group of internal and external candidates. On behalf of our Board, our leadership team and everyone at Magnite, I want to sincerely thank David for his extraordinary contributions.

With that, I'll turn the call over to David for more detail on our financial results. David?

Thanks for those kind words, Michael; very much appreciated. We are extremely pleased with our second quarter results. As Michael mentioned, we exceeded contribution ex-TAC and bottom line expectations across the board. Given the momentum in our business and the many catalysts driving our growth, we are raising our guidance for the remainder of the year. Total revenue for Q2 was $193 million, up 11% from Q2 2025. Contribution ex-TAC was $190 million, up 17%, well above the high end of our guidance range.

CTV contribution ex-TAC was $97 million, up 36% year-over-year, well above our guide of $90 million to $92 million. DV+ contribution ex-TAC was $93 million, an increase of 2% from the second quarter last year, above the top end of our guidance range. Our contribution ex-TAC mix for Q2 was 51% CTV, 35% mobile, and 14% desktop. From a vertical perspective, health and fitness, technology and finance were the strongest performing categories, while automotive, our top declining category in Q1 2026, has returned to growth but remains depressed.

Total operating expenses, which includes cost of revenue, were $162 million, up from $151 million last year. The increase was primarily due to increased personnel costs, higher tech stack-related expenses and higher facility expenses. These were offset by lower traffic acquisition costs. Adjusted EBITDA operating expense for the second quarter was $119 million, an increase from $108 million in the same period last year, with similar drivers as previously noted.

Our net income was $19 million for the quarter compared to net income of $11 million for the second quarter of 2025. Adjusted EBITDA grew 30% year-over-year to $71 million, reflecting a margin of 37% compared to 34% in Q2 last year. We're seeing encouraging productivity benefits from AI across engineering, operations, sales and G&A. While we are still early, these capabilities are helping us accomplish more, improve execution and support continued margin expansion.

GAAP earnings per diluted share were $0.13 for the second quarter of 2026 compared to earnings of $0.08 for the second quarter of 2025. Non-GAAP earnings per share for the second quarter of 2026 were $0.26 compared to $0.20 in Q2 last year. Our cash balance at the end of Q2 was $333 million, an increase from $185 million at the end of the first quarter. Operating cash flow, which we define as adjusted EBITDA less CapEx, was $57 million. Capital expenditures, including both purchases of property and equipment and capitalized internal use software development costs, were $13 million. Net interest expense for the quarter was $6 million and net leverage was 0.1x at quarter end.

During the second quarter, we repurchased or withheld over 2.1 million shares for approximately $28 million. Year-to-date, through the second quarter, we repurchased or withheld approximately 4.4 million shares for about $57 million. As of quarter end, $165 million remained available under our current repurchase authorization, which is effective through February of 2028.

I will now share our expectations for the third quarter of 2026 and our current thoughts for the full year. For the third quarter, we expect contribution ex-TAC to be in the range of $188 million to $192 million, which represents growth of 13% to 15%; contribution ex-TAC attributable to CTV to be in the range of $98 million to $100 million, which represents a growth range of 29% to 32%; DV+ contribution ex-TAC to be in the range of $90 million to $92 million, which represents a growth range of negative 1% to up 1%; and we anticipate adjusted EBITDA operating expenses to be in the range of $119 million to $121 million, which implies adjusted EBITDA margin of 36% to 38%.

For the full year 2026, we are raising total contribution ex-TAC growth to be between 13% and 14%, up from at least 11% previously; raising adjusted EBITDA percentage growth to be greater than 20% from the mid-teens previously; raising adjusted EBITDA margin to be at least 37% from at least 35.5% previously; raising free cash flow growth to be in the high 40% range from the mid-30% range previously; reaffirming CapEx of approximately $60 million, a reduction from the year.

On the Google ad tech trial front, we have no updates since last quarter, and our estimates do not include any market share gains that might result from potential remedies. A final note of context for our revenue guide: even with our raised full year guidance, we remain somewhat conservative in our estimates for the rest of the year to properly capture potential macro risk.

Finally, on a personal note, I continue to be incredibly pleased with our performance and the robust financial position the company maintains today. I'm very proud of the durable company we've built, our winning culture and our world-class finance team. We have incredible momentum in the business and I look forward to another great quarter and closeout to the year. The best is yet to come. And with that, let's open the line for Q&A.

[Operator Instructions] Your first question comes from the line of Matt Swanson of RBC Capital Markets.

David, you will be missed. Hopefully get to see you a little bit more before you start fishing and golfing. I guess starting on the top 10 CTV accounts, you're talking about the mid-to high-40% growth. Could you just talk about those 3 buckets in which you grow CTV revenue being: increased supply, people moving up the rate card and increasing take rates, or just kind of where that growth is coming from?

Yes. Matt, it's Michael. Yes, I would see generally in 2 buckets. One is just greater adoption of programmatic. It just becomes table stakes in the upfronts to be able to offer buyers the option to buy programmatically. And so each year, we're just seeing a greater adoption of programmatic with the big streamers, the premium streamers, right? And then the second bucket is a willingness to have, instead of publisher-led programmatic, publisher-sold programmatic Magnite demand, Magnite able to come in and bring demand from DSPs that they don't have relationships with, advertisers that these premium publishers haven't had relationships with. And that obviously carries with it a different profile in terms of take rates. So I think that you can look at it in those 2 lenses, the greatest contributors to that.

And then maybe this builds on that second part of your answer there. But you're now connected to the vast majority of CTV or streaming supply out there. And so it feels like a lot of the long-term TAM expansion for Magnite comes with also increasing the amount of demand or the amount of people spending on your supply. Two of the three big themes you highlighted seem like they're at least in some ways about making it easier, if not -- obviously you're not going to be doing the DSP job, but making it easier to buy within CTV. Could you just talk about how that strategy shifts in terms of making it as easy as possible for dollars to flow to all your inventory?

Yes, it's a really good point. Listen, I think if you look at the 3 pillars we talked about, SpringServe being one, I assume you're alluding to audience decisioning and enablement and our efforts in AI with Magnite Orchestration. And I think they both fit that bill, right? The idea is there's valuable first-party data on the media owner side and on the advertiser side and what's the easiest, most frictionless way to surface that inventory. And to your point, you're right, it's not about eliminating DSPs, but you are bringing some very valuable decisioning and enablement onto the supply side that is new. And you see the success we're having with commerce media, that's really the tip of the spear there. They have great data on their side, the Disneys of the world, the Netflixes of the world, great data on their side. What's the easiest way to get that data to match and open it up so that it democratizes DSP involvement so that you just don't have to use one DSP where that data has been housed. You now are able to bring your own DSP and access the data. So that definitely brings more seamless demand into the picture.

And AI, obviously it's early stages. To date we've transacted a handful of millions of dollars. And next year it'll be much bigger than that, but it's not going to represent the majority of our overall spend. But building tools that enable these advancements to work closely together in a safe way, a trusted way, is going to be very important for our buyers and sellers to be able to realize the benefits of AI. So yes, I think those 2 areas definitely fit the bill of decreasing friction and bringing demand into the ecosystem.

Your next question comes from the line of Shyam Patil of SIG.

Congrats on the very strong results and some of the industry-leading growth rates there. And David, congrats again, all the best with the next chapter. Michael, I had a couple of questions. One was on CTV, one on agentic. On CTV, again, very strong growth rate. I think it might be the highest in the industry right now. I know you talked about strength over the past couple of quarters just being broad-based across the board. Just wondering, for this past quarter, was there anything that really surprised you to the upside, like 1 or 2 things that really, really surprised you?

And then second, on agentic, it sounds like this could be a pretty significant opportunity. I heard you talk about it for a while now, just in terms of the momentum there. I was just wondering if you could talk a bit more about what customer conversations are like right now? And then when this starts to ramp, I know timing is always tough, but when it starts to ramp, do you think this is something that can really inflect the growth rate?

Yes, sure. So on the CTV front, as we cited in the script, it was quite broad-based. So it wasn't certainly led by one publisher. I think the 2 things drove it. Number one, just increasing adoption of programmatic by the buyers and media owners, particularly with our premium accounts. And secondly, international growth. When these big streamers expand internationally and global, we go along for the ride and they really lean heavily on us in the programmatic channel to activate demand in these markets because they don't have necessarily boots on the ground to sell direct. And so I think you saw it in Disney's earnings, they cited international growing faster in the programmatic bucket, and we can attest that we see that as well.

So I think you're just seeing broader-based adoption of programmatic and international expansion, which comes almost as a programmatic-first expansion. And as far as agentic is concerned, customer conversations, it's the topic. We recently were at an industry event in France and there wasn't one conversation you had with customers that didn't involve agentic. It's early stages. I think we feel really pleased with the level of investment we made in it. I don't think we've overinvested, but we're ready for it when it comes. I think we've been leading the discussion in the industry, so we feel good about that.

It's really hard, as you pointed out, to pinpoint when the tipping point occurs. We end every big conversation with customers asking them what their prediction is for 2027 and you get a range of 0 to $1 billion in terms of for the whole industry. So for a company that's going to do $9-plus-billion in ad spend, if $1 billion for the whole industry gets transacted, it's not all that meaningful in terms of impact to our financials in the near term. But I definitely think mid-to long term, it will definitely be a growth driver, largely because I think you'll have more money put to work. So the working media will be larger. And I think that you're going to have TAM expansion because a lot of the experiments that we've seen have been direct IOs that have been converted to the programmatic channel. So that will bring in new dollars into the TAM of programmatic and that's a positive too.

Your next question comes from the line of Jason Kreyer of Craig-Hallum.

I couldn't draw up a better quarter for David's last quarter and for investors to see the David Day effect. So congratulations there. I'll start with a question for you, David. So just wanted to get an updated view on the political environment. We're hearing positive trends there. I'm curious if you're thinking any differently about what you were embedding into the guide previously versus the updated guide today.

Yes, that's a good question. And just to level set again, 4 years ago in midterms, we had about $11 million in contribution ex-TAC. Presidential, we had about $19 million. We entered this year targeting something in between those. We've continued to include that level in our forecast. That said, I think the primaries ended up a little stronger than we might have anticipated. And so we're cautiously optimistic that there could be some additional upside there. It's so hard to handicap given the volatility in these races, candidates in and out and how competitive they're going to be. But yes, we do think there's some -- hopefully some upside in the political realm.

And a follow-up for you, Michael, sticking with the agentic topic, I want to ask about just orchestration and your seller agent. Can you just talk about the strategy to get publishers to utilize the seller agent, how that adoption progresses and then how that catalyzes orchestration to be this critical infrastructure layer that you had called out?

Yes. Great question, Jason. So all of the experiments that we have transacted, all the buys, have involved the publishers using our seller agent. I don't think success for us looks like everyone has to adopt Magnite's seller agent. The idea of the orchestration layer is to allow people to bring whatever tool they have and be able to have it work seamlessly with the other side of the fence. So if you're a buyer working with seller, seller working with buyer, data provider, et cetera.

So we really think the future is being able to be this trusted partner that allows inventory discovery, execution, clearance, brand safety and I think that only can be accomplished by someone as scaled as we are. I think you're going to see far fewer competitors of ours in an agentic world. You don't need multiple orchestration layers and that's why I think we feel so bullish about the prospects of Magnite Orchestration. Just like SpringServe is that operating system for CTV, we think we have a real fighting shot to be that operating system for the agentic-enabled advertising world and feel very good about the level of investment we've made here.

Your next question comes from the line of Laura Martin of Needham.

Michael, I want to stay with agentic. And the minute you tell me that you want the agentic layer to be similar to SpringServe being the OS, SpringServe has a horrible margin and a horrible take rate. So I'd like for you first to address, is the orchestration layer going to be free and/or is it going to have a better take rate than SpringServe, A? B, when we were talking about agentic in Cannes, you were really quick to say that it was a new total addressable market because it was basically a workforce automation tool for linear TV moving into CTV, automating CTV, which to me the upside there was a $50 billion TAM you guys have never touched. So to me, that's the primary agentic benefit so far having nothing to do with agentic. So am I just thinking about the 2 ideas not integrated enough?

No, a great question, Laura, or questions. So SpringServe as you know, plays a myriad of roles in our technology suite. There is SpringServe, as you pointed out, the ad server. And ad serving takes a different take rate than mediation or demand facilitation. But SpringServe has now become embedded in all of our platforms, so there's an instance of SpringServe in everything that we do. So to characterize SpringServe as a very low take rate product might refer to it from an ad serving standpoint, but it's certainly not the case for SpringServe enabled across the Magnite technology suite. So SpringServe is not a low take rate.

In Orchestration, we intend to charge for it. It won't represent SpringServe, the ad server. Orchestration will do many, many, things that folks will value and we'll be able to charge appropriately for it. And to date, all of our transactions that we've done agentically have carried with it very -- a similar take rate structure to our normal suite of products. And you are absolutely right and did note that in one of the questions and answers that we see TAM expansion with agentic because what we have seen to date has been one-to-one deals that normally would have been processed outside the programmatic ecosystem as direct-sold deals and now we're seeing it brought into the programmatic ecosystem. And so you're absolutely right, there's a TAM expansion involved in agentic that will take direct dollars and bring it into programmatic.

Okay. And then my follow-up question -- thank you for that, that's helpful, especially on the take rate stuff. My other thing, Michael, is one of the ways Magnite is different and not better from my point of view is you're adding FTEs at the speed of light at a time when we're saying that technology should be replacing employees. So you clearly disagree with me. So could you please tell me why we have to be adding all this headcount at a time when I think tech should be replacing people?

And we definitely share that worldview. The people that we are adding are mission-critical. They're generally engineers. We didn't over hire during the pandemic, which a lot of our tech peers did. And so a lot of the folks that are shedding bodies are shedding extra bodies. We see this opportunity as being so rich and the path for Magnite so clear that adding 100 people over the course of a year, we don't think is counter to the notion that AI is making us more efficient.

If you look at what AI has done for us internally, I'll give you 2 examples of big cost savings for us that involved headcount in one instance. And that is we no longer are working with any contractors in our ops organization. We've built agents that do that work for us and we've been able to let go all those -- they're not FTEs, but it's real cost for the company and you've seen that in the margin expansion. The second piece is on the engineering side, we've been able to build our own load balancer and not have to use Amazon's. And that's resulted in $20,000 of savings on a daily basis. So we are experienced in enjoying AI from a margin expansion. The people that we hired, mission-critical, superstars and they're going to help us get there faster.

Your next question comes from the line of Robert Coolbrith of Evercore ISI.

David, congratulations once again on a great run. Michael, we love you too. And just wanted to ask, maybe related to Laura's question. But some of the early work that people are doing on agentic, it seems like it's less real-time decisions. But wanted to ask you, in the fullness of time, do you believe the agentic infrastructure stack or workflow stack or however you want to talk about this, will that include a robust decisioning and auction component to it that maybe addresses some of the questions Laura had? And then also, I wanted to ask a little bit about just any -- not onetimers, but cyclical events that may have contributed to some of the Q2 strength. Any callout on World Cup in particular? Anything you can tell us about that?

Yes, Rob, good questions. Yes. So on the agentic side, you're very accurate in pointing out that most of the agentic that has been ballyhooed has been one-to-one, publisher to buyer. And a lot of folks question, can these agents do one-to-many. And that goes right to the heart of our argument for Magnite Orchestration, that you're not blowing up the infrastructure because you're right, you can't do this with [ just ] agents. You need the infrastructure that exists today. And so our scale, our server farms, our cloud capabilities, most definitely, agents can do one-to-many and do RTB, but we will be the processor, we will do the transaction, we will run the auction. So it's going to be done on our rails and the interfaces will be agentic. And that's the world we believe in and that's the reason behind Magnite Orchestration.

As far as one-timers in Q2, there really weren't any to speak of. This is broad-based. World Cup, we marginally participated. Most of that was linear. Most of that was linear pass-through to even when it was streaming. And so World Cup didn't turn out to be that huge sporting event for us that we're going to have to worry about comps going forward. So yes, Q2 is pretty clean. You're not going to hear us worrying about any onetime nonrecurring comp problems in 2027. Of course, David won't be around to worry about that, but that's...

Your next question comes from the line of Tyler DiMatteo of BTIG.

I guess at a higher level, guys, how do you think about the sustainability of that CTV growth rate? Obviously things have accelerated and they're very good and they continue to outperform. But when you take a step back and look at the multiyear view on that growth rate, I guess, how do you think about that sustainability? That's my first question. And then secondarily, obviously margin upside. I'm curious from here, where's the opportunity to continue to pull costs out of the business and see greater operating leverage from here as you take a step back on that front as well?

Sure. I'll talk about the growth and David can address the operating leverage. So our stated goal has always been to outpace the market in terms of growth when it relates to CTV. And presently, by any estimate, we're 2x, 2.5x, 3x the market growth rate. Is that sustainable? I think you'll have ups and downs on that. But we fully believe that looking out several years, that a 25% growth rate for CTV is something that we not only aspire to, but we think is achievable. And that, of course, then translates into margin expansion at that front. But we think there's a -- if you look at the industry estimates, low-teen to mid-teen growth right now at CTV. And will we always be 3x that? Probably not. But you can, I think, consistently see us as someone being multiples of the industry growth rate.

Yes. And on the margin front, I think a couple of factors to think about. As we have revenue growth that just gets into the double digits, you see incremental flow-through to EBITDA and to free cash flow at pretty high rates. And so you'll see natural margin expansion even with some of our current cost levels and cost growth levels. That said, on the cost side, I think you're going to see continuing gains as we continue to work on our tech stack costs. So those tech stack cost gains come from 2 fronts: one is as we continue to get more efficient in working in the cloud; and then second -- and Michael mentioned this load balancer project that we had recently was just one example of that. And then second is as we move more and more of our activities from the cloud to on-prem, which can be up to 3x more cost efficient over time. And so I think you'll see those factors.

And then third, from a headcount perspective, we have added a few heads, but we think that's been the right thing to do. There's so much opportunity. We're getting more productivity, but we want to double down because of the opportunity ahead of us. But that will also not stay the same and we're very cognizant of headcount and headcount-related costs. And I think you'll see that turning a different direction at some point in the future and that's another additional bucket of cost savings, all of which point to -- you've seen the tremendous increase in our margin just in the last quarter and through the rest of the year. And I think that margin will continue to expand. Historically, we've talked about long-term margin ranges of the 35% to 40% range, and we're going to start bumping up against the top end of that. But there's no reason to think that 40% is a cap on our potential margin and we have opportunity to certainly exceed that down the road.

Your next question comes from the line of Shweta Khajuria of Wolfe Research.

This is Ken on for Shweta. Congrats, David, again on the retirement. Two questions from me. Can you help us frame what drove the beat and raise beyond what was already said on the CTV side? Any particular segment, macro conditions or partnerships that perhaps helped drove the beat? And does the team have any early insights for demand in 2027?

Yes. We've touched upon the outstanding growth rate, right? And again, there wasn't really any onetimer. Broad-based, the top accounts grew, outpaced the growth of the rest in the top 40% range, but again, no concentration challenges or worries going forward. I think, generally speaking, it just can be attributed to greater adoption of programmatic and greater adoption of Magnite-driven programmatic, which obviously carries a different profile from a take rate standpoint.

And as far as demand for 2027, our intelligence, generally speaking, comes from talking in the marketplace, talking to our media partners, talking to agencies, to marketers, et cetera. And that's a time line that is even scary for them. The second half is what we're focused on for 2026. And there's just so many macro ups and downs that can occur between now and budget planning for 2027 that it's difficult to shed any insights on it at this juncture.

Your next question comes from the line of Barton Crockett of Rosenblatt.

I was wondering about the disparity between revenue growth in CTV and contribution ex-TAC growth in CTV. I think the delta was like 21% and 36%. What's going on there? Why is that happening? Are you guys basically growing your take rate because you're rolling more services and features? So that's my first question.

Yes, I'll take that. Yes, good question. It's 100% around our managed service business. And so that managed service business has represented like, I think, 9% of our CTV business a year ago and it represents 2% today. So it's 70% down. And that's what's driving that difference. That's 100%. So there's no take rate impact other than the -- if you consider that a take rate and the average impact. But if you look at our core lines of business, there's no other take rate differences that are driving any of that.

Take rates have been very stable and they're not under pressure and that's not the result of the difference between spend and ex-TAC.

So those 2 lines should coalesce soon because we're at 2%, so it's nearly done?

Exactly. We'll lap those -- we'll lap that significant decrease starting early next year. So you'll see that continue through the fourth quarter and then you'll see those numbers conform fairly closely starting Q1.

And when that happens, does that mean the CTV CXT growth rate is more like what we're seeing today in the revenue for CTV or vice versa?

It'll be higher. So that's currently a drag.

Yes, Barton, if you look at it, that's a similar drag to what we had in the first quarter. So if you back that out, the programmatic piece of our CTV business is growing even faster than the 36% this quarter and the 30% last quarter.

Okay. All right. And then for your guide next quarter on CTV, you're talking to a deceleration of the growth rate to, I think, like 31% for CTV CXT. Is there any political in there? And why is it decelerating?

Yes. Well, it's -- listen, we had a great quarter. I think we are hitting some comps from last year as we get into the latter half of this year that we have to take into account. We need to think a little conservatively given potential macro challenges with stubborn inflation and volatile energy prices and the related geopolitical challenges. So there's some conservatism, I think, as we're thinking about the latter half of the year. So I think those are considerations and then you do have this continued drop from the managed service business. So throw all that in the mix.

All that said, actually it's -- on the margin, maybe it's a little drop, but it's a very strong guide when you really step back and we'll certainly be -- there's nothing that has changed that we see in the momentum of our business and our enthusiasm. And we'll certainly be working our tails off to exceed those expectations.

Okay. Well, that's great. I guess some people will be working their tails off and some will be retiring. Appreciate it.

Yes, to be very clear, we know who's not going to be working their tails off.

Your next question comes from the line of Naved Khan from B. Riley Securities.

This is Ethan Widell on for Naved. Congrats on the strong results. To start, as we think of live sports as a revenue catalyst, how would you frame the upside there maybe compared to some of the elevated cloud costs from surge viewership during those events? And then can you maybe quantify how your take in live sports compares to the rest of CTV more broadly?

Yes. So we've often talked about the opportunity in live sports for a couple of reasons, mainly because in the last several years, every major sports league has renegotiated their broadcast agreements to include streaming. So streaming is now a big carrier of sporting events. And we also have pointed out that live sports traditionally has had 0 programmatic dollars directed towards it. So you not only have an incredibly well-watched, big audience events now in streaming, but all of them have been absent programmatic spend.

So we've invested a lot of money, time, tools into making live sports work. We think we have one of the best, if not the best, product in market. We have often cited live sports as being a driver in certain quarters. This quarter, not particularly because World Cup overwhelmed everything and that was more of a broadcast story than a streaming story. But this fall, we feel really confident about our ability to monetize football, college basketball, et cetera. And we think it's going to be a big part of the growth story for Magnite, both domestic and international.

And then I think you mentioned that your top 10 CTV accounts grew in like the 40% range. Can you speak to maybe how much of CTV business that represents? And given that it seems to be a theme that your largest customers are also outsized growers, what would your thoughts be just in terms of customer concentration?

Yes. So we don't share that concentration of our top 10. But from an individual concentration, there's no individual publisher that represents more than 5% of our total contribution ex-TAC across the company. So I'd say CTV is a little more concentrated because there are 30-whatever streamers that matter, but even in CTV, there's a lack of a significant concentration.

Your next question comes from the line of Tim Nolan of SSR.

I'd like to ask you about the state of the ad supply chain. Given that agentic AI really collapses the supply chain in a lot of ways and you've got this newish buyer agent I wonder if you could talk about client take-up of that. And then how would you characterize the roles of ad agencies and DSPs face-to-face with the SSPs, especially Magnite, obviously, in this evolving landscape?

Yes. Good question, Tim. So state of supply chain, look, our belief is that an agentic-enabled programmatic world will lead to far fewer partnerships or partners. We think we're extraordinarily well positioned to be one of the few because it just doesn't -- the role of the SSP evolves, right? It's not about just harnessing undifferentiated DSP demand like it used to be a Rubicon Project for the open web for web display. It's much more technical. It requires scale. It requires product. It requires engineering prowess. So gone will be the days where you can make an easy buck just stringing a bunch of DSPs together and slinging banners. So I think that really bodes well for Magnite, maybe not for the whole ecosystem, but it bodes well for Magnite.

And as it relates to DSPs, SSPs, certainly we are introducing products that are DSP-like, but we, in no way, shape or form are trying to replace the DSP. And as a matter of fact, I think they'll just do fine. There might be fewer of them. The agentic interface is wonderful. But at the end of the day, when this becomes one-to-many and you're bidding on trillions of ad impressions a day, you're going to need your DSP to be there for you. So whether you bring an agentic interface to the DSP engine or the DSP becomes agentic and you use that, I think they're going to be just fine in the agentic world, just like we're going to be just fine because we're going to be that system of record, the person that processes the transaction, that makes all of this work from an orchestration layer. So we feel very good about where this is heading from an agentic standpoint and for Magnite's prospects.

It does feel like the pendulum is shifting in your direction. Your results are speaking to that, I guess. Maybe just any quick comment on client take-up of the buyer agent, which you began to roll out, I think, last quarter?

Yes. I think that by the end of this year, we won't have a major buyer or seller that won't dabble in it, but that's a far cry from shifting their complete spend to the agentic channel. So I think this is a crawl, walk, run and we are in the crawl stage.

Got it. Thanks very much.

Yes. So thank you, operator. Before we conclude, I want to thank the entire Magnite team for their dedication, hard work and accomplishments to date. We believe these outstanding results are just the beginning and we're incredibly excited about our recent momentum and the opportunities ahead.

Now I'll turn it back over to Nick to cover our upcoming marketing events.

Thanks, Michael. After this quarter, we are very much looking forward to speaking with many of you at our upcoming investor events. We're participating in our post-Q2 virtual NDR tomorrow hosted by Susquehanna; The KeyBanc Tech Leadership Forum in Park City on August 10; BofA SMID Cap Conference on August 11; The Cannonball Virtual Conference on August 11 as well; investor meetings in London on August 13; Rosenblatt's Virtual Tech Summit on August 18; investor meetings with Wells Fargo in Baltimore, Philadelphia and New York on August 25 and 26; The Citi TMT Conference in New York on September 8; BofA Media Communications and Entertainment Conference in New York on September 9; The B. Riley Conference and Lake Street Conferences in September in New York on September 10; The Wolfe Conference in San Francisco with a different team there on September 10 as well; investor meetings in Boston on September 15; Benchmark-StoneX Conference in New York on September 17; and investor meetings in San Diego, LA, Seattle and San Francisco with Rosenblatt at the end of September. Thank you very much for joining and have a great evening.

Thank you all for joining. You may now disconnect.

Good day, and welcome to the Magnite First Quarter 2026 Earnings Conference Call. [Operator Instructions] please note this event is being recorded. I would now like to turn the conference over to Nick Kormeluk, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Magnite's First Quarter 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, CEO; David Day, our CFO. I would like to point out that we have posted financial highlight slides on our Investor Relations website to accompany today's presentation.

Before we get started, I'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 macroeconomic factors on our business. These statements are not guarantees of future performance. They reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.

Discussion of these and other risks, uncertainties and assumptions is set forth in the company's periodic reports filed with the SEC, including our quarterly reports on Form 10-Q and our 2025 annual report on Form 10-K. We undertake no obligation to update forward-looking statements or relevant risks. Our commentary today will include non-GAAP financial measures, including contribution 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 highlights deck that is posted on our Investor Relations website. At times, in response to your questions, we may offer additional metrics to provide greater insight into the dynamics of the business. Please be advised that this additional detail may be onetime in nature, and we may or may not provide an update on the future of these metrics. I encourage you to visit our Investor Relations website to access our press release, financial highlights deck, periodic SEC reports and the webcast replay of today's call to learn more about Magnite.

I will now turn the call over to Michael. Please go ahead, Michael.

Thank you, Nick, and thanks, everyone, for joining us today. We delivered a strong first quarter, exceeding expectations across both revenue and profitability. Top line came in ahead of consensus with DV+ outperforming our guide and CTV in line. Adjusted EBITDA exceeded consensus by $5 million, driven by earlier-than-expected cost efficiencies, and we are encouraged by the margin expansion we are seeing. Importantly, the broader market trend remains unchanged. A dollars continue to shift towards streaming. In Q1, CTV contribution ex-TAC grew 30% and represented 51% of total, maintaining the momentum we saw in the back half of 2025. That strength was broad-based. We saw continued growth across leading publishers, including LG adds, Netflix, Paramount, Roku, VIZIO, Walmart and Warner Bros. Discovery. Our top 10 accounts grew in the mid-30% range year-over-year with the rest of the base growing in the mid-20s.

This is not isolated performance. It reflects a platform that is gaining share as the market scales. The acceleration we're seeing in CTV is not surprising. We are materially outpacing the market, and we believe that is sustainable. This is driven by both new wins and expanding partnerships, but more fundamentally by SpringServe. SpringServe has evolved from a best-in-class ad server into the operating system for CTV monetization. We sit at the center of the transaction, unifying demand, optimizing yield, managing ad experience and orchestrating data across the workflow. There are point solutions in the market, but no other scaled platform in CTV combines ad serving, mediation and monetization infrastructure in a single unified layer.

For publishers, this drives higher yield and better control. For buyers, it provides a direct path to the broadest set of premium inventory. And this capability scales across every cohort we serve. We support OEM monetization across home screens and emerging formats, partner with streamers to build and support their offering and help broadcasters optimize their sales efforts, particularly as live and SMB demand grows. And in live TV, where performance requirements are highest, our differentiation is even more pronounced. Live sports remains one of the largest and least penetrated opportunities in programmatic. We are seeing strong traction here, including more than 80% growth year-over-year in revenue from March Madness.

On the demand side, buyer marketplaces are scaling, ClearLine adoption is increasing and buyers are prioritizing more direct and efficient access to premium CTV supply. We are also seeing commerce media emerge as an important driver across both DV+ and CTV. These partners are bringing valuable first-party data and incremental demand into the ecosystem, increasingly activating across streaming environments. Our recent announcements with Expedia Group, Walmart Connect and Roku Qurate show further traction on the commerce media front. Across all of these areas, our role is consistent. We are the infrastructure layer that connects the ecosystem. As our capabilities expand, so does our position. We are increasingly the single entry point for buyers to access premium CTV inventory at scale, becoming the easy button for CTV. And as the market consolidates around scaled platforms, we believe our lead is durable and widening.

Turning to DV+. DV+ declined 5% in Q1, which was better than expected. While budget shifts towards CTV continue, we remain confident in the long-term role of DV. Trends improved exiting Q1 and into Q2 with signs of stabilization driven by mobile and app, online video, audio and commerce media. Mobile and app grew 8% year-over-year and remains a durable growth segment, supported by deeper integrations and new publisher and DSP onboarding. Commerce Media continues to build momentum with 21 partners and 13 now deployed and ramping, expanding both our demand footprint and data capabilities across DV+ and CTV. On the Google Ad tech remedies, our view remains unchanged, and we continue to believe the potential upside is meaningful.

Stepping back, what ties this together is how our platform is evolving, particularly with AI. We are embedding AI across the platform to improve how media is bought and sold. At the core, AI enhances how inventory is valued, how campaigns are executed and how decisions are made in real time. For publishers, AI is improving monetization through dynamic pricing and demand optimization. And with ClearLine, AI is simplifying activation, curation and optimization for buyers, reducing friction and enabling faster execution.

Across the platform, we are beginning to see the emergence of agigentic workflows, enabling greater automation and efficiency for both buyers and sellers. What matters is not a single feature. It's how these capabilities work together across our scaled infrastructure. We are already seeing adoption from the leading players across the ecosystem using our AI to automate workflows, act on real-time signals and improve performance. This is still early, but the direction is clear. AI is increasing efficiency, expanding working media and driving more volume through platforms like ours. This is a tailwind for Magnite.

Before I conclude, I want to address David's retirement. As previously announced, David has decided to retire after more than 13 years of exceptional service. He has been an invaluable partner and a steady leader whose financial stewardship helped shape Magnite into the company we are today. We are grateful for his leadership and for his commitment to ensuring a smooth transition as he remains in his role through September 30, while we evaluate internal and external candidates. On behalf of the Board and the entire Magnite family, I want to thank David and wish him and his family all the best.

With that, I'll turn the call over to David for more details on the financials.

Thanks for those kind words, Michael. I appreciate it. We're off to a good start to 2026. Q1 total contribution ex-TAC grew 10% and came in at the top end of our guidance range. As Michael mentioned, CTV increased an impressive 30% year-over-year, and DV+ declined 5%, but exceeded our previous expectations. We're pleased with the results and are encouraged by the many positive catalysts that are driving momentum in our business.

Total revenue for Q1 was $164 million, up 6% from Q1 2025. Contribution ex-TAC was $161 million, up 10% at the high end of our guidance range. CTV contribution ex-TAC was $82 million, up 30% year-over-year. DV+ contribution ex-TAC was $79 million, a decrease of 5% from the first quarter last year. Our contribution ex-TAC mix for Q1 was 51% CTV, 34% mobile and 15% desktop. From an overall vertical perspective, health and fitness, retail and food and beverage were the strongest performing categories, while automotive and technology were our weakest performing categories.

Total operating expenses, which includes cost of revenue, were $157 million, flat from last year. Adjusted EBITDA operating expense for the first quarter was $118 million, $4 million better than our guide and an increase from $109 million in the same period last year. Operating expense was better than expected due to significant improvements in cloud spend and some early AI-related productivity gains.

Our net income was $4 million for the quarter compared to net loss of $10 million for the first quarter of 2025. Adjusted EBITDA grew 16% year-over-year to $43 million, reflecting a margin of 27% as compared to 25% in Q1 last year. As a reminder, the first quarter is always seasonally our lowest margin quarter. We calculate adjusted EBITDA margin as a percentage of contribution ex-TAC.

GAAP earnings per diluted share were $0.03 for the first quarter of 2026 compared to a net loss of $0.07 for the first quarter of 2025. Non-GAAP earnings per share for the first quarter of 2026 were $0.13 compared to $0.12 in Q1 last year. The reconciliations to non-GAAP income and non-GAAP earnings per share are included with our Q1 results press release. Our cash balance at the end of Q1 was $185 million, a decrease from $553 million at the end of the fourth quarter. The drivers of the change were the $205 million payoff of our convertible debt, planned capital expenditures, share repurchases and normal seasonality in working capital. Operating cash flow, which we define as adjusted EBITDA less CapEx, was $23 million.

Capital expenditures, including both purchases of property and equipment and capitalized internal use software development costs were $20 million, in line with the expectations we discussed last quarter. Net interest expense for the quarter was $5 million. Net leverage was 0.7x at quarter end, consistent with our target of less than 1x. During the first quarter, we repurchased or withheld over 2.2 million shares for approximately $29 million. As of quarter end, $186 million remained available under our current repurchase authorization, which is effective through February of 2028.

Now that we repaid our convert, we plan to be more aggressive with share repurchases given our expected free cash flow generation. As discussed last quarter, our capital allocation strategy aims to return approximately 50% of free cash flow to shareholders via share repurchases. We believe our shares currently trade at very attractive levels. I will now share our expectations for the second quarter of 2026 and our current thoughts for the full year in a mixed macro environment.

For the second quarter, we expect contribution ex-TAC to be in the range of $177 million to $181 million, which represents growth of 9% to 12%. Contribution ex-TAC attributable to CTV to be in the range of $90 million to $92 million, which represents growth of 26% to 29% DV+ contribution ex-TAC to be in the range of $87 million to $89 million, which represents a decline of 4% to 2%. We anticipate adjusted EBITDA operating expenses to be in the range of $115 million to $117 million, which implies adjusted EBITDA margin of 34% to 36% -- and for the full year 2026, we reaffirm total contribution ex-TAC growth to be at least 11%, reaffirm adjusted EBITDA percentage growth in the mid-teens, raise adjusted EBITDA margin to be at least 35.5% from greater than 35%, raise free cash flow growth to be in the mid-30% range from greater than 30% and reaffirm CapEx of approximately $60 million, a reduction from prior year. I want to point out that our estimates do not include any potential market share gains as a result of remedies from the Google Ad tech trial.

Lastly, a note regarding our tax position. We would not expect to have any significant increases in cash taxes. Finally, on a personal note, I'm incredibly pleased with our performance and the robust financial position the company maintains today. It is from this position of strength that I decided to retire, marking the end of what has been the most rewarding chapter of my professional life. My journey here from the early days of Rubicon Project through our 2014 IPO, transformative merger with Palaria and the acquisitions of SpotX and SpringServe has been an exhilarating ride. And I'm immensely proud of the durable company we've built, our winning culture and our world-class finance team.

While I am looking forward to spending more time with my family, I will continue to energetically serve as CFO through September 30 to ensure our momentum continues uninterrupted and to assist Michael and the Board in identifying my successor. I leave with full confidence that Magnite is extremely well positioned to lead the future of digital advertising. Thank you all for an unforgettable decade-plus partnership.

And with that, let's open the line for Q&A.

[Operator Instructions].The first question today comes from Dan Kurnos with Benchmark.

Let me be the first, David, to wish you the best. It's been a pleasure working with you. Michael, let me jump in and just kind of unpack DV+ a little bit for a second. Your comments suggest that we're still seeing mix shift to CTV, but your guide suggests -- I mean you talked about stabilization, your guide is almost flat in 2Q. I'm just trying to figure out how much of that is sort of these Commerce Media wins backing up here and how you think that might trend as we kind of proceed through the year, understanding there's uncertainty in the macro and the pressures that we're still seeing in sort of the traditional desktop business?

Yes, Dan, no issue. I didn't say it was a pleasure to work with me. So that's kind of hurting. But yes, no, good observation. We do think we've seen stabilization return to DV+ driven largely by -- it's a portfolio, right? And so the open web display certainly understage, but other pockets, mobile, app, Commerce Media, as you pointed out, audio are growth areas for us. So I do think macro weighs heavy on DV+ particularly, but seeing it return to flattish is something that I think would still outperform market, and that's kind of where I think we should be in either one of our businesses.

I promise you, Michael, when you eventually someday down the line, retire, I'll say very nice things about you. The other thing that I wanted to ask about just quickly since you brought up sports, live sports and some of the drivers there. Obviously, we have a very big event coming up the summer World Cup. I know you've been asked about it before. We're kind of a month out now. We're starting to get to see a little bit more what Fox's strategy is there, and we're finally going to get real games on Tubi. We -- they have DTC out there now. So just curious how we should be thinking about sort of the impact of that event. And it seems like every time we get one of these big events, even starting with Olympics this year, and you mentioned March Madness, more and more inventory shifts to programmatic. So I don't know if you think that, that's also an incremental catalyst for more inventory to keep moving in that direction.

Yes. No, it will certainly be a good guy for us. And I do think given the volume of games and some of the added ad breaks, for instance, the mandatory water breaks, that's going to be a big ad load there. So I think that, yes, we're expecting good things from it. I'm not so sure it will be something that we'll be citing as a comp issue in 2027, but it will certainly be part of the portfolio of the sports that's going to add to the revenue growth.

The next question comes from Shyam Patil with Susquehanna.

Congrats on the results and David, on your retirement as well. I had a couple of questions. I guess the first one, David, in your remarks, you talked a little bit about just kind of a side comment almost about kind of the uncertain macro. And I was just curious, did this have any impact on you guys in 1Q or 2Q? Obviously, very strong results, but would they have been even better if it weren't for some of the macro events? And then second one, Michael, obviously, very strong CTV growth, very strong outlook as well for CTV. Is there any reason to think that CTV can't continue to grow at these levels going forward, maybe kind of on a secular level? And then just related, how are you guys thinking about just the secular profile for desktop and mobile?

Great. Yes. On the macro front, it certainly wasn't, I'd say, an overwhelming drag on the quarter, but you see it in a couple of verticals, in particular, automotive, most importantly, and that's a large vertical, and that was down significantly. Technology also. So you see some impacts from -- there's still some overhang from some of the tariff challenges, supply chain challenges and then just uncertainty with things in the Mid East. So those are the data points underlying my comment. And so it's not booming, but it's -- we're not prognosticating doom and gloom either.

Yes, Shyam, on the CTV front, yes, we're really pleased with the growth rates and feel very strongly that they're sustainable. The market as a whole looks like from peer reports and analyst expectations, it's growing in the low teens. So we're significantly outperforming market growth, and that's been a goal, stated goal of ours. And I think that will continue just given the penetration that we have with all the top streamers, their growth profiles and increasing wins across the globe. It's pretty much an untold story for us is the success of these streamers that are U.S.-based. When they go international, we go with them. And then they have the added benefit of disrupting the local market and they're forced to adopt programmatic and forced to adopt streaming. So it's a real positive story for us internationally.

And as far as DV+ is concerned, yes, it's -- that's a difficult one because, again, it's a portfolio. But in terms of the high-growth areas, certainly, in-app mobile is a huge growth category. Audio, very promising growth category. Things like even digital out-of-home, you see all the outdoor companies report how fast that's growing. So yes, we think that DV+ as a whole is an important part of the business and will be a positive contributor. -- just kind of hard to swag it in terms of what you should expect going forward on a specific basis.

The next question comes from Jason Kreyer with Craig-Hallum.

Michael, I wanted to ask on AI. I know you've brought some new solutions to market in the last several weeks. I'm just curious, can you talk about maybe demand and adoption trends of AI-enabled tools? And maybe just give some perspective on what pain points you think exist in the industry that you can leverage AI to help make those more efficient.

Yes. Great question, Jason. Wow, no love for David. AI is -- 2026 will be the story of AI with modest amounts of revenue flowing through. There's several working initiatives, several different standards out there. A lot of it is replacing direct sold. So not even truly the programmatic real time, but bringing more dollars into the programmatic ecosystem because it's so much easier to do it gentically. I think the biggest benefit you're going to see from it is workflow and productivity because these are easier to use instead of toggling between 13 different dashboards and you can just natural language ask the agent to perform a task, it really will free up a lot of bandwidth for the traders. It will be more efficient. There'll be more working media going to it. And I think we're exceptionally well positioned from the tools that we built and the tools that we are building to be able to catch it when the dollars start to flow. And I would imagine in 2027 won't be the year of the story of AI, it will actually be resulting in real revenue. And I think, again, we're really well positioned to take advantage of that.

And David gets his own question. So David, congratulations on your retirement. It's been my pleasure working for you for most of that 13 years. So question for you. So I wanted to touch on the EBITDA OpEx that came in better for Q1. You're guiding for that better for Q2. And I know you called out like the cloud and AI benefits. How durable are those savings? And do you think there's more to squeeze out of that as we move forward?

I think as a general matter, the savings are very durable. The primary driver of those savings are kind of 2 fronts. One is moving some of our activity from the cloud to on-prem. And also our dev team is doing a great job in optimizing how we run more efficiently on the cloud. So I'm really excited about that. Now that said, we do have some resources into our product development later in the year. We've got a lot of new business and volume increases. And so I wouldn't go too crazy with lowering costs, but the trend line is definitely durable, and we have more to come on that front as we continue to -- we'll have a new data center in Northern California that will come online later in the year and lots of opportunity, particularly as we spring into 2027 on the margin expansion front.

The next question comes from Laura Martin with Needham.

I have 2. One is Taboola said on their call this morning that they see programmatic workflows being replaced by Agentic. You just mentioned that you thought it might be additive. But why don't we have Agentic buy-side agents sort of talking directly to Agentic sell-side agents in the ad business and therefore, getting rid of most of the 40% to 50% take rate that currently sits in the open web programmatic ecosystem. That's my first question. And then my second question is on pricing power. Maybe, David, this is you, and goodbye. It was wonderful working with you. I'm not sure who this is for. But on the pricing, one of the things that came out of possible is everybody is introducing AI products. Nobody is charging for them. They are all just table stakes, and they're sort of making everybody's products more interesting, more automated, higher returns on ad spend. But -- so that's my question. Are we actually going to get price uplift by all these AI innovations? Or is it just going to become table stakes and we spend money in AI, but we don't actually get any revenue upside?

Laura, it's Michael. I'll grab the first one. Yes. So certainly, that's been an overhang for a lot of companies, software companies about Agentic replacing the need for those companies. And I really feel as though, as we said in our previous quarter script and this one that AI is a real tailwind for us. It makes things easier to work with. It makes our publishers have to go from 12 different dashboards, a SpringServe dashboard, a DV+ to one, and they can execute more seamlessly. The agent to buyer connection and the talking of the 2 makes a ton of sense. But who's to say that, that buyer agent isn't ours that they're utilizing just like they utilize ClearLine.

So I think there's a real upside there. But also, if you want to conduct conversations, execute plans and buy programmatically from tens of thousands of buyer agents, that's where we really shine, right? We make sure that those are the agents you want to talk to that it's Disney inventory. We're collecting payment. We're policing fraud, our plumbing, our bandwidth, our servers are all being utilized to make it happen. And so we just feel that it's going to be more volume on the platform than we've ever seen. And yes, we will charge for that and it will improve our margin profiles, not be a pressure on it.

Yes. I think Michael kind of hit it, just building on that. Yes. And particularly as you look at, for example, in CTV, where we do have lower take rates at the moment, but those are stabilizing and there's so much value add as we provide those additional value-added services, we only see those increasing in the future. And I think that will be -- that value add will be accelerated with the AI implementations that we're making.

The next question comes from Naved Khan with B. Riley.

A couple of questions from me and David, all the best. One question I had is just around the commerce media. And I guess you guys have talked about how you 21 partners now you deployed 13. Can you give us a sense of the scale that this business is at currently and how fast it might be going? And then in terms of the live sports, you guys called it out as a pretty sizable opportunity. Can you just maybe talk about the penetration levels and where we are with respect to penetration of live sports with programmatic and where it could be over time?

Yes, Sure, Naved. This is Michael. Yes, Commerce Media is super exciting for us. Obviously, we mentioned the number of partners and that total keeps growing. And I think the most important thing about Commerce Media isn't necessarily the number of partners, but it's how quickly the strategy has changed for the Commerce Media players. Chapter 1 of Commerce Media was take my valuable retail data, park it in one DSP and then force all the advertisers that want to utilize that data to go through that DSP. And now you're starting to see that unwind and the strategy now is keep the data as close to the retail media partner working with an SSP like Magnite. That way, you can democratize it and allow multiple DSPs to access it in a safe privacy compliant way. So that is the most exciting, I think, change that we're seeing and a huge tailwind for us there.

As far as the contribution Commerce Media is doing, it has been a significant contributor and will even expand because a lot of these players are now just adding CTV to the inventory mix. Think about it, they start with their owned and operated inventory. And then they go off that and typically, that's been in the DV+ world. And now their advertisers are saying to them, "Hey, I do a lot of advertising on TV. I want to do that with your data. And so we're the perfect on-ramp for that to occur. So really excited about the prospect of even further growth given CTV being part of the story, essential part of the story for most of these commerce media partners.

Yes, in live sports, boy, we're just scratching the surface. I mean, live sports as a consumer, you see live sports everywhere in streaming. But programmatically, very, very little inventory is bought and sold programmatically. So when we cite games like 80% plus for March Madness, it's miniscule compared to the opportunity that's coming. And so super excited about World Cup and the false slate of sports. And little by little, it's getting more programmatically driven, and it's a big, big tailwind for us in that respect.

The next question comes from Shweta Khajuria with Wolfe Research.

This is Ken on for Shweta. Congrats, David, on the retirement. Two for me. Michael, can you provide us an update on the impact of OpenPath, particularly with smaller advertisers and agencies? And David, can you provide the puts and takes of EBITDA in the second half of 2026.

Yes. So OpenPath, I think we've talked about it ad nauseam, came as a shock to the system a couple of quarters ago. We pretty much stated that all the big buyers from the agencies that use Magnet as an invaluable partner had flipped us back on. I think you can see in our results that it's certainly not deteriorating. So I think that the OpenPath extinction events is come and gone, and we're still here and doing quite well. Great. And EBITDA in the second half, as we mentioned, we expect 11% or greater growth on the top line. So we'll have -- we're stable, steady.

And then as I mentioned on the cost side, we've got some nice savings on the one hand with our cloud usage, but we've got some kind of volume growth and some resources that will sort of be neutralizing some of that savings at least this year. And as I mentioned, the EBITDA margin is increasing. We'd expected something north of 35% and expect 35.5% this year. So that's increasing. So we're in a great spot. The -- and what's really great is our margin -- EBITDA margin is increasing and it's cost driven at this point. And so to the extent that we do have upside on the revenue line, that upside will flow almost 100% to free cash flow in the business. So I feel like we're really well positioned.

The next question comes from Robert Coolbrith with Evercore ISI.

Congratulations on a great run to David and best wishes on your retirement. Michael, you're great too. I want to ask a little bit on AI creative generation. Just wanted to ask for any update on the role you're playing there. And we're beginning to see more tools released sort of general availability. Just wondering if you're beginning to see more AI-generated creative showing up in the market. What do you think that sort of -- if that catalyzes incremental demand, incremental creative refresh, what does that do for CTV? And then maybe another related question on AI. Just we've heard some speculation about different ad tech players that could play in terms of monetizing some of the AI engine inventory itself. Do you think there's an opportunity for Magnite there?

Yes. Robert, the -- so as you know, we purchased a couple of quarters ago, a company called Streamer, which is one of the leading tools out there that allows small- to medium-sized businesses to create a TV ad to track it, to measure it and to buy it, obviously, on our platform and our access to the premium streamers. And that product is really taking off. It's -- our role with that product isn't to chase down the small- to medium-sized business. It's to put those tools in the hands of folks that have those relationships -- so there are either huge aggregators that have the relationships and now we are bringing that demand onto our platform or there are publishing partners that kind of hang that as they're self-serve. And when they have relationships with small advertisers, they go and use the tool. So it's really turned out to be a wonderful acquisition, and we're starting to see the benefits of that reflected in the growth rates of CTV. And I'm sorry, the second point was.

Just on the themselves, the OpenAIs and so forth, if there's an opportunity potentially for Magnite there.

Yes. No, I certainly think there is. I think the encouraging thing is it's very early, but you're seeing in these early stages that the ones that are ad-supported are reaching out for third-party demand. And that history is pretty clear. Initially, if you're just going to work with DSP, maybe there's not a need for someone like a Magnite, but you start to work with 3, 4, 5, 6, 7 and then you do it globally and they have specialty DSPs. I think we feel very encouraged with the initial direction about some of the folks leaning into third-party demand. And in that case, SSPs become invaluable. And I think we're well positioned to take advantage of that when the time is right.

The next question comes from Barton Crockett with Rosenblatt.

Two, if I could. Let me see -- first is just to get your perspective on an environment that I think there's kind of a collusion of views that maybe this is more removing, which is that we could be moving to a world where agencies would be working with a single integrated interface through Quad or something to place basically outcome-driven marketing dollars across a range of environments, whether it be the social media walled gardens like Meta or the search environments, AI environments like Google Gemini or open web. And in that environment, we're simplified at the agency and the front end is not what we see today, but something different built on an LLM. In your view, does that have any impact on take rates any impact on revenue flows? Do you think that's where it's going?

I certainly think that's a world view that a lot of people share, more simplified buying tools for agencies that actually deliver upon the stated goal for the marketer. I think that our role remains quite valuable and necessary in that world, right? Again, we're the system of record. We're the rails upon which the transactions take place. It's one thing to have an agent talk to another agent, but if they're involved in a complex transaction and in real time, doing it trillions of times a day, you really need the infrastructure, and that's where we shine. The impact to our take rate, I don't think there's any change in what we do in that world. It's just probably easier for seller and buyer less interfaces to go through, less knobs and tools. So perhaps freeing up more working media there. But our role remains kind of unchanged as that system of record. So I feel confident in our durability as it relates to take rates.

Okay. And then switching gears on Google AdTech antitrust. I think we're sitting here in May, and we still don't have a decision on the remedies. If a remedy decision were to come out today, what's your sense of when you could begin to see the impact of that? Is it something that now is pushed into 2027 or any thoughts of -- obviously, part of that is a view of what the remedies could or should be. But your sense of how much time it would take to kind of implement given all the legal waiting periods and technological considerations.

Yes. Great question, and I think you hit the nail on the head. It really does depend upon the remedy. Some are just behavioral in nature. Some would require Google to do technical work to make it happen. And I think even in their case, they cited a 6- to 9-month window for changing 2 of the things that they were talking about. So -- but I definitely think that there'd be some instant gains there. Again, keep in mind, we see all the inventory -- we bring it to auction and our win rate is very low when it comes against -- when it goes up against Google. And so therefore, if there was a behavior change there, it could be somewhat instantaneous the impact that we'd see. So I certainly don't think any of the benefits from the ruling is pushed out -- all of it is pushed out to 2027. Obviously, we're a little disappointed that there hasn't been a ruling, but I completely anticipate favorable ruling for us and impact in 2026.

The next question comes from Matt Swanson with RBC Capital Markets.

This is Simran on for Matt Swanson. Congrats on the quarter and congrats, David. Just one for me. So going back to CTV and DV+ for a second. We've been seeing how CTV has been hitting an inflection point for the business. And then last quarter, we started talking about the accelerated reallocation of budget to -- from DV+ to CTV. So while there's like the areas of growth in mobile and commerce for DV+, to what extent does this reallocation remain a headwind? And has that accelerated this quarter? And do you expect it to continue for the year?

Yes. Great question. I don't know if we've seen an acceleration, and you can see the freshening of DV+' growth rate exceeding our expectation. So I think there's a stabilization. I do think that a big slug of that portfolio in DV+, the type of media is open web is display. And I think it's safe to say that that's going to be a negative grower. But could that be outpaced by mobile app? Could that be outpaced by audio, Commerce Media, digital out-of-home, certainly. So I think our long-term expectation for DV+ is it's a grower, but it's certainly not going to have the profile of the CTV growth rate. And increasingly, our revenue balance will be more CTV than DV+ for the company.

The next question comes from Elle Niebuhr with Lake Street Capital Markets.

Just a quick one from me. Just looking at how CTV is becoming over 50% of that total contribution ex TAC number. How should we look at incremental margins on CTV versus DV+? Is there a mix shift that's kind of structurally lifting the margins by itself? Or are there some offsetting costs?

Yes, I'll take that. Yes, it's generally equal. So we don't see -- it doesn't create headwinds by having a greater proportion of our business be CTV. And in fact, as we mentioned earlier, we've got significant gains in the cost basis on our CTV business with our cloud costs going down. And so it won't be one of the more significant drivers. It's a good question, but we see it more as kind of neutral.

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. The CTV's long-awaited ramp in programmatic has clearly arrived and the investments we've made over the past several years are now translating into profitable, scalable growth. We believe CTV is in a powerful phase of its evolution. The shift to programmatic is real. And as the channel matures, it is increasingly taking share from both linear, television and other digital formats. Before we close, I want to thank our team at Magnite. The progress we've discussed today is a direct result of your hard work, innovation and commitment to our partners. Your efforts continue to position us at the center of this transformation. We're confident in the momentum of the business and in the long-term opportunity ahead. Thank you for joining us today. We look forward to updating you next quarter. With that, I'll turn it back over to Nick to cover our upcoming marketing events.

Thanks, Michael. We look forward to seeing many of our upcoming investor events. Just to kind of tick through them for your info and the participation. We have a post-Q1 virtual NDR tomorrow hosted by B. Riley. We have an in-person AI tech demo with SSR in New York City on May 12. We're at the Needham Conference in New York on May 13; B. Riley Conference in Marina Del Ray on May 20 and 21, RBC Busward New York on May 27; Craig-Hallum Conference in Minneapolis on May 28; BofA Conference in San Francisco on June 2; Rothschild Redburn Investor Meeting in San Francisco on June 3. Evercore's Conference in San Francisco on June 3 as well. Toronto NDR with RBC on June 9; Chicago NDR with Benchmark on June 10, the ROTH Virtual Ad Tech Summit on June 15 and analyst and investor meetings with a variety of our covering analysts in Cannes on the week of June 22. Thank you, and have a great evening. Look forward to seeing many of you at our events.

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

Hello, and welcome to the Magnite Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Nick Kormeluk of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Magnite's Fourth Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, CEO; and David Day, our CFO. I would like to point out that we have posted financial highlight slides on our Investor Relations website to accompany today's presentation. Before we get started, I will remind you that our prepared remarks and answers to questions will include information that might be considered to be forward-looking statements, including, but not limited to, statements concerning our anticipated financial performance and strategic objectives, including the potential impacts of macroeconomic factors on our business.

These statements are not guarantees of future performance. They reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties and other factors that may cause 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 quarterly reports on Form 10-Q and our 2025 annual report on Form 10-K.

We undertake no obligation to update forward-looking statements or relevant risks. Our commentary today will include non-GAAP financial measures, including contribution 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 the financial highlights deck that is posted on our Investor Relations website.

At times, in response to your questions, we may offer additional metrics to provide greater insights into the dynamics of our business. Please be advised that this additional detail may be onetime in nature, and we may or may not provide an update on the future of these metrics. I encourage you to visit our Investor Relations website to access our press release, financial highlights deck, periodic SEC reports and the webcast replay of today's call to learn more about Magnite.

I will now turn the call over to Michael. Please go ahead, Michael.

Thank you, Nick, and what an end to 2025. We exceeded consensus expectations for both the quarter and the full year. In a mixed macro environment, our results reflect the durability of our model and the accelerating shift towards streaming. In Q4, CTV contribution ex-TAC grew 32% ex political, meaningfully above our guide. That acceleration began in Q3 and strengthened into year-end. As we enter 2026, CTV is now larger than DV+ making streaming the majority of our business. That is a defining moment for Magnite.

The long anticipated ramp of programmatic CTV is no longer emerging. It is underway at scale. Adoption is broad-based across media owners, agencies and DSPs. We saw strong growth from many of the largest players in the industry, including LG Ads, Netflix, Paramount, Roku, VIZIO, Walmart and Warner Bros. Discovery. TV OEMs are leaning aggressively into programmatic across home screens, pause ads, data enablement and marketplaces. Programmatic enablement in live sports continues to expand across the largest global streamers. On the demand side, the largest global agencies are now driving meaningful volume through buyer marketplaces and DSP-agnostic pipes powered by Magnite.

ClearLine activation continues to gain momentum as buyers increasingly seek direct, transparent and efficient access to premium streaming supply. Stepping back, the industry trajectory is unmistakable. Consumers have moved to streaming. Time spent has already shifted. Advertisers are following and dollars are now catching up. CTV combines the brand impact of television with the precision and measurability of digital. As inventory has scaled and pricing has normalized, CTV has become accessible to a broader range of advertisers from global brands to performance marketers to SMBs.

For Magnite, this shift is structurally advantageous. In DV+, we operate in a highly competitive market where we hold mid-single-digit share. In CTV, our share is multiple times better. As dollars migrate into streaming, they moved into a segment where we have deeper integrations, stronger publisher relationships and differentiated infrastructure.

Now turning to DV+. DV+ grew 4% ex-political in Q4, modestly below expectations, and that pressure has increased in Q1. We observed accelerated budget reallocation from DV+ into CTV across agencies, DSPs and brands. This trend has intensified in Q1. This makes sense as CTV becomes more measurable and performance-driven and inventory scales, dollars are naturally consolidating into streaming environments. Within DV+, there are encouraging signs.

Our mobile in-app business remains healthy. Commerce Media partnerships are gaining momentum with more than 15 partners announced, 11 of which are deployed and ramping, including United Airlines, PayPal, Pinterest and Best Buy. These partnerships combined owned inventory with first-party data layered through ClearLine curation. We do not believe that the decline in search referral traffic is impacting our DV+ business. Our footprint remains diversified across open web, mobile app, online video, audio and digital out-of-home. In fact, our DV+ supply continues to expand with ad requests growing over 30% year-over-year in Q4 and at similar rates in Q1. Our DV+ business has never been supply constrained.

Now turning to AI. There has been speculation that generative AI and agent-based buying could disintermediate infrastructure platforms. We believe what is actually unfolding reinforces the importance of scaled sell-side infrastructure. In Q4, we embedded an advertising context protocol or AdCP based seller agent directly into SpringServe and executed what we believe was the industry's first agent-to-agent campaign. Scope3 served as the buyer agent on behalf of MiQ with media running across LG and Warner Bros. Discovery inventory.

While still early, this marks an important milestone. It represents the first step toward a future where buyer and seller agents can interpret campaign briefs, intelligently match inventory with audiences and ultimately transact media in a more automated and efficient fashion. Magnite is uniquely positioned on the sell side. We believe we will be long-term winners in digital advertising, given our differentiated access to supply, scaled and interoperable data assets and ability to apply AI across the end-to-end workflow.

Layering AI into that ecosystem modernizes the buying experience, streamlining historically manual insertion order processes, matching briefs with audiences and inventory at scale and enhancing traditional programmatic execution. Even in a world of autonomous agents, infrastructure becomes more critical, not less. Agents may interpret intent, but they still rely on scaled marketplaces to clear transactions, enforce auction mechanics, ensure compliance, manage fraud prevention and handle financial settlements. As the ecosystem evolves toward potentially thousands of buyer and seller agents, aggregation and interoperability become essential.

You cannot have a market where every agent negotiates bilaterally with every other agent. Standards-based scaled platforms are required to make that system function. That is the role Magnite plays. In Q1, we are continuing to run test campaigns and refine the AdCP framework. It's early, but we are encouraged by the progress and view this as a meaningful step toward a more intelligent and efficient advertising marketplace. AI is not displacing our infrastructure. It is increasing throughput across it.

Lastly, on DV+, we continue to await the court's final order in the Google AdTech remedies phase. We believe remedies could create meaningful share reallocation opportunities. As we have stated, every 1% of market share gained could represent approximately $50 million of incremental contribution ex-TAC annually at very high incremental margins. We remain prepared. To conclude, we are in the early innings of a multiyear replatforming of television and video advertising. Streaming is now the dominant form of video consumption.

CTV represents the majority of digital video time spent, yet ad dollars still lag engagement. Industry forecasts call for sustained double-digit CTV advertising growth for years to come with tens of billions of dollars expected to shift from linear television and fragmented digital channels into streaming environments. Magnite sits at the center of that shift. CTV is now the majority of our business. We are deeply integrated with the largest streaming publishers and OEMs in the world. We operate in premium, largely logged-in environments that are inherently more defensible and more measurable.

And as dollars consolidate into CTV, they move into a segment where our market share is meaningfully higher and our infrastructure is embedded. At the same time, automation and AI are increasing efficiency across the ecosystem, expanding working media and driving more volume through scaled platforms like ours. Secular CTV growth, expanding total addressable market, increasing automation, strong share position. Those forces are durable. We believe Magnite is fundamentally -- we believe Magnite is foundational to how the next era of advertising will transact, and we have never been more confident in our strategic position.

With that, I'll turn the call over to David for more detail on the financials. David?

Thanks, Michael. As Michael mentioned, we had a strong Q4 and finish to the year with a great performance in CTV, achieving 20% contribution ex-TAC growth or 32% excluding political, significantly exceeding our expectations. CTV reached 48% of our total contribution ex-TAC for Q4. DV+ came in below expectations, declining 1% and up 4%, excluding political. Adjusted EBITDA grew 9% to $84 million, resulting in a 43% margin. We're pleased with the results, particularly the continued acceleration in CTV growth we saw in Q4. For the full year, contribution ex-TAC totaled $670 million, a year-over-year increase of 10% or 14%, excluding the impact of political.

For CTV in 2025, we achieved contribution ex-TAC of $304 million, an increase of 17% or 22% excluding political. And for DV+, we reported $365 million for the year, growth of 5% or 8% ex political. We processed total ad spend approaching $7 billion. Adjusted EBITDA for the full year 2025 was $232 million, an increase of 18% from 2024, resulting in an adjusted EBITDA margin for the year of 34.7%. Total revenue for Q4 was $205 million, up 6% from Q4 2024. Contribution ex-TAC was $195 million, up 8%, within our guidance range and up 16%, excluding political.

CTV contribution ex-TAC was $94 million, up 20% year-over-year or 32% excluding political, significantly exceeding the top end of our guidance range. DV+ contribution ex-TAC was $101 million, a decrease of 1% or an increase of 4%, excluding political from the fourth quarter last year. This result was below our guidance range. As Michael noted, we saw a growing spend shift from DV+ to CTV. Our contribution ex-TAC mix for Q4 was 48% CTV, 37% mobile and 15% desktop. From a vertical perspective, retail, health and fitness and financial were the strongest performing categories, while automotive was again one of our weakest performing categories.

In DV+, we saw additional weakness in technology and food and beverage. Total operating expenses, which includes cost of revenue, were $153 million, a slight decrease from $154 million for the same period last year. Adjusted EBITDA operating expense for the fourth quarter was $111 million, $1 million better than the low end of our guidance range and an increase from $104 million in the same period last year. The increase was primarily driven by higher cloud and data center costs and higher personnel-related expenses supporting the growth of our CTV business and investment in CTV-related features and functionality and was better than expected due to lower personnel expenses, including slower-than-anticipated hiring.

Our net income was $123 million for the quarter compared to net income of $36 million for the fourth quarter of 2024. This was driven by a $90 million onetime tax benefit resulting from the release of the valuation allowance on our deferred tax assets. As background to the release, we met the specific accounting criteria of 12 quarters of cumulative positive pretax income and the necessary expectations for future profitability. Adjusted EBITDA grew 9% year-over-year to $84 million, reflecting a margin of 43%.

As a reminder, we calculate adjusted EBITDA margin as a percentage of contribution ex-TAC. GAAP earnings per diluted share were $0.80 for the fourth quarter of 2025 compared to $0.24 for the fourth quarter of 2024. Non-GAAP earnings per share for the fourth quarter of 2025 was $0.34 compared to $0.34 last year. Reconciliations to non-GAAP income and non-GAAP earnings per share are included with our Q4 results press release. Our cash balance at the end of Q4 was $553 million, an increase from $482 million at the end of the third quarter. Operating cash flow, which we define as adjusted EBITDA less CapEx, was $61 million.

Capital expenditures, including both purchases of property and equipment and capitalized internal use software development costs were $23 million, consistent with the expectations we discussed last quarter. Debt interest expense for the quarter was $4 million. Net leverage for the quarter was 0, down from 0.3x at the end of Q3. As a reminder, the remaining $205 million principal balance of our convertible notes is a current liability on the balance sheet as the notes mature this quarter. We plan to pay off the converts at maturity with cash on hand next month.

As you know, $400 million in converts were part of our original financing for the SpotX acquisition and when all is said and done, provided capital at an extremely favorable rate. During 2025, we repurchased or withheld over 5.2 million shares for approximately $79 million. We're also announcing a new 2-year share repurchase plan today, which authorizes the repurchase of common stock with a value up to $200 million. Following the repayment of our convert, we plan to be more aggressive with share repurchases given our future expected significant and consistent free cash flow generation.

Our capital allocation strategy will target approximately 50% of free cash flow generation to be returned to shareholders via share repurchases over time, provided our share price provides a reasonable return compared to our estimated intrinsic value. Note also that M&A opportunities may arise in the future that might change our perspective. I will now share our expectations for the first quarter of 2026 and our current thoughts for the full year. For the first quarter, we expect contribution ex-TAC to be in the range of $157 million to $161 million, which represents growth of 8% to 10%.

Contribution ex-TAC attributable to CTV to be in the range of $81 million to $83 million, which represents growth of 28% to 31%, surpassing 50% of total contribution ex-TAC for the first time. DV+ contribution ex-TAC to be in the range of $76 million to $78 million, which represents a decline of 6% to 8%. We anticipate adjusted EBITDA operating expenses to be approximately $122 million, which implies adjusted EBITDA margin of over 23%. As a reminder, the first quarter is always seasonally our lowest margin quarter.

For the full year 2026, we anticipate total contribution ex-TAC growth to be at least 11%, adjusted EBITDA percentage growth in the mid-teens, adjusted EBITDA margin greater than 35% free cash flow growth greater than 30% and CapEx of approximately $60 million, a reduction from prior year. I want to point out that our estimates do not include any potential market share gains as a result of remedies from the Google AdTech trial.

And finally, regarding our tax position, we would not expect to have any significant increases in cash taxes for the next few years. We are proud of our team's execution and our resulting fourth quarter and full year results. We believe we are very well positioned to continue winning and thriving with the changes that are taking place in the programmatic ecosystem. We continue testing and implementing the right AI capabilities to build on Magnite's industry-leading platform and making strategic investments to improve our efficiencies.

With that, let's open the line for Q&A.

[Operator Instructions] Our first question comes from Laura Martin of Needham.

Congratulations, good numbers. I wanted to talk about the breadth of CTV and how much of that is sustainable. So ex political, CTV up 32% in growth. Can you break down how much of that is SMBs? How much is by vertical? You named a lot of really big studio companies that are growing. I'm really interested in what's growing and whether you see that continuing? That's my first question.

Yes. Laura, great question. I'll handle it first and maybe David will dive in with some specifics. We really haven't gotten into breaking it out. Lord knows we have hard enough time figuring out TV and CTV buckets, let alone getting a little bit more specific on the CTV. I will say, and you did see the announcement from MNTN recently about their direct connection into us as their first platform to do so. So that's a very encouraging sign of a high-growth area of performance-oriented SMBs.

But we are seeing just across the board. You don't grow at 32% and not have everything firing at all cylinders. So big branded advertisers that used to advertise in TV, we had cited a big shift from performance advertisers that were digital online video, digital display shifting into CTV throughout all of our channel checks, the same note was sung by every major agency brand, marketer, the appeal of CTV, the pricing, the performance metrics of it, it's really just increasing in velocity of appeal. So we're just seeing it across the board, Laura.

Okay. Great. And then my second question is about risk. It feels like, Michael, you're moving more towards an infrastructure. You have a lot of really specific deep infrastructure integrations into some of these large CTV performers. Do you get the sense that elongating your client relationship time, increasing your lifetime value and lowering the risk of investing in Magnite as a stock?

Well, no question. You hit the nail on the head, and I think we tried to harp on that in the call in the script. We look so different in CTV than we do perhaps even in DV+ and display. We are highly differentiated. We have a leading programmatic ad server that's coupled with the leading SSP platform. We're building more and more tools. We have a buying tool, ClearLine that's integrated across the board. So we look quite different and unique and with an enjoyable moat that we built in CTV, which is, as you know, the fastest-growing segment in the digital advertising sector.

Our next question comes from Dan Kurnos of Benchmark StoneX.

Michael, let me just stick with the CTV question for a second. Is there any way to kind of parse out the mix shift to CTV versus your organic partner growth like what you had before? Because there's a clear acceleration, I think, on both fronts. And how much of that is coming from live events?

Yes. So live is an increasing contributor each quarter. So that's definitely a good guide for us. As it relates to parsing it out. David, do you want to say -- kind of the dollar shift that we saw from DV+ into CTV and that to give you some idea of the baseline growth level versus the accelerated?

Yes. I guess -- I mean, if you just look at the expectations versus consensus for like Q1, for example, you've got DV+ $8 million or $9 million lower and CTV higher by that same amount. But I'm not sure you can differentiate spend shift versus organic because the spend shift is rolling into our organic numbers and is rolling through all of those same -- obviously, all of those same partners. But it is a very dramatic shift, right? Go ahead.

Yes. No. So I was saying if you looked at it -- let's just say if the expected performance is 20% and it winds up being 32%, it's pretty easy to parse it out as to what the accelerant was from a spend shift from platform to platform.

Yes. No, that's helpful color. I mean I'm just trying to make sure to flag, I guess, the underlying is still growing ex the shift. So I just want to [indiscernible].

Very much so. Yes, very much so. Just think a little bit -- the thing here from a larger perspective from what we talk about is those very marketers that are making up a number, say someone spends $100 less, they're just spending it differently, allocating it differently. And good news for us are allocating into the faster-growing platform that you certainly look ahead 3 to 5 years from a CAGR standpoint, it's going to be super impressive. So number one, the allocation is happening on our platform. So we're catching dollar for dollar, and we're still having that organic growth on the CTV side that's far exceeding the marketplace. So both very positives for us.

Yes. And just to layer on I say layer on to Laura's point, it's derisking. So $1 of CTV revenue and growth is more protectable and sustainable in some ways than DV+, which just can be a little bit more volatile. And so we love where this is heading ultimately.

And not to add, David, I mean, I guess the next question I'd ask is like, I mean, margins are still improving, but there's always been a question around take rate and economics and you're still driving margins higher. So some of that's been your cost to take out, cost to serve initiatives, but just maybe any comments you guys have on that would be great.

Yes. And in fact, and we talked about this a little bit last -- I think, the last quarter or 2, because of the opportunity that we have in CTV, we've actually made some additional internal investments into CTV, so into engineering, into accelerating some of our feature and functionality in the CTV business.

And so all things being equal, our margin expansion could have been even greater in 2026. But with the -- so we'll still expand margins. But with this opportunity in CTV, it's sort of a little bit of a onetime shot on the headcount and continuing to make the improvements on our tech stack infrastructure, as you mentioned, getting better leverage out of that to really set us up for more rapidly expanding margin in future years.

Our next question comes from Shyam Patil of Susquehanna.

I had a couple of questions. I guess, maybe following along the lines of the previous 2 as well. What do you guys think is the right way to think about CTV growth and then DV+ growth kind of going forward? I know you gave kind of 1Q outlook and kind of high level for the year for overall. But what's -- if we kind of look at the 2 businesses, like what's the right way to think about the growth rate kind of going forward on a sustainable basis?

I know, Michael, you said CTV is a double-digit grower. And obviously, we've seen that strong growth rate. And then just a follow-up just on OpenPath, can you just maybe talk about that a little bit, just kind of the impact that you had seen? It seems like that situation might be behind us now. Maybe if you could just talk about that and if you think that, that's been resolved and kind of behind us or if there's potentially anything to be aware of on that front?

Yes, sure. Great questions, and I'll let David jump in on some of it. Yes, certainly, if you look at CTV, the market from an estimate standpoint has always been probably lagging the actual growth rates. But I think some of the latest numbers out there are in the mid- to low teens and certainly at 32%, that's far exceeding market growth. And that's where we expect to be given our market position. So I think a growth rate in the high teens, 20s is very sustainable given the secular shift that's going on.

And as it relates to DV+, I think it's fair to remind everyone the diverse portfolio that DV+ is. Certainly, there's desktop and mobile web, and that is definitely under pressure. You have all sorts of things happening there and the big budget shifts that we talked about that we caught on the CTV side were essentially coming from that bucket. But you also have emerging categories like audio, digital out-of-home, mobile app, which you look at the numbers at levels putting up mobile app for a long time was kind of out of our reach because the brand advertising that we source really couldn't compete with the app install.

And now it's much -- it's been on a better level playing field than it ever has. And so we view that as a big opportunity for us. We're deploying our SDK. We're partnering with AppLovin. We're partnering with Unity. We're partnering with all the big players, and we think that, that's a big growth area for us. So where does that net out? It's hard to say. But I think the encouraging thing is from a growth profile for Magnite, any weakness that we are seeing in DV+ is manifesting itself in the CTV bucket.

So again, if the budget is $100, we're catching the $100. It's just being allocated differently by the marketer. So it's a little hard to put a growth rate on DV+. But if you parse it all out, there's going to be growers like mobile app that's going to be in the teens, and there's going to be desktop mobile web that's probably flattish to slightly down, if that's helpful. And you would also ask about OpenPath. Yes, as you noted, OpenPath has been around for years.

The reason why it became a subject of focus last quarter was the Kokai deployment and OpenPath being a default we have painfully walked through in the Q&As in the script about our efforts to turn that around with our biggest buyers. By most degrees, we've been successful in that. And the longer tail of OpenPath users, those smaller advertisers, smaller agencies, we had always said that, that was going to be more of a street fight. So OpenPath has played out exactly as we thought it would. It's a modest impact in terms of the DV+ performance has no impact on the CTV performance. And everything that we said we were going to do, we did.

And I think OpenPath has been with us for years and will continue to be with us for years. I think if anything, we've proven that it's not an existential threat to the business that we have embedded ourselves with our largest buyers to the degree that we become invaluable to them to execute their programmatic businesses.

Our next question comes from Jason Kreyer of Craig-Hallum.

So Michael, you talked about running volumes through AdCP. Just curious what you think the evolution is on that front? And what is the client interest in running volumes through AI agents?

Yes. So interest is very high. Reality, very little and budgets are being allocated to it. I think to frame it correctly is think of this as a massive remodeling of your house, but we're not knocking it down and building a brand-new house. So I think that it's all going to sit on top of the existing infrastructure in the industry. Hundreds of millions of dollars have been invested by Magnite alone to make programmatic work. And what AI agents are going to do is make it work better. It's going to alleviate menial tasks from the traders, the planners, the ops people, and it's going to put more working dollars to play, which is awesome.

And we feel it's all going to flow through our pipes. And so I think we're doing the exact appropriate amount of investment in it and we are ready to catch the dollars when they come scaled, but that is not going to happen any coming quarter. So interest high, execution actually putting your money where your mouth is, is not high, but we believe we're in a great position technically and from a market position to take advantage of this next wave of innovation.

Is that more likely to occur on the DV+ side or on the CTV side?

Well, I think across the board, I mean, the world I described, there's a lot of heavy lifting that goes on in terms of planning campaigns, introducing opportunities for publishers, publishers, introducing opportunities for buyers, making sure it works. Line item broken here, this deal doesn't work here, why doesn't it work? 20 hours of troubleshooting to figure out and then half the budget is already not been spent and you're wasting time. And so I think there's all sorts of efficiencies that are in play across both platforms with an agentic approach as the UI level and then the plumbing and the infrastructure powered the way it used to be, the way Magnite does it.

A quick follow-up for David. The EBITDA OpEx is a pretty big jump from Q4 to Q1. Just curious if you can maybe talk about what investments are embedded in there?

Yes. And if you recall, we kind of have that jump literally every year. You have personnel raises effective January 1 that kick into place. You also have employer taxes that kick into place and some of those are attached to some annual grant vesting in that Q1. We have an off-site that occurs in the first quarter of the year. Certain years, it's full company and certain years, it's the commercial team. And so you just got a number of those things. And then the other component there would be some of the investment that I mentioned earlier, which is engineering and product talent for supporting the pace of development and velocity in our CTV business. And so those kind of make up that increase.

Our next question comes from Shweta Khajuria of Wolfe Research.

Okay. Let me try 2, please. I have a follow-up on the prior one. So Michael, if you could please explain the context protocol, like how it works, what the real value proposition is and what your differentiated advantage is there? And as it relates to CloudX, is that a competitive product? Is that even related? How should we think about how all this evolves in an agentic world?

And what the impact will eventually be? Is it that you're going to get greater share of ad dollars? Is it that the TAM will expand? Like how should we think about the impact and how it works? And then the second question I have is just on the AdTech case, you touched on it in your prepared remarks. What is the base case expectation at this point? What should investors be expecting in terms of a realistic outcome? And if you have any sense on the time line, that would be great, too.

Yes, sure, Shweta. So yes, so AdCP is kind of -- it's a protocol that allows agents to talk to agents. And so there's nothing particularly -- there's nothing particularly unique about that. It's making sure your program can be agentic. It's making sure your platform can have agents talk to each other. So I think that what we were -- we -- given the size of our platform and the appeal of the types of publishers we have, we are approached by Scope3 first to execute that.

So I think it's illustrative of the fact that we're prepared for -- to move beyond the API world and get into the MCP, AdCP world where agents are talking to agents and need a point of connection as opposed to APIs where it was more people connecting to machines. So I think that we feel very good about that. Where I think our point of differentiation will lie not just in our readiness, but I think in this the vast amount of data that we sit on in the years and years of the data that we have, when we can help our publishers and help our buyers from an inventory discovery, price discovery to maximize yield for publishers from mediation, I think that, that's where the magic really happens.

So anyone can build an agent, the question is what data is that agent working on. And I think we feel that we sit on this repository of data across tens of thousands of publishers, many, many years of data worth to be able to inform decisions. We've also organized the taxonomy of all the publishers on our platform so that if someone is looking for sports enthusiasts or auto enthusiasts that the same protocol exists across all publishers, so we can scale these what would be very niche buys across agents. So feeling very good about that.

You also asked about CloudX. Obviously, that's more germane in the mobile area, but we're integrated into CloudX right now, which is a newer mediation platform for mobile app. So we're excited. We know the guys well. I think it's just another opportunity to gain access to a super fast-growing area of the DV+ business, which is app, and we are working closely with them. So it's a good thing for us, not kind of a disintermediation by any stretch. And lastly, in the AdTech case, very hard to pick timing. The expectation is it's any week now, but that could be delayed a little bit longer as it relates to predicted outcome. Again, that's a little difficult.

I think given the types of conversations that were had in the final prejudgment hearing between Google and the DOJ, it certainly seemed that given the questions from Judge Brinkema that structural was probably not going to be the likely outcome that behavioral remedies were. I think some people misinterpret that as that's not a good guy for Magnite or their peers, which we couldn't disagree with more violently. We were always expecting behavioral, and we thought that as long as through behavioral or structural, it really didn't matter to us as long as the playing field was more level that we would be a huge beneficiary of that, and we still believe that to this day.

Our next question comes from Matt Swanson of RBC Capital Markets.

This is Simran on for Matt Swanson. Congrats on the quarter. It seems like you guys have hit this tipping point in CTV, which has been great to see. What would you think from an ecosystem standpoint has changed? And how much would you attribute to the secular market shift versus your growing company-specific moat?

Yes. Thanks for the question. I think David touched upon that way, gave the specifics about -- perhaps it was -- the $9 million came from the DV+ platform, and that was placed on -- the expected $9 million that we thought were going to be spent on DV+ was now spent on CTV. But that's on top of an already high growing base of organic spend there. So I think no matter how you look at it, you take the $9 million off, you put it back on DV+, you're still looking at a 20-plus percent grower, which is significantly above market average.

So I think that you're right about the tipping point. It's just -- it's being accelerated by a spend shift from one platform to the other, but it's inherently a much higher growing platform to begin with. And as we pointed out a couple of times, with a much, much bigger moat for us. It's an area where we're very differentiated, deep integrations with all the top streamers, ad server capabilities quite different from the DV+ market.

Got it. That makes sense. And then on the progress with these partnerships and integrations, could you double-click on the ramp of some of these and maybe touch on Netflix specifically or any other partners that have progressed particularly well?

Yes. So particularly in the streaming area, when we do our script and we talk about the largest -- the most impactful clients of that quarter, we talked LG Ads, Netflix, Paramount, Roku, VIZIO, Walmart, Warner Bros. Discovery. So really across the board, we're seeing. In terms of the commerce partner, in the DV+ part of the script that we talked about, you see United Airlines, which has taken a while to ramp, but it's now contributing well.

PayPal, Pinterest, Best Buy has taken a while, but all these have different flavors of ramp to them. if someone is in the ad business to begin with, having them allow programmatic into their world that tends to impact the revenue line quicker than if, say, you're in United Airlines, you've never been in the advertising business and you're starting from scratch, that's a longer gestation period. So they each have their different flavors. But from time to time, we'll cite the ones that are active and contributing, and that was the list there.

Our next question comes from Barton Crockett of Rosenblatt.

I wanted to ask about your kind of view of the future with AI, given that that's what's really driving all the stocks. And I know there's been some questions on it, but I want to see if you can give us your view of how this evolves in this way, which is, do you see AI as a force for compression of take rates throughout the kind of ad tech sector generally? Do you see this evolving to a circumstance where perhaps LLMs are a front end for ad plans and then SSPs are kind of a processing agent, so maybe DSPs get squeezed. Or do you think that DSPs and SSPs are main kind of players and maybe the smaller competitors in both sectors get squeezed or any other kind of circumstance? How do you see this evolving in terms of players and take rates?

Yes. That's a great question. I think that -- I think if you look at an agentic world and you see where the value is created, there's still a tremendous amount of value being created by Magnite, not just in the plumbing piece of it, but in educating these seller agents with the data that we have to make informed decisions on pricing to mediate the buyer agents that come in. I think what you really generally see, again, is a renovation of this house, not a leveling of it, and it's a much more efficient world where folks are being freed up to do much more sophisticated tasks as opposed to this back and forth of campaign management, fixing broken line items, all that kind of stuff.

So I think that what you'll see is far more media going to work. I think you'll see certain people in between the agents become less valuable. But I think that if you look at the top DSPs and what they have built and the rails that they run on and the top SSPs like a Magnite and what we've built that the value creation is the same, if not greater. So I don't necessarily see a take rate impact in the future -- an agentic future for a Magnite.

Okay. All right. Now the other topic I was curious about on antitrust there's been essentially an adoption of behavioral remedies in Europe with Google essentially just kind of moving to adopt some of the key things that could be coming here. Do you -- would you agree that that's kind of a fair description? And if so, are you seeing any impact in terms of share shift in Europe from what Google has been doing over there?

Yes, great question. I don't know if that's -- it's astute observation, but I'm not so sure it's the exact remedies behaviorally that is being sought here in the states. So let's just say it's a portion of that package, the lowest hanging fruit of the package, and it's also the one that requires kind of the most lift on the publisher side. So what we have seen is the publishers that actually readjust the rankings of the exchanges and readjust the price floors that there is improvement, but that's a process, right?

And this came down in Q4. So no one really starts to monkey with things during Q4, just given how important the quarter is. So we'll see that play out. But I think it's just kind of scratches the surface of what the DOJ is looking for here and what Judge Brinkema has been alluding to. So I think it's not apples-to-apples to compare Europe to the United States.

[Operator Instructions] Our next question comes from Robert Coolbrith of Evercore ISI.

Just to go back to the CTV strength. Any key unlocks, whether it's around demand partners, supply partners or maybe things that maybe had happened earlier in the year where the momentum just sort of built up in Q4 and surpassed your expectations. Just wondering if we could maybe take another crack at that. And then secondly, on the agentic piece, is there anything that can come into the market incrementally in terms of volumes that remain sort of offline negotiated, inserted via IO, whether that's through some sort of electronic data interchange or fax or whatever, things that can come into the market incrementally, the net new to programmatic from the sort of agentic shifts in the market?

Great. Yes, I'll take the last first. Certainly, I think that, that is an area of hope, right? There is still a tremendous amount of dollars that are frozen in the linear world that are insanely rate sensitive. So it just -- it's more of an automation as opposed to agentic. But if you can build tools that allow at a very efficient pricing, allow those dollars to be transacted programmatically that is something we've been trying to affect clear line for a couple of years now.

So I think if you can make it even easier and add an agentic piece to it, that could make it that much easier to have it talk directly to the ad server, have it inserted into the ad server. I think that, that's something that is of appeal that it's not just all biddable. It's not just programmatic that is taking insertion orders and just taking the people out of it and making it automated. So we have high hopes for that occurring, and I think it will be very beneficial to the Magnite platform. And I'm sorry, Robert, the first question again was?

Just want to take another crack at the CTV question about the inflection point. Was there any demand partner unlock, supply partner unlock that drove the variance versus your expectations for the quarter? Anything that may have happened in prior quarters that in retrospect, when you look at it, you're like, okay, that unlocked in Q2, but it ramped in a big way in Q4 beyond our expectations. Just wanted to get a sense of unlock or anything that was sort of beyond [indiscernible].

I would say broad-based across the board. Obviously, certain DSPs have become stronger. You look at the strength of an Amazon in the space, that's been impressive. Certainly, MNTN, we've talked about them in the partnership that they've delivered. But I think across the board, you've seen strength in DSPs. I think one of the things that could be the unlock, Robert, is the upfront negotiations. So they went stronger than anticipated. But the big question mark was how much was streaming going to be a part of it because all these guys, the big ones still run linear businesses.

And I think what we're finding out is streaming played a huge role in the upfront and you're starting to see that come to fruition because those dollars don't get spent until the second half of the year into the first quarter of the year. So I think that, combined with some of the strengths of particular partners has really led to outside growth in addition to the platform switch from the DV+ spending in the open web and now spending in CTV. You add those all together and you get turbocharged growth rates.

Our next question comes from Eric Martinuzzi of Lake Street.

Regarding the CTV outperformance, I think your comment on verticals was that there was retail strength, health and fitness, financial. And then you talked about weakness in auto tech and I can't recall the third one. But there was -- just wondering if your -- the guide has any change in the assumptions for those verticals. Is it status quo maintained? Or is there an expectation of recovery in some of the weaker verticals?

Yes. I think yes, I think status quo is sort of what we've been seeing. So I would say the trends that we saw latter half of November and December are kind of continuing across the board into this first quarter. So no significant changes on those trends.

Our next question comes from Omar Dessouky of Bank of America.

So Netflix, I think, recently said that they expect their ad business to double in size in 2026. So I wanted to ask you how you're thinking about your contribution from Netflix as you progress through 2026 and how that might affect the overall take rate of your business? And then I have a follow-up.

Sure. Yes. I think that Netflix has been a terrific partner. We anticipated them to exit this year as one of our top, if not top on a run rate basis partner, and that certainly has come to fruition. And so we are anticipating a bigger year for them this year given their aspirations in the space. And I don't -- from a concentration standpoint, the take rate varies, obviously, on the services that we provide. In some markets, we do more than others. And so therefore, I think from a blended standpoint, take rate isn't going to impact the overall up or down.

Okay. On Netflix in particular, so how do we think about CTV growth as we kind of progress through 2026, right? It looks like you had a nice acceleration for the last couple of quarters. Should we kind of think of an acceleration for the next few quarters as well as you try to upsell your products, as Netflix gets bigger? Is that kind of the outlook for how you expect the year to pan out?

Do you want to grab that, David?

Yes, sorry. Just clarify when you say CPV growth?

Yes. So year-on-year. So if you look at the year-on-year growth in...

No, on CPV -- I mean, we have CPM's take rate. I just want to make sure we're talking the same language.

Growth in contribution ex-TAC.

Okay. All right. Yes, I think -- I mean, I think we're still -- so there's -- so I think what you're getting at is sort of mix changes overall. And I think in our take rates. And so I think you're still -- I think our take rates on a blended mixed basis in CTV have shallowed out. So they're becoming fairly stable. But there still is a significant influx of what I would call premium inventory at our lower take rate tiers. And so I would expect -- and we're having the contribution ex-TAC growth rates that we are even at those lower levels.

So I would expect that bottoming out to sort of -- I think that continues. And then I think just from a mix perspective, we have opportunity to grow those take rates in the coming time. I wouldn't see -- I don't see a huge inflection an increase in that average take rate in CTV in the near term, but we're building the foundation and the opportunity to provide those additional services on the demand side and so forth where we do make a slightly higher take rate as we go forward.

Our next question comes from Zach Cummins of B. Riley Securities.

I'll keep to one question just given the extent of the call. But David or maybe Michael could address on this. Just curious of the strength you've been seeing with agencies, particularly in agency marketplaces. Can you talk about the opportunity that you have there, specifically as maybe more ClearLine adoption with some of these key agency partners?

Yes, Zach, we're very enthused by the adoption and the volume. These things take a while to get going. There's a bit of a sell-in process from agency to their clients. And so it's kind of a crawl walk run. And the ones that have been up the longest are at run right now and the others are in various stages.

So I think that super encouraged by the model, super encouraged by the contribution for the company and I think the stickiness is what really matters that when they build their business with Magnite as the backbone of their programmatic marketplaces, we become more than just a vendor or a partner that can be put in competition every quarter. We become much more of a partner that's a much more strategic longer-term partner, which isn't the easiest thing to do, particularly in the DV+ world. So they've been essential to our growth and the success of ClearLine.

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. Before we close, I want to thank our investors and our team. To our shareholders, thank you for your continued confidence and long-term partnership. We remain focused on disciplined execution and building durable value. To our employees around the world, thank you. CTV becoming the majority of our business, the acceleration across streaming and our early leadership in AI-driven transactions are direct results of your innovation and commitment.

The shift towards streaming and automation is structural and still in its early innings as ad dollars move into CTV, they move into an environment where Magnite has scale, deep integrations and meaningful market share. We believe we are building foundational infrastructure for the next era of advertising, and we are confident of our best days are ahead. Thank you for joining us. We look forward to updating you next quarter.

I'll turn it back over to Nick to cover our upcoming marketing events. I'll hand those to [indiscernible].

Thank you, Michael. Yes. Sorry. So upcoming schedules, we've got Susquehanna Conference now virtually tomorrow. We've got meetings in San Francisco with Needham on March 5, Sydney roadshow on March 11, meetings in Boston with Bank of America on March 17, an investor lunch with Susquehanna on March 19, Kansas City with RBC on March 24, Dallas and Houston with Stephens on the 25th and 26th of March and then San Diego and L.A. with Wolfe on the 30th and 31st. Thanks again all for joining.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Good day, and welcome to the Magnite Q3 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Nick in Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Magnite's Third Quarter '25 Earnings Conference Call. As a reminder, this conference is being recorded.

Joining me on the call today are Michael Barrett, CEO; and David Day, our CFO.

I would like to point out that we have posted financial highlight slides on our Investor Relations website to accompany today's presentation.

Before we get started, I will remind you that our prepared remarks and answers to questions will include information that may 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 macroeconomic factors on our business. These statements are not guarantees of future performance. They reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties and other factors that may cause 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 quarterly reports on Form 10-Q and our 2024 annual report on Form 10-K. We undertake no obligation to update forward-looking statements or relevant risks.

Our commentary today will include non-GAAP financial measures, including contribution 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 highlights deck that is posted on our Investor Relations website. At times, in response to your questions, we may offer additional metrics to provide greater insights into the dynamics of our business. Please be advised that this additional detail may be onetime in nature, and we may or may not provide an update on the future of these metrics. I encourage you to visit our Investor Relations website to access our press release, financial highlights deck, periodic SEC reports and the webcast replay of today's call to learn more about Magnite.

I will now turn the call over to Michael. Michael, please go ahead.

Thank you, Nick. Q3 came in strong, and we once again exceeded total top line expectations with CTV contribution ex-TAC growing 18% and 25%, excluding political. DV+ continued to perform well, growing in line with expectations. Adjusted EBITDA was also strong at $57 million, beating expectations, resulting in a margin of 34%.

Our performance in CTV was driven by growth of our largest publisher partners, significant traction with agency marketplaces, ClearLine adoption, positive SMB trends and programmatic expansion in live sports. Our most significant growth came from the industry's largest players, including LG, NBCU, Netflix, Roku, Vizio, Walmart and Warner Bros. Discovery.

Regarding Netflix, we've supported the expansion of their ads business to all ad-supported markets. The pacing of the Netflix ramp has gone very well, and we remain excited about our continued growth opportunity with them in 2026. Roku is also -- Roku also continues to be a very fast-growing publisher with the Roku Exchange, where Magnite is the preferred programmatic partner. This quarter, in particular, demonstrated especially great momentum where our partnership saw meaningful traction in sports and in attracting SMBs to their platform. We continue to explore areas for further expansion of our relationship to drive more revenue for them. Warner Bros. Discovery has also made great progress with its NEO platform launching in September. NEO, a new ad platform, will provide buyers direct access to Warner Bros. entire premium video inventory through one simplified and intuitive user interface where Magnite is helping to power transactions.

ClearLine continues to gain momentum with over 30 clients, and we recently rolled out a number of key enhancements to the product. Earlier this year, we announced that native home screen units are available through ClearLine. This update will enable buyers and curators to discover, package and activate inventory in one platform with the most comprehensive access to differentiated supply, unique first-party data and content signals.

Finally, we also announced plans to integrate AI assistance and Agentic workflows into ClearLine, which will be powered in part by technology from our acquisition of streamer.ai, which we announced in September. As I've mentioned before, the CTV advertising opportunity for small and medium-sized businesses is enormous, but it's historically been bottlenecked by complexity and high cost. To address this, streamer.ai gives small businesses the tools to create production quality CTV commercials in minutes and in an extremely cost-efficient manner. We're licensing Streamer to large media owners, commerce players, agencies, DSPs and other media buyers so they can help their SMB clients easily break into CTV advertising, and the response has been very positive.

We've announced two client wins since the acquisition, ITV, which is the U.K.'s largest commercial broadcaster, and Wolt, which is part of DoorDash with many more to come. We are seeing agencies becoming more active in their programmatic SPO efforts, and it's driving spend now. We have long supported agencies and have dedicated teams in place to support their growth efforts in this area. As evidence of this acceleration, ad spend from top holds grew nearly 20% in Q3 year-over-year.

A significant driver of our growth with agencies is from Magnite's powered buyer marketplaces. These private label marketplaces allow agencies to connect directly with publishers to develop curated pools of inventory that are enriched by proprietary data are DSP agnostic and maximize working media spend.

Our combined CTV ad serving and SSP platform, SpringServe, continues to be a significant differentiator for us with publishers. As well as offering a leading ad server in CTV, SpringServe plays a crucial role as the mediation layer for publishers. In addition to supporting traditional DSP to SSP connections, our unique position enables us to provide a direct connection for buyers directly into the ad server.

We just added Viant's Direct Access product to our list of direct integrations that include Amazon APS, Yahoo's Backstage and Trade Desk's OpenPath. SpringServe also allows publishers to maximize their yield by unifying demand from these direct ad server integrations directly amongst buyers that connect to our SSP.

Live sports continues to drive growth in our business, and we see tremendous potential in the future as programmatic adoption continues to escalate. We have seen new contributions notably from Disney of NFL and college football as well as Major League Baseball in the WNBA. Our live stream accelerator product, which was specifically developed for live sports is currently utilized by numerous partners globally. Leaders in this area are choosing Magnite because of our unique tech and continued commitment to invest in this area.

On the DV+ side of the business, Q3 contribution ex-TAC was up 7% or 10% excluding the impact of political last year. Our DV+ business continues to benefit from ramping partners as well as new client wins. A notable update is that our partnership with Pinterest began to ramp in Q3.

In particular, we've been really pleased with the progress of our Commerce Media offering as our roster of partners continues to grow. We've announced partnerships with Best Buy, RE/MAX, Western Union, PayPal and Connective Media by United Airlines. Commerce entities are attracted to the unique technology Magnite provides. They each have some form of O&O inventory and leverage Magnite DV+ or SpringServe tools for monetizing or ad serving. In addition, these entities possess valuable first-party data and are utilizing ClearLine to layer their first-party data on top of third-party supply for curation. The first-party data enriches the supply and allows commerce entities to package their media with data to extend their overall footprint.

Our fastest-growing format in TV+ in the third quarter was audio. We are gaining traction in this area and see it as a significant opportunity in the future. Earlier this year, Spotify announced its new Spotify Ad Exchange or SAX, and selected Magnite as its global programmatic partner. SAX has integrated SpringServe to power its omnichannel advertising across audio, video and native display. Acast, a leading podcast monetization platform, announced a partnership with Magnite during the third quarter as well. This strategic collaboration will make Acast podcast inventory, which includes more than 140,000 podcasts and more than 1 billion listens quarterly available to advertisers through Magnite's infrastructure.

Turning to AI. We delivered another quarter of progress and have an increasingly clear view of how Agentic technologies will show up across the industry and in our products. In October, an industry association comprised of some of the industry's best regarded executives introduced the Ad context protocol or AdCP, a proposed standard for how buy and sell-side agents will transact. When you look into the structure, you see that the agents are designed to operate on top of the transactional infrastructure that exists today, much of which we've built. As always, these transactions must be vetted, negotiated, processed and cleared in a privacy-compliant manner, jobs we excel at. We envision the new world as one where sell-side assets, in particular, are going to be even more valuable and especially Magnite with our strong publisher relationships, SPO partnerships and leading technology.

A key focus of our AI efforts involves the integration of the Model Context Protocol, or MCP, a generalized open standard that lets agents and LLMs connect to external systems and data. The AI business we recently acquired, Streamer, is built on MCP, and we've wired its foundation into ClearLine, enabling partners like the aforementioned ITV and Volt to generate CTV creative, receive campaign recommendations and place buys.

ClearLine is the first of several Magnite products to integrate MCP. This work will enable agents to that automate tedious tasks such as setup and adjustment to surface valuable insights and drive increased monetization while freeing partners valuable time. Beyond agents, we continue to strengthen the machine learning that powers many of our products and operations, improving optimization, raising win rates and lowering unit costs.

We're also applying AI across our internal operations, combining process redesigns with efficiency gains and investing in the platform services and training our teams need to serve our growing partner list without meaningfully increasing headcount.

Next, I want to provide an update on the Google Ad tech trial. As you likely know, Judge Brinkema concluded a two-week trial on the remedies phase of the DOJ's case in early October. The post-trial briefing has recently been filed and closing arguments are scheduled for November 17. After that, it will likely take some time for Judge Brinkema to issue a final order outlining the remedies she'll put in place. At this stage, having found that Google had illegally engaged in a series of anticompetitive acts to establish monopolies in the ad exchange and ad server market, both structural and behavioral remedies remain on the table, structural referring to the forced divestiture of parts of their ad tech business and behavioral being a set of rules and practices designed to rectify and prohibit Google's illegal anticompetitive conduct.

We think there are merits to both types of remedies and have confidence that the court will reach the right outcome. The remedy hearings in September did not change our positive outlook about remedies. Ultimately, our point of view is that any decision that helps restore competition and eliminates Google self-preferencing behavior will be a big win for the open Internet as well as Magnite specifically. To that point, as we've said previously, every 1% of market share that shifts to Magnite as a result of these remedies could mean $50 million of additional contribution ex-TAC on an annualized basis and at a very high 90% plus flow-through margins. Needless to say, we're watching developments in this case very closely.

On a related note, we recently announced that we had filed our own lawsuit against Google relating to its anticompetitive conduct. The suit, which seeks financial damages as well as other remedies, is a follow-on action to the DOJ litigation and builds on the allegations proved in that case. The complaint further details how Google's illegal conduct served to provide Magnite and other independent players the opportunity to compete fairly and grow their businesses while harming advertisers and publishers alike. We're at the early stages of the process, and we'll provide further updates on the litigation as it progresses.

With that, I'll turn the call over to David for more detail on financials. David?

Thanks, Michael. As Michael mentioned, we had a very strong Q3 with standout performance in CTV, achieving 18% contribution ex-TAC growth or 25%, excluding political, exceeding our expectations. DV+ performed well and was in line with our guide. Adjusted EBITDA was solid as well, growing 13% to $57 million and beating expectations, resulting in a 34% margin. We're pleased with these results, particularly the acceleration in CTV growth, which was significantly above market growth.

Total revenue for Q3 was $179 million, up 11% from Q3 of 2024. Contribution ex-TAC was $167 million, up 12%, exceeding the high end of our guidance range. CTV contribution ex-TAC was $76 million, up 18% year-over-year or 25% excluding political, exceeding the top end of our guidance range, as I mentioned. DV+ contribution ex-TAC was $91 million, an increase of 7% or 10%, excluding political from the third quarter of last year. This result was in line with our guidance range.

Our contribution ex-TAC mix for Q3 was 45% CTV, 39% mobile and 16% desktop. From a vertical perspective, health and fitness, shopping and technology were the strongest performing categories, while automotive was one of our weakest performing categories.

Total operating expenses, which includes cost of revenue, were $154 million, an increase from $147 million for the same period last year. Adjusted EBITDA operating expense for the third quarter was $110 million, in line with expectations and an increase from $99 million in the same period last year. The increase was primarily driven by personnel expenses and higher cloud and data center costs supporting the growth of our CTV business and investment in CTV-related features and functionality.

Our net income was $20 million for the quarter compared to net income of $5 million for the third quarter of 2024. As I previously mentioned, adjusted EBITDA grew 13% year-over-year to $57 million, reflecting a margin of 34%. As a reminder, we calculate adjusted EBITDA margin as a percentage of contribution ex-TAC.

GAAP earnings per diluted share were $0.13 for the third quarter of 2025 compared to $0.04 for the third quarter of 2024. Non-GAAP earnings per share for the third quarter of 2025 was $0.20 compared to $0.17 last year. The reconciliations to non-GAAP income and non-GAAP earnings per share are included with our Q3 results press release.

Our cash balance at the end of Q3 was $482 million, an increase from $426 million at the end of the second quarter. Operating cash flow, which we define as adjusted EBITDA less CapEx, was $39 million.

Capital expenditures, including both purchases of property and equipment and capitalized internal use software development costs were $18 million. In addition, as Michael mentioned earlier, we acquired Streamer for $10 million.

As we've discussed, our technology team has made significant progress improving operational efficiency and reducing per unit cloud costs, which is allowing us to manage significant increases in ad request volumes with modest total cost increases. As part of our ongoing efforts to enhance efficiency and maximize the value of our hybrid infrastructure, we've been evaluating the optimal allocation of on-prem and cloud resources. As a result, we decided to increase our CapEx investment by $20 million this quarter, specifically investing in two new data center build-outs in Ashburn, Virginia and Santa Clara, California to secure future data capacity needs. We now expect CapEx for Q4 and the full year to be approximately $23 million and $80 million, respectively. For 2026 and beyond, we believe this increased investment will lead to additional efficiencies and plan to reinvest some of the savings in critical growth areas. We expect CapEx to be in the $60 million range in 2026.

Net interest expense for the quarter was $5 million. Net leverage for the quarter was well below our goal of less than 1x and came in at 0.3x at the end of Q3, down from 0.6x at the end of the second quarter. Just as a reminder, the $205 million principal balance of our convertible notes is a current liability on the balance sheet as the notes mature this coming March. We plan to pay off the converts with cash at maturity and have sufficient liquidity to do so.

During the first three quarters of the year, we repurchased or withheld over 3.3 million shares for approximately $50 million. We have an $88 million remaining in our authorized share repurchase program, which we will continue to deploy opportunistically.

I will now share our thoughts about the fourth quarter and outlook for 2026. Consistent with last quarter and given the concentration of political spend in the fourth quarter last year, we will provide guidance both with and without political contribution ex-TAC to show underlying business performance. For the fourth quarter, we expect contribution ex-TAC to be in the range of $191 million to $196 million, which represents growth of 6% to 9% or 13% to 16%, excluding political. Contribution ex-TAC attributable to CTV to be in the range of $87 million to $89 million, which represents growth of 12% to 14% or 23% to 25% when excluding political.

In DV+, our guide reflects slightly lower growth versus the year-to-date performance due to a couple of factors. First, in October, we've seen some additional drop in vertical spend in automotive and some additional weakness in technology and in Home and Garden, indicating a slightly softening macro environment. We're also seeing some spend movement from online video to CTV, which makes a ton of sense given more competitive CTV CPMs and expanded SMB access to CTV inventory.

Lastly, we've seen some near-term pressure from a recent feature change by a top DSP partner affecting all SSPs. Despite these factors, we're still experiencing -- or expecting growth in DV+ and expect contribution ex-TAC for DV+ to be in the range of $104 million to $107 million, which represents growth of 2% to 5% or 7% to 10%, excluding political.

We anticipate adjusted EBITDA operating expenses to be between $112 million and $114 million and CapEx of approximately $23 million, including the incremental investment mentioned earlier.

For the full year 2025, which is implied in the Q4 guide, we continue to expect total contribution ex-TAC growth above 10% or mid-teens, excluding political, adjusted EBITDA to grow in the mid-teens, representing increased margin expansion of approximately 180 basis points at the midpoint. And we're raising CapEx to be approximately $80 million.

Now turning to 2026. I want to point out that our estimates do not include any potential market share gains as a result of remedies from the Google Ad tech trial. We currently expect contribution ex-TAC growth for 2026 to be at least 11%. We also expect to get back into our target margin range, which is 35% at the low end, inclusive of a sizable investment in people we are making to support our growth initiatives and CapEx to be approximately $60 million.

The third quarter was really positive for Magnite as we continue to see significant traction from our partners and from our strategic initiatives. I'm excited about the progress in our business and look forward to continued momentum into 2026.

With that, let's open the line for Q&A.

[Operator Instructions] Our first question comes from Shyam Patil of Susquehanna.

Nice job on the quarter. Michael, I have a question for you. A fairly kind of recent question or even discussion has been around The Trade Desk, Kokai and OpenPath and the potential impact to Magnite, just given some of the impact that we've seen it have on others in the industry. Can you just talk about this and maybe just also talk about your value add to the ecosystem?

Yes. Thanks for the question, Shyam. Yes, so in late Q3, Trade Desk made a software change to their operating system that prioritized OpenPath as a default path for supply. And since that occurred, we've worked with all of our major buyers, which include agency holding companies to reconnect Magnite as a preferred supply path. And as we noted in the script, Magnite powers many of the Holdco buyer marketplaces, so connection to Magnite is essential for their business. So there was impact.

We project impact for Q4 and that kind of softer DV+ guide that we put forth. But we do feel as though the bulk of the impact has already occurred that it's been limited to DV+. We've been able to work with our largest buyers, again, many of the agency holding companies to reconnect Magnite. And we feel confident going forward that, that will mitigate any negative financial impact in out quarters.

I will say we definitely support Trade Desk's goal of cleaning up the ecosystem and cutting out supply players that provide very little value. And I assure you this move will do that. But I also think this shows Magnite's importance to the buying community, the profile of the media that we supply, the services that we provide building their businesses, by our marketplaces on our rails and obviously, the importance that we bring to the supply side.

So I think that certainly, Magnite's proven its efficacy in the industry. And I think that the strength of those relationships will help us mitigate any headwinds that come from these changes or other changes for other DSPs.

The next question comes from Dan Kurnos of The Benchmark Company.

Michael, just to obviously tack on to that. I don't want to read too much into the press release, but you said DV+ continues to perform well, growing in line with expectations, driven by exclusive partner expansion. I think we all believe Amazon is your fastest-growing DSP partner, and it seems like you're gaining share across kind of DV+ with them as they expand. So maybe your thoughts as they press their own DSP and your partnership there?

And then secondarily, SMB is becoming a real thing now. I think people forget how deeply integrated SpringServe is with all of the DSPs, but just kind of your thoughts on where you're at from the SMB marketplace from an integration perspective, how you're attacking the market directly. And if you want to bring up some of the streamer AI stuff, again, that's fine, too.

Yes. Thanks for the question, Dan. Yes, listen, our spend from the leading DSPs remain very strong. We are closing that gap that we had highlighted multiple quarters ago, where the total ad spend was outpacing the contribution ex-TAC growth. And that's narrowed, but we still have a very healthy spend pattern. And with all DSPs, and Amazon, in particular, is having a banner year, and we really enjoy that partnership both with Amazon as a buyer of inventory and Amazon as a publisher where we can help them monetize the inventory there.

And the SMB is a very exciting chapter. Obviously, partners like Mountain are doing a phenomenal job and buying a lot of supply from us. And the idea of Streamer is to help folks like that, not just Mountain, but other DSPs that may not have the tools to attract SMB dollars or merchants or agencies. And so the idea is that we offer the streamer product to those folks that have direct relationships with SMBs. The idea isn't for us to be chasing SMBs ourselves, but to make sure that, that spend winds up on our platform. And that's why we're super excited about the Streamer acquisition because it accomplishes that.

In addition, as we pointed out, we get the side benefit of having this AI infusion, this AI-first way of thinking into our technology organization. And you see that already ClearLine is being built on MCP Rails. And so it's going to help accelerate our total kind of AI agentic focused business. So very, very happy with that acquisition.

Super helpful, Michael. And despite all the noise, really nice print and outlook.

Next question comes from Jason Kreyer of Craig-Hallum.

So, Michael, I appreciate the comments on AI, and you had talked about AdCP. You had mentioned the sell-side's role becoming more important. And maybe can you just expand on how Magnite's role changes in a more agentic world?

Yes. Thanks, Jason. Obviously, early days and a lot of this exists on whiteboards, but I do think that the shift that we've seen in the non-agentic world, the idea of first-party data owned by the large media companies becoming extraordinarily important and their desire to keep that data as close as possible to the supply side. So we're playing a huge role in the audience creation business today. And we see that as accelerating.

I think that the key really as you look at AdCP, you start to realize that the idea of inventory sitting way over here and dollars from buyers sitting way on the other side of an exchange, you start to see a world where they're comingled. And the -- as you start to look at the value, the idea of whoever has the access to that valuable supply as it gets comingled has a leg up. And so we feel very bullish about not just our prospects, but the prospects for the supply side in this new kind of agentic world.

Appreciate that. I wanted to follow up on live sports is kind of your perspective on supply and demand because it seems like there's a ton of demand for more dollars flowing into live sports. Curious the perspective you get from publishers moving inventory into programmatic or even moving inventory into biddable and how that progresses over time.

Yes. I mean it's -- thanks, Jason. It's accelerating for sure, and it is playing a meaningful impact to our revenue. again, let's be careful here. I don't think the Super Bowl is going to be programmatic anytime soon, but we're seeing a ton of inventory from college football. We're seeing NFL inventory. And so it's not just relegated to second-tier leagues or sports, if you will. And it's very, very early, right? Programmatic is not being utilized to its fullest capacity. So we're at the early stages of this, and we're pleased with our product lead in this area. We talked about LSA in the script. And Disney has really been a key partner in the expansion of our footprint in sports inventory programmatically. So we feel real good about where we stand in it and the TAM that's associated with it.

The next question comes from Shweta Khajuria of Wolfe Research.

Okay. Michael, could you please talk to where we stand on Google AdTech case? There is this rising level of expectation that maybe structural breakup is not going to happen and even on the behavioral side, perhaps expectations have come down a little bit. Is there any reason to think that? And where do you think -- how do you think it went? And any update on the time line from your vantage point?

And then the second question I have is on 2026 guidance. David, is it possible to comment on what's baked into your guidance and what would drive upside from your base case?

Shweta, it's Michael. Yes, no, we were very encouraged by the remedies hearings. It pretty much stayed to the script. The DOJ was pressing for structural changes. Google was recommending behavioral. And we've always, I think, been very clear that we don't view structural as the only way to win in this scenario that a level fair playing field is exactly what we're looking for, what Judge Brinkema is very aware of. And I think we feel very good about the direction it's heading, structural or behavioral.

So I think our outlook on it remains unchanged, and our outlook has always been quite positive, and we think it's a generational opportunity for a company like Magnite.

Great. And Shweta, on the guide for '26, I think a number of items. As a general matter, we've tried to be somewhat conservative given the continued tenuous nature on the macroeconomic environment. We have zero dollars baked into that for any Google remedy outcomes. Again, we're trying to be modest. So there's midterm elections. And so we've taken a fairly modest approach there. We'll see what kind of competitive races we have when that comes around.

And I think the other factor is we have a number of tailwinds around some of these deals that we've signed, Commerce Media, we've got these AI initiatives -- the challenge is it's so hard in this space to sort of peg the timing of when some of those might accelerate. And so I think we've layered in modest expectations on those fronts. And so I think that could also create potential upside there.

The next question comes from Laura Martin of Needham.

Yes. So, Michael, for you, you guys represent primarily premium CTV ad units. And what I'm interested in is there's excess supply in CTV generally because there's FAST channel selling CTV ad units at $6 and $7. My question is, can your CPMs and ad units, are they immune? Or is they're bleeding into those lower -- are they competing with those lower-cost ad units, which puts downward pressure potentially on your rev share over time?

And then for David, I'm going to push on you a little bit. You just raised the CapEx to $20 million in Q4. And in your last breath, you said you were adding FTEs. So what we've seen when guys raise their CapEx estimates generally is they cut FTEs. They use capital to actually replace FTEs. So why do -- why are you projecting both more growth in CapEx and faster full-time equivalent employee growth? I would love clarity on that.

Yes. Thanks, Laura. Yes, as it relates to the CTV CPM trends, we've seen a bit of stability for the last several quarters. And there are definitely trade-in bands, right? Like so you have the super premium, you have premium and then you have a broader batch of inventory maybe in the FAST channels.

And they've been pretty steady and consistent. You may have buckets of dollars flow in each of those channels. But generally speaking, I think people are aware of what the value of a Netflix ad is compared to perhaps an ad in an unspecified program in a free TV watch channel. Not that it doesn't have value, it just has a different value.

You also keep in mind that these folks have great first-party data, which helps really differentiate themselves from free TV, where folks don't necessarily have to be registered or you have their personal information. And so that valuable first-party data helps separate it as well. So, yes, I don't see this as a race to the bottom or an existential threat to our revenues in the coming quarters.

Great. And on the CapEx discussion, yes, good question. And so I'll bifurcate kind of the discussion into -- there are really two separate decisions. So the first side on the CapEx we had two primary objectives. The first was to secure additional space on the East Coast and on the West Coast for future expansion. And so as you know, there's some scarcity in data centers for space, and we wanted to make sure and lock down the expansion space that we need looking out the next couple of years. And so there's some overhead infrastructure and other things that are related to that. And this is all under the umbrella of optimizing our hybrid infrastructure.

So, as you know, in CTV, we run a hybrid infrastructure with significant activity on the cloud, but moving to a greater proportion of our activity on-prem, which is cheaper. And so a portion of that CapEx expansion went directly to additional machines moving on-prem to move processing volume AR processing from the cloud to on-prem. And so the financial result of that is -- would normally be margin -- greater margin expansion in 2026. So these machines are going in place late this year, early next year. And so that would be the normal output.

And what we're saying is as a separate decision, we have so much potential and opportunity on the CTV front that we felt like it was important to accelerate some of our investment activities. And so that is adding software engineers, product folks to focus and accelerate audience work, live sports development, ClearLine and then also AI implementation. So both in our product, but also for internal efficiencies. And so for some of those categories, you need some upfront investment to get the payoff in the future. And so it's kind of two separate decisions going on there, and we're just allocating some of that additional margin to some really important investment initiatives. Hopefully, that helps.

The next question comes from Barton Crockett of Rosenblatt.

First, I wanted to ask about the outlook in '26 on CXT growing at least 11% as you put it. and that would be including the contribution from political. So maybe ex political, it's at least like 9%, 10% or something like that. In 2025, your ex political growth rates, you say is mid-teens. So ex political, you're talking about a slowdown. And I'm just wondering what's behind that? Why the slowdown? Is that conservatism? Or is there something happening with autos or The Trade Desk tariffs? So that's the first question.

Yes. I think there's an element of conservatism in there. I would say also DV+ was particularly strong in 2025. And so there's sort of maybe a little reversion to the mean. We kind of target that at mid-single-digit growth. And so I think that's part of that equation as well.

Okay. All right. That's helpful. And then Michael, on the antitrust, I think one of the hopes is that there could be an impact in 2026, which was always predicated on the idea of behavioral that could be implemented quickly enough to actually matter in 2026. structural, of course, could be appealed and would take a long time. So it was never in the view that it could impact 2026.

So I'm just curious, based on what's happened with some of the discussion around some of the technologies, prebid maybe as a middleware, other things, how do you feel now about the possibility of there being behavioral remedies that could impact 2026 P&L for you guys?

Yes. Great question, Barton. Look, it's obviously not included in the guide because there's just too many unknowns. But we always have felt that we -- if the rulings were -- if they paced along the time line that we expected and they are, that a judgment would be rendered in 2026, first half of it, and the belief that even if there were the judgment was structural that behavioral remedies will be put in place throughout the appeals process.

So we still feel relatively good that we'll see impact from this in 2026. But I think we've always been pretty clear that no one should be thinking about it in the first half of the year, they should be thinking about in the second half of the year.

Okay. But just to follow up on that, technologically, are the things that are being discussed, looked at that you see as likely things that could be done quickly?

Yes. The most common ones, I think, are when it's related to the sell side, yes. The buy side probably requires a little bit more, but it would -- yes, I'm sorry. Unified pricing, yes. So that would be something that could be done quite quickly.

I was just -- I'm sorry, I was talking to our General Counsel, who is the expert in the matter, probably be answering the question in not me. But yes, the unified pricing would be a big win, and that is something that could be done quickly.

The next question comes from Zach Cummins of B. Riley.

David, I think you mentioned in the script that some of your CTV strength was actually partially driven by some of your budgets from like mobile video actually moving into that direction. Is this a dynamic that you think could continue moving forward or more kind of a onetime thing that we experienced here in recent months?

No, I think it's a dynamic that moves forward. I do want to be clear that was sort of in a bucket of a handful of items. I would not call any of these -- any kind of earth-shattering volumes. It's just a little bit more on the margin. But we do think, especially in the -- I guess, in the shorter term that there's a shift in budgets that will continue with the SMBs into the CTV space. It's a new TAM for the company. And so -- but initially, I think the initial budgets probably are a little bit cannibalistic and then I think it draws from budgets that are outside of our ecosystem. So I think it's net-net, over time, it's a very positive development.

Understood. And my follow-up question is just around Netflix. It seems like that relationship is progressing along pretty nicely. I mean any insight into how you think about ramping that up, whether that's just executing now that you're live in all their ad-supported markets or additional features you plan on helping them roll out on the ad platform? Any incremental color there would be great.

Yes. We've always been pretty clear about that's their story to tell. So they did highlight their success programmatically in Europe, international markets. And so that's the big driver of the relationship and will continue to be so. But yes, I mean, it's -- the relationship is incredibly strong and expectations are exactly where we thought we would be at this time of the year.

The next question comes from Robert Coolbrith of Evercore ISI.

I wanted to go back to the Trade Desk change. Beyond the OpenPath issue, it seems like they and others are somewhat focused on dealing with the issue of reselling, particularly just given the changes to prebid transaction ID of late. Just wondering, given your direct publisher footprint, if you think there could ultimately be an opportunity to win some share in the market as the demand side looks at the issue of reselling, particularly given that there's reduced transparency around the transaction ID.

Yes, it's a great question, Robert. And I think we're very excited about it. We're often painted as the foil to Trade Desk or Trade Desk encroaching on our turf. But I would say 99% of the stuff that Jeff does is brilliant, and we are so supportive of cleaning up the system. So if that is reselling -- and again, let's be clear, we don't believe Magnite is a reseller. I think the term applies to others, but we are a principal. We work directly with the publishers. We have a direct relationship, and we work with the top-tier biggest brands in the world.

So I think anything that helps clean up the system that gets rid of the obfuscation, that the redundancy, I mean, the traffic that we have to process that is redundant traffic that is multiple bids just skewing of inventory of the same unit across the system, anything that can clean up the duplication or reselling is something we lean into, and we would definitely be a beneficiary of that action.

Our next question comes from [ Tim Nolan of SSR ].

Michael, I'd like to come back to the discussion of the ad agencies, which you spoke about a little bit in your prepared remarks. There's been a -- there is a lot of change going on in the agency landscape, not to pick on names, but WPP and Dentsu are going through some turmoil right now. Omnicom and IPG are about to close this big merger. Publicis is riding high and it has a lot of its own in-house ad tech. I'm not trying to single out the agencies in terms of what you're going to reply to.

But my question is, with so much change going on amongst the agencies, does it create an opportunity for you to strengthen your SPO ties? What can you do with them given so much disruption in the market, including to their businesses? Are there things you can do to help them and in turn, things they can do that help you with supply path optimization.

Yes, Tim, great question. And I'll take a cut at it. We're also very fortunate to have our President of Revenue here, Sean Buckley. And so I'll let him jump in on it as well.

But yes, I mean, these agencies obviously are going through some challenges. Their media businesses in the programmatic space, in particular, have lost some relevance. They seeded a lot of that control to the DSPs. And so we have seen over the last several years, a very lean in increased awareness of supply side, how they can regain those relationships with those publishers that trust them, how they can renegotiate proprietary data lay over their own data, get preferred pricing. And all of this has to be done in an efficient manner, a technological manner, and that makes us so important in that piece for them from a strategic standpoint. So yes, I think our value is only growing in importance for the holding companies, and we are very leaned in. And as we cited, we have a big team that works with them on a daily basis.

I don't know, Sean, if you want to add any more color.

No, I totally agree. There's been a theme of the agencies really leaning in and working more with supply-side technology in a big way. I also think they've obviously either invested in or built out proprietary data products, and we've spent a lot of time integrating those products into our technology. And so we're very excited about the future we have with the agencies and holding companies.

The next question comes from [ L Niber ] of Lake Street Capital Markets.

Regarding Google, I'm wondering if you guys are seeing a shift in publisher RFP activity or deal flow towards Magnite?

Are you -- regarding specifically the ad tech DOJ trial?

Yes, correct.

Yes. No. So, to date, I mean, obviously, we have strong publisher relationships. But to date, there hasn't really been any movement because the structure remains the same, right? And so until that structure has either changed through divestiture or through behavior patterns, any of the share gains that we're seeing against our competitors aren't coming from Google. They're coming from the open web. And so all that is upside for us.

Okay. That's it for me. Congrats again on the quarter.

I would like to turn the conference back over to Michael Barrett, CEO, for any closing remarks.

Thank you, Cindy. I want to thank all of you for joining us today and for your continued support. Our business is performing well, particularly with our growth trends in CTV. We are encouraged by the momentum from our partners who include the world's leading streamers. Our team is constantly innovating and enhancing our industry-leading technology. I'm excited about the new functionality improvements that I discussed, which will further benefit our partners. We are very well positioned to build on our accomplishments and take advantage of the opportunities for growth and market share gains ahead.

I'll turn it back over to Nick to cover our upcoming marketing events.

Yes. Thanks, Michael. We look forward to speaking to many of you at our upcoming events. We have the SSR event virtually hosted by Tim Nolan tomorrow, that's a virtual NDR. We have the Seaport Virtual TMT Conference on the 17th of November, Craig-Hallum in New York on the 18th of November, Wells Fargo in the Rancho Palos Verdes Estates at -- on the 18th of November, the RBC Conference in New York on the 19th of November, Stephens virtually on the 21st, a West Coast roadshow on the week of December 8; and finally, Raymond James in New York on December 9. Thank you all, and have a great evening.

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

Good afternoon, everyone. We have people rolling in, but thanks for joining. Wrapping up the day here with Michael Barrett from Magnite, and looking forward to the conversation. Thanks for joining us.

Thanks so much for having us.

All right. Let's start with, just Magnite typically thought of as a traditional SSP platform. The business has evolved into a lot more than that, I think, over the last few years.

So just to start off with how it's evolved, where you're focused right now, the kind of the key business drivers and where you see the business going from here?

Yes. So I think when people think your traditional SSP kind of born in the desktop era, you thread together tens of thousands of websites in plug-in DSP demand and one looks like the other, pretty hard to differentiate in that world.

And so what we saw was the streaming opportunity CTV. And we were that the SSP that I just described at Rubicon Project. And so we decided we went through the traditional build buy partner scenario to try to get into the streaming business, and we decided the best path was buy.

And so we were -- we acquired Telaria, then we acquired SpotX and then we acquired SpringServe the ad server. So if you start to look at the assets that we have and the products that we have, it's quite different than the SSP of old. And what we are finding is the top streaming clients are looking for anything. But old -- SSP. They're looking for a new version of that. Some of them need answering. Great. We've got it. Some of them need elements of ad serving and an SSP platform. We got that.

And so we're finding it's a very modular customized taking everything off the shelf that we have, but people want to utilize it slightly different. And so the ability for us to be able to do that has, in large part 1 as a lot of these deals that we've announced, Netflix being a tentpole deal. And it was because of our capability and our ability to be facile in terms of how they think of us, how they can use us as opposed to just being this dumb pipe, the pipes and DSP demand.

Got it. If I just think about your business between the 2 segments CTV and DV+, which will dig into each. Just what's the breakup in terms of like clients or a lot of advertisers using both? Or are they kind of CTV only or DV+ only? And I don't know how to measure investors think about like the growth rates, opportunities, the take rates and some of the financials around that. And we'll dig into some of the details.

Yes. No, really good question. So there's definitely overlap between the 2 platforms from a publisher perspective. So if I'm Disney, I have a bunch of websites. I have online video, and I have all streaming don't use us for all that. And so well, the Paramount, the Warner Bros, Discovery, et cetera. But then there will be exclusive DV clients that have no streaming business and then streaming folks that have no legacy website business.

So I would say that the thesis of being able to be 1 platform that can house anything that can be bought or sold programmatic has played out. But particularly on the buy side, which, again, we don't get paid by buyers, but we have to run this robust marketplace, and it's a 2-sided marketplace.

And so agencies come to us and say, wow, I can get everything here. I can get some of the exclusives you have, and I can get all the CTV I want and I can get the DV+ I want. This is perfect. Like there's not many platforms that look like you, I will concentrate my spend on you.

So it's really played out this whole thesis of having a robust business across the board is really pay down on the buy side.

Got it. Okay. That makes sense. And so let's start with CTV or dig into it a little bit more. And maybe just broadly with the biggest growth drivers have been that business has grown really nicely. What are the most important things to know, and I want to dig into some of the partnerships and differentiation there.

Well, certainly, account wins leads to the growth. We are the programmatic -- preferred programmatic or exclusive programmatic partner of all the top streamers. And we also think of the CTV world as just that direct-to-consumer brands, the Disneys Netflix's, et cetera, but there's a thriving, vibrant streaming business on the OEM, so Roku, LG, Vizio, Samsung. And we work very closely with them as well.

And so we put ourselves in a position to prosper from kind of the tailwinds because we're in early days of programmatic early days of streaming, early days of streaming advertising -- early days of streaming advertising programmatic. And so the -- just the growth of programmatic, the adoption of programmatic by existing customers is going to be an immense tailwind for us in the out [ quarter -- orders ]. And then talk about the explosion of different amortizer profiles, like small- to medium-sized businesses coming on, that will be a huge growth driver because it will report in more demand, more demand will be biddable. It'll be a higher take rate for us because it's biddable.

So yes, we really think we're positioned incredibly well. You're not going to win in Netflix every year because there's not Netflix's every year to win. And then I should mention also the global expansion of all of our partners. So it's all started in North America. It all started as U.S. only. And now you have Paramount going international Warner's going international, Disney going international, Netflix International and that we just go along for the ride. We already have in place there. We've been thriving those markets in DV+. We have boots on the ground. We know the local DSPs, so we can just flip the switch and we're live.

What's your international mix?

75-25, but international growing faster than U.S. right now. .

Okay. Are there any roadblocks internationally? Like when you talk about biddable and more moving programmatic SMBs, whatever it is, like all these growth drivers in the U.S., are they similar internationally? Are they a few years behind?

Well, in some markets, more advanced. So if you look at Australia and New Zealand, where we've been -- we're the programmatic ad server of choice in that -- those markets -- they've been early adopters, so broadcasters are early adopters of streaming. And you look at other markets they're laggards. And there were sometimes when we look at a market and say, boy, I don't think we'll ever crack that. It's 3 broadcasters, they really enjoy 1/3, 1/3, 1/3 market share. There's no incentive for them to bring in outside tech.

They're very comfortable in the way they're doing business and then all of a sudden, the party ends because Netflix crashes, Disney comes in or Paramount, Warner's. And so all of a sudden, they start to scramble and they're like, oh, god, we actually have to have a stream with strategy. And I think you see it playing out in a market like France, where we had signed TF1, and now TF1 be distributed by Netflix.

And so it is going to be strange bed fellows in these emerging areas, but I think we're really well poised to take advantage of it.

Okay. Let's pull on this ride a little bit. I guess there's been a thesis that SSPs would be disintermediated, particularly with some of the larger streamers that have their own tech stacks. And you've made a number of partnerships with big tech players in the streaming side.

What is it about what you're bringing to them to help kind of investors understand that Magnite plays that role? With these larger players who have their own tech stack to what do you bring to the table that's allowed you to build those relationships.

Yes. And I think you have to look at it pragmatically. We're not a huge company, but we're 1,000 people regularly spend $60 million to $80 million in R&D, whether it's CapEx software, capitalized software development, cloud costs, whatever the case might be. and have been at this for 15 years. And so it's -- it'd be kind of silly to think that you could hire 10 crack engineers and look to switch and do what we do. And so I think that, generally speaking, what folks have centered on is, let's do what we do really well and what is that? It's the consumer experience. It's the is -- on the screen. If I want to do really cool special ads, I don't want my vendor telling me, oh, my ad server doesn't do that. So maybe I want to build my own ad server and I want to protect my data. The last thing I want to do is -- have any data leakage.

So I want to keep that really close. But if I'm going to go programmatic, and I want to introduce global DSPs, and I want to have 60 DSPs eventually when I'm up and going and build that layer of safety and build the brand safety and build all the tools, the collections, all that yield optimization -- and running huge auctions. I think generally speaking, they say that's where it feels that I can have a valued partner. So we haven't seen anyone go that next step and very few can build a server. So the vast majority, I think Disney is an outlier because of largely the acquisition of Hulu and that came with technology. So Hulu's it stand-alone? How do you have technology in Netflix, obviously, a huge technology shop, it's themselves. So but I don't know if you could look at a Fox or Warners and say, oh, yes, you're going to spend $100 million in building and ad server and justify that. So I think that we feel very comfortable in the value that we provide and the fees that we charge to provide that.

Got it. But even with Netflix, which is a technology shop, you have a relationship there.

Yes.

So tell us about that and kind of -- I think it's still early days and they're -- opening up there at ecosystem. How is that going, the role you're playing and how is that relationship building out?

Yes. So it's going swimmingly. I mean we're very cautious when we talk about partnerships, specifically a Netflix. We always say it's kind of their story to tell. So us parting what's already public, I think, is fair game. But we've walked people through the RFP process before. And when they reset the industry to -- and they chose to switch from Microsoft to a new partner.

They were very clear about what they were going to do and what they were good at, and it was all the things I described before, consumer experience, ad experience, they needed to build the ad server to ensure that they were always going to be able to do what they want to do for the consumer.

So don't -- you come in and selling ad answer. I need a programmatic partner that does the following. And definitionally, I would say 2/3 of the questions in the RFP related to ad serving. So we didn't have ad serving capability, it's going back to the modularity of our offering, we wouldn't have been able to win the RFP. So we didn't sell them an observer. We sold them the platform, but it's a platform that a programmatic ad serving capabilities.

And so we have been at it for a couple of years. They're hired tremendous talent. They build fast. We work very closely with them. We've gone into all the international markets with them. And -- from a size perspective, we've said on many occasions that there's very good chance likelihood that Netflix exit the year as our largest client, if not, one of our largest clients on a run rate basis.

Got it. Okay. And still early days with...

Yes. Very much so.

Another large recent partner is Amazon. Can you tell us a little bit more about that relationship? And does that have the opportunity to be similar scale size as Netflix?

Yes. I mean -- so already, it is, but you have to look at net -- Amazon, not necessarily just as the publisher but as the DSP. So Amazon is a DSP. Historically, had spent the majority of the dollars on Amazon owned and operated platforms. Than in the display area, they said, oh, why don't we follow these Amazon users when they go off Amazon, try to get them back on classic retargeting. .

And they were very high bidders. They knew the person, they knew what they abandoned the shopping cart, they would be the highest bidder. So they came to us and said, hey, can we work with you on your supply footprint so that we can buy Amazon users across the Open Web. So they became quickly and they only authorized a handful -- 3 to the exact platforms to do that with.

So of all the platforms they chose us as 1 of the 3. So we get an outsized share of their spend. And then CTV rolls along, and they say the exact same thing, all the big [ CTV ] advertisers are advertising through the Amazon DSP that are buying Amazon owned and operated prime, et cetera, they also want to buy a bigger footprint, hey, we'll come to you and we'll buy your CTV inventory because, you prove partner, and we know you and can trust you guys.

So on the buy side, they're 1 of our fastest-growing largest DSPs on this publisher side, men as a publisher, they've come to us and said, you know what, we probably could monetize your inventory by bringing in greater demand than just the Amazon DSP because traditionally, each is on DSP where you can get their inventory. So why don't we start, not with the top-tier stuff.

But we'll start with the Amazon Fire inventory, and we'll start with the inventory piece of that, that your partners Magnite the Peacock of the world, the MAXs they have inventory share. They have it over there. Why don't we work with you for you to grab it and help them monetize that. And so we're the only person that's allowed to do that for them.

And so yes, it's a multifaceted partnership and growing very fast, probably a bit of a stretch to say that we've become their in-house SSP and be there be the only SSP, but yes, we're -- we enjoy the partnership we have.

All that is done programmatically?

Yes.

And when you talk about that the shift to programmatic so the Amazon Fire inventory that's holding...

Yes, they're very much a programmatic first shop. And so they probably have the highest percentage of programmatic activity than anyone in that space does.

Got it. Okay. shift slightly and talk about agency partnerships and agencies, obviously, a big part of this ecosystem as well. And you've got some relationships there. I think you white label some data products for them. Can you talk about the kind of agency workflow and partnerships and what that opportunity is for you guys?

Yes. So I mean I think agencies have been unrecorded saying that they were a little casual in the early days of programmatic that kind of eroded a lot of their value proposition. So they used to be the guys that would help you plan your media and they would bundle together your spend and you add $10 million to spend $20 million had $100 million, I'll bring it to market as 1 and get the best deals. So I'm not only planning our media, I will also get the best priced media.

That all blew up in the programmatic world because they kind of see it all to the DSP. They're like, DSPs are great. They can buy across 200 sites, but meanwhile, they were diluting the spend of each campaign and the DSPs are making all the decisions. They are deciding what inventory to buy, they're deciding what price because it was open biddable. So it really hurt their media planning businesses. So they sat down and they said, what's a way to rectify this. And so they came to us and they said, you know what, why don't I get into the exchange business?

I'll create the GroupM Exchange, WPP media now. And I'll curate it. I'll get the best deals with those publishers because I know them all. and I'll run the tech is if I'm running it, but you wait label a tome so that I can then justify it to my clients well lit curated the household names that you know at the best rates and I will charge you a slight technology fee, just like you pay an SSP.

So think of me as your SSP exchange. And these are kind of all walk run because there's a whole level of trying to convince the client that it's in their best interest, but they've really taken off. And that model, the general model that I pictured or painted is being applied across all the holding companies now.

So does that mean the holding companies are actively building their own DSPs and then leveraging you guys for them...

They'll still use a DSP. They're building their own exchanges. And so they'll still use whatever DSP they've licensed and the real value they're bringing is this well like curated safe environment with really good media rates.

Okay. So I think to DV+, I mean, that business is growing as well. The slower growth area of digital. Tell us about that business and what's driving the strength there?

I think a couple of things. I mean, account wins. And so you would think it's super saturated. But every once in a while, you get a new type of client, like maybe it's an audio client like a Spotify or a social client like a Pinterest where all of a sudden, you used to think, well, that's not really open web this on TV, but it is. And so you get that kind of momentum from client wins, but you also get the impact of what we were talking about before and the supply path optimization.

So that -- those agency marketplace or the definition of supply path optimization. They're telling their clients that they're going to consolidate their spend on 1 platform. Now it's labeled their platform, but it's our platform that's powering it. And so in hundreds and millions of dollars get concentrated on 1 platform, all of a sudden, there's a virtuous cycle where publishers are then, well, I have to be on that platform and all that spends on that platform. If all that spends on that platform, it transacts.

And so I think what you see is us gaining share because of those dynamics where we're winning accounts but we also are consolidating the spend across the industry level. So we have much more ads been going through than our nearest competitor, and that just kind of starts the cycle of growth.

Understood. Shifting a little bit more talk about Google. I had a lot to say there. Maybe just to start with the news from the other day, if any thoughts on that, if that impacts you guys at all? I know the ad tech trial is the 1 that has more of an impact. What are your thoughts there expectations? Are you kind of beginning to leverage that at all? Are you waiting to see what happens? What's that opportunity? I know you put some numbers around it.

Yes, we think it's real and it's a substantial kind of generational opportunity. If you kind of look at it from a market share standpoint, the court documents gave us a great insight you're ever going to get into the size of the business, and it's slightly dated because lot of it is 2022, et cetera. But their market share in the DV+ world, open Internet, if you will, is 60% in RSV. And we're by far the largest second player and their biggest competitor. So quite a disparity -- so anything falls off the truck life is better than it is today.

The search ruling is really quite distinct from the ad tech. And our outside counsel has cautioned us to draw any lines like, oh, they're being lenient. They're not going to do structural behavioral remedies in the ad tech. They're quite different in both cases, they were determined to be running a monopoly. In 1 case, it was a legal monopoly but had to be addressed in the other case, in a legal monopoly. So that's the ad tech. So quite different.

So we -- the remedy hearing starts in a couple of weeks, and I should last a couple of weeks with a ruling to be quickly handed down -- it's called the rocket docket for a reason. It moves fast and the judge there is phenomenal. So there's a likelihood that by the end of the year, you kind of understand if it's structural, there's no question there'll be a appeals process.

So if they -- if the court dictates as remedy that you have to sell the ad server in the exchange, and you got to get out of the business, they'll definitely appeal. But in the interim, we've been informed that in all likelihood, behavioral remedies are put in place during the appeals process.

So the behavioral remedies would level the playing field. And if you look at our business, we see all the impressions that they see. We take those impressions to auctions just like they take them, we just win a lot less when they're running the auction. And so if these behavioral remods are put in place, while they're appealing structural, it should have the impact that we're looking for, for our business.

And as we said, every 1% shift in share is $50 million in contribution to the business at almost 100% margin flow through because we're already doing the work. And if the hire separate salespeople to build more boxes, it's already there to be had in a higher win rate.

Are advertisers preparing for this in any way that you're speaking to? And does any of this have an impact for YouTube as well? Do you think YouTube can open up? Or -- it's more just for that tradition?

Yes. Again, YouTube wouldn't be a part of the argument about the tech monopoly. Would they be more persuaded to be more open perhaps. But -- and from an advertiser standpoint, I think that generally speaking, the advertisers that use DV360 are often concerned why $0.85 of their dollar is going to at and not to all the other exchanges.

So I think they'd probably applaud it. And publishers have intimated that we always think of the -- our DV+ business in the Open Web is all auction-based, right? This crazy auction where we're processing trillions of ad requests, and it's true. That's the business. But if you're talking about a premium publisher like a New York Times or CNBC or Reuters, whomever they have a really big chunk of their revenue in what they call deals business.

So it kind of owns programmatic guaranteed where it's not biddable, they create a deal ID, and it's always on and buyers buy it that way, agencies by it that way. That business is largely out of our control because it's so much easier to do when they add servers connected to the exchange. If that connection was decoupled or we were able to, from a behavioral remedy, be able to access the deals and make it easy for publishers. I would venture that the vast majority would switch because they've been trying 2 for years. It's just too much friction in the process. So there's a fair amount of excitement around that as well.

That's the share gain opportunity you talked about? Or is that in the...

Yes. That in a fair auction really results in which should be not a 60% market share versus a 6%.

Okay. I think it was at earnings, you mentioned potentially civil lawsuit as well. What's that about? And anything you can share on that? I know some of the -- that's a sensitive topic, but...

Yes. No update there other than to say that we filed lawsuits, and we believe there's merit in those lawsuits.

Okay. Let's shift to Gen AI for a little bit. Let's start on the -- again, I guess, title and just the impact of search and Gen AI overviews, sending less traffic out to the open web and very regular question these days from investors on what that impact means for publishers and what it means for [indiscernible] for you guys.

Yes, it's going to be very real. -- prior to these chat agents, the ChatGPTs of the world in therapy perplexity. They Google used to spider your website. Every 2 times they spider it, they would send you 1 search referral. Mans down. So they would. So that's not too onerous, right? They would crawl your website, refresh their search results, and every second time they would send you a search referral traffic.

Right now, with Gemini baked into Google Search, the spider site 19 times and send you on search referral and it gets even worse ChatGPTs like [ 60-1 ] and anthropic and those guys are 600 and 900 to 1. So the spider residents and send you on search referral. So it's real, like and it's -- and they're already feeling it. Where are the pockets that are going to feel worse kind of the longer discovery places that aren't booked more the bigger brands, the ones we tend to work with have an audience, built an audience, people go to them with a regular habit. Sometimes they're logged in, sometimes there's user names passwords.

And so they kind of will fare better. They won't be immune from it. They could also have another leg in the revenue stool, the search engines answer engines. Now the Agentic search is now talking about compensating them on a license basis or a per query basis. they're actually been talking about creating an auction where they'd be it against each other for a certain query and see who the highest payer win we get to spider today. But at any rate, it's kind of encouraging that there could be another revenue stream because relying upon 100% in advertising hasn't been great for them anyway.

But we feel as though, from our business, we can't talk about ad tech in general, but Will we process so much inventory, that if our inventory on the Open Web have tomorrow and budgets remain the same. Our win rate would just go up because we'd be bringing fewer impressions, and it wouldn't impact our business.

And to frame it, our desktop web exposure is 17% of the business. So we're not talking about half of our business here. Our DV+ portfolio includes audio. So that's net search referral based mobile app, net search referral based, a lot of mobile web isn't search referral base. So I think that we feel quite comfortable that will bear well that's not to diminish the impact it could have on individual publishers. But I think because we have a broader portfolio in global kind of reach in nature, we're kind of insulated a bit from that downdraft.

Okay. Understood. Let's shift to internal Gen AI development products, maybe some of the key things you guys are working on how it's impacted pay, on the product and revenue generation side. And then the other side that's been talked about a lot is on driving efficiencies and cost savings and what you're implementing and seeing there?

Yes. So from the client-facing AI tools, we have several out today, more to come most of them fall kind of fall in the category of search and discovery. So being able to identify audiences faster, assemble audience segments quicker, being able to more efficiently find things that normally would take much longer to do.

And so days are kind of the heart of our kind of curation products where folks are able to come in, assemble custom audiences quickly on the fly and buyers are able to buy it quickly. And so we're really excited about those tools and excited about the list that we have that will be coming out. I think that there's also going to be wonderful opportunities from kind of small aqua hire M&A because this will lead into what we're doing as an organization.

I don't know about you guys at Citi or anyone else, but what we have kind of found through our journey of trying to make the workforce more efficient and more productive is that early-stage start-up guys that we found early on that had a particular service or product that the bigger guys didn't have 6 months later, the bigger guys had it.

And so you -- we do a lot of business with Amazon, a lot of businesses with Oracle, a lot of business at Salesforce, a lot of business with Microsoft and Amazon. And we're kind of finding that these guys, if they don't have it today, they're going to have it tomorrow. So it's kind of making our job a little bit easier in terms of testing and one of our biggest concerns is data leakage and the sanctity of our customers' data.

If these big guys have already gone through that process, and we can trust them explicitly then we are finding it a lot easier to adapt those big products as opposed to these bespoke boutique startups, which I don't think it's unimaginative. I think we're just finding great value from those other products. And I think it also creates, again, going back to Aqua hires.

A lot of these folks will need to find a home. There's great talent in those shops. And I think we're going to take full advantage of the balance sheet and the momentum of the company to be able to take grow our kind of AI presence that way, too.

Okay. So maybe just a follow-up on M&A. I was going to go there. So it sounds like a real focus on AI. Any other areas where you're focused on in M&A? I mean kind of kicked off this conversation, just talking about Magnite being a roll-up of rate of M&A products?

Yes. I think we've been pretty clear to investors for the last couple of years that the days were suing for defense are over. We have what we need. We can do it organically. It's been a journey to put it all together. We never intended to buy it and let it all run separately. And so that journey is at its completion.

Now it's innovation time, it's playing offense. That said, anything that can advance our product road map. If we have something on there that our customers desire is going to take 3 quarters to build, but the guy sitting right over there, we can buy the company and accelerate that. Those would be the kinds of initiatives I think you should look from us going forward, which will require increasing debt will all come out of cash flow will require equity. So I think that our M&A story is going to be a measured 1 going forward.

Okay. Any questions from the audience? Okay. So let me just follow up on that and just if you can just talk a little bit about kind of margin profile expectations, margin expansion anything like that, how you get there and kind of free cash flow generation? How should investors do that?

Yes. I think they should think of it as a highly leveraged business, and that is once we invest in the core infrastructure, the people, give everyone their raises every year. the simple fact is, is that it's a business that if you drop 2 more billion ad spend on top of it. And we've talked about all the drivers where that could come from that it doesn't require a $0.01 more of investment that we have the boxes, we have the capacity we have the individuals. We have the relationships with the customers. It's just processing more and If you look at ours is a pretty seasonal business because it's advertising if you look at Q4 that could look like great margins always go over 40% and adjusted EBITDA. And -- now and the costs don't go up. It's just more revenue dropping on top of it.

So I think we feel as though we've got what we need. It's not going to require -- it's not going to hire a lockstep $100 million investment to get the next $1 billion in spend. It's just going to -- and we're right at that cusp right? We're running ahead from analyst consensus on margins this year. And I think the work that we do in teaming cloud costs and bringing more on-prem coupled with just the momentum we have in the business that will bring more spend to the platform, it becomes a really attractive story from a margin standpoint.

Fantastic. That's our time, and that's a day. Thanks, Michael. Thanks for the conversation. Helpful.

Appreciate it.

Thank you.

[Audio Gap] Omar Dessouky, I'm a senior analyst and the U.S. Internet team. I cover 2 sets of companies, video games and interactive entertainment as well as advertising technology. The ad tech stocks that I cover are AppLovin, DoubleVerify, Unity and Magnite, which I've been very pleased to cover. And today, I have the CEO of Magnite with me, Michael Barrett.

So yes, we've been a fan of the stock for a while now, and the call seems to have been right. I think investors are very happy with the stock performance as well. But today, we want to catch up with Michael about 2 things. We're going to talk a little bit about like an update about the DV+ segment and the implications of the Department of Justice case. And then second, we're going to take a little bit of a different tack and talk about growth drivers for CTV, things that Magnite in particular, with its sales force has the capability to drive high growth for a very long time. So with that, I guess I'll start questions. Thank you.

Thanks, Omar.

Thanks, Mike, for coming.

So the result of the DOJ case came out last night, and they seem somewhat favorable to Google. Is there any read-through from that case to the ad tech antitrust case at all?

In that, we can piece together different courts, different judges, kind of different remedies that they were looking to seek. I mean both are -- the commonality is there's some structural remedies being proposed by the DOJ, but I wouldn't -- we'll be racking our brains for better part since the ruling [ came out for now ], and we don't see much of a [indiscernible] outside council, which probably is more important than what I think.

And obviously, since the last time we talked, it's now a couple of months later, I think the behavior remedies, the case that pertains to Magnite and supply side platforms, is going to be in September, like later in September, if I'm not mistaken, in September.

Yes, the 22nd, it begins, right? And the expectation there is that it's called the rocket docket for a reason. It's supposed to be pretty fast moving. The judge has been -- she's been exemplary in terms of our understanding of what is a very complex, murky world ad tech. So it wouldn't be without reason to have a ruling come down. Obviously, it's been found guilty, so sound about whether it's guilty or not guilty. It's whether or not the revenue should be structural or behavioral. And DOJ would like structural. Google has countered with -- we don't have to break it up. We'll behave this way, and this should be fine for the industry.

Frankly, we don't have a point of view because if the behavioral remedies are put in place, it's good news for Magnite. But the -- even if structural is recommended from the bench, we've been told that it's not without precedent that behavioral remedies are put in place during the appeals process, which you can bet there'll be an appeals process. So Instead of thinking about this as a 2-, 3-year payout when it finally settles behavioral remedies light up the minute, the ruling comes down and we think that's very beneficial to Magnite.

And since we last talked in June, have your thoughts about the timing of those behavioral [indiscernible] changed at all.

No, I think it's aggressive to think that it could be something that impacts the current year, but if behavioral remedies are put in place, it will definitely have an impact in 2026.

And I've also noticed that there are a number of lawsuits now against Google, [ OpenX ], for example, and then some civil litigation. What is what should investors read into from that?

That there's merit that we've looked at it closely that we believe there's merit in those suits in that we reserve our judgment as to whether to proceed or not there.

Got it. Okay. So DV+, your segment that focuses on the OpenWeb, there seem to have been some share gains recently. And I was wondering if the share gains are a function more of switching between vendors or more ad spend through Magnite or both.

Yes, it kind of gets -- one begets the other, right? You win big accounts like a Pinterest that excites advertisers to programmatic advertisers to run through Magnite because it's the only way they can get the inventory, more dollars run through it, the next big publisher a Spotify or [ RE/MAX ] sees that. And so it's just kind of a cycle that we've been through. We've been beneficiaries of this supply path optimization, where the big agencies, the holding companies, all of which are here today, they basically want to work with fewer vendors and want to have more strategic relationships.

And so with every one of the holding companies, we have that kind of preferred relationship which we're not talking about a modest shift [ to spend ], we're talking to hundreds of millions of dollars in shift. So if all of a sudden, you have that dollar if you have that spending power that bid density on your platform, it just begins more supply. So it's just kind of virtuous cycle that we've been benefiting from over the last 24 months.

Got it. Very, very clear. Yes. So it sounds to me like the industry structure is consolidating a little bit, the long tail is kind of coming on.

Correct. Yes, yes, there's no question. If you look at our growth rate and the growth rate of the industry that we're taking share. Some folks who said, oh so it's already happening, you're taking share from Google, but that hasn't budged. Google share is still at 60%, we're still at 6%. So the shares coming from the longer tail, as you pointed out.

So let me shift now to CTV where I think a big -- really big part of the thesis here, the long-term growth thesis is, although certainly, your comments on OpenWeb are very positive. So I think on the last call, you continue to mention that CTV ad spend still grows faster than revenue, okay? But you're seeing the gap narrow. So I want to maybe think out a little bit further a couple of years. Do you see a world where CTV revenue growth could greatly exceed CTV ad spend?

I could see a world where it would be on par I don't know if I want to see a world where our growth rate in ad spend is flattening and we're making it back up on margin. I think that what we would look for in ideal scenario is comparative growth rate that if ad spend is growing at 15%, ad spend is growing at 15%, so that it's equalized in that respect.

Okay. And correct me if I'm wrong, but the -- a big part of the revenue growth would be upselling, right? It's moving to higher take rate services and functionalities. So I'd like to dig into that a little bit. This leveling off or potentially slight outgrowth of revenue versus ad spend, there are endogenous and exogenous factors that would compel your growth. And I'd like to dig into this a little bit. For example, these would be things like sales motion and innovation. So could you describe to us a little bit the customer upsell process, both from your perspective as well as the customers' perspective.

Yes, sure. So we're fortunate enough to have relationships with just about everyone other than YouTube [indiscernible] where they're -- in most cases, they're primary if not exclusive, programmatic partner. And you have to think that the programmatic universe isn't kind of as homogenous as the OpenWeb. You have your linear broadcast -- legacy broadcast guys with streaming services, they have a different kind of complexion in terms of how they go to market, what they prioritize -- and then you have some of the digital first, more of the OEM guys, the Roku, Samsungs, LG, [ VIZIOs ]. People I don't think appreciate how much inventory that they have that they brought to market.

And then, of course, you have Amazon and Netflix that are kind of digital-first, but much more of a consumer-oriented streaming service. With the big streamers, the Disneys, the Paramounts and Warner Bros, they very much early days of programmatic, and they probably think it's early days right now, want to emulate the sales strategy that they have deployed for the last 50 years, and that is they have a very talented team of salespeople. They have deep relationships with the top 500 leading national advertisers, and they want to be able to pitch their dwindling linear along with the growing streaming to be able to yield maximize across the entire Disney portfolio, not necessarily top tick this impression on this show on this programmatic channel.

Where do we get involved in that in terms of helping them through that life cycle. Well, first off, the initial stages enabling programmatic. So plumbing. We're a plumber. We come in. We make it happen so that if they want to do programmatic and they want to do it, publisher sold, they are able to talk to their agency counterpart, set the price, set the targeting parameters and then we execute for them. And then it's largely where we find ourselves with those -- that cohort right now. But if you look at some of them, like for instance, to be at Fox, Pluto at Paramount, even Hulu at Disney, kind of different brands than the [ Mothership ], very much digital-first and very fast growing.

So much more open to, hey, what can programmatic do for me more than me trying to direct sell, biddable. And they're like No, we're not doing the open wild west like the web. I'm not having some slacky ad run in my high produced content. So generally speaking, the first step is invitation-only biddable Invitation-only auction. Those 80 advertisers, I'm comfortable with those 80. Let's see if bidding real-time on impressions yields greater than me selling at $15 because that's historically what I sold it for [indiscernible] what they're saying is Yes, it does, that there are some $70 impressions in there because that buyer knows that, that person is in market for a European luxury automobile, so they're going to be higher. And then there are some that are below $15. But when you -- when it does settles, there's better return on ARPU.

And so getting customers comfortable to be able to break what has been a 50-year cycle of selling as much as [indiscernible] upfront, and then worrying about the leftovers, now holding back from the upfront deliberately to yield maximize downstream that's a journey. And we -- I think our sales team does a wonderful job with data statistics with the help of the DSP community because they want to do that as well, trying to educate them on what the rate yield management is in terms of inventory management. Contrast that to the digital first, the OEM guys they're very big in timetable. And our role there is as their principal programmatic partner is to make sure that we bring as much demand as possible for them.

Okay. Very interesting. So let me make sure I think I understood that correctly. So there's a risk trade-off essentially in the mind of the publisher. They're used to doing 1 thing -- things a certain way. They're used to having a certain price knowing beforehand, some kind of a guarantee. Yet they're still reserve some and they're experimenting essentially. You're enabling that experimentation. And then there's also a consultative process where you kind of trying to move them along into more programmatic direction?

Yes, that's exactly right.

Got it. And is there, I guess, any way that -- how would we -- how would we think about the pace of that evolution of thought? Maybe any particular publishers that you would consider leaders or laggards if you don't want to mention them. right? Because I, as a sell-side analyst, I want to try to track the pace of movement here to try to figure out like how long it's going to be and eventually what kind of growth rate we can see.

Yes. It's a great question and without getting too much into specifics on individual media owners. You definitely see more experimentation when they have some flexibility on the brand. So in other words, I cited before, Disney's Hulu which isn't exactly equal to Pluto or to be being fast channels and Hulu being subscription, but certainly not -- it certainly doesn't have the legacy media brand associated with it, which I think gives them from a go-to-market more flexibility to say, okay, you want to do that, you can do that here.

And they can learn from that, and they can see [ OmyLord ] we used to sell it for $15. Now we're getting to $17.50 for it if we do 2/3 biddable, 1/3. And so I think the evolution is in pace. You saw a programmatic play a huge role in the [ afference ] this year. Every [ afference ] presentation programmatic was front and center because that's what the buyers want. The buyers will accelerate this as well. And that is we're really just talking in this conversation, the traditional broadcast buyer.

What's super exciting is there is a world of advertisers that have never been able to advertise on linear [ and ] broadcast or cable because of the barriers to entry. The spots were too expensive creating creative that can be accepted by the big broadcasters way too prohibitive. And so now you see with the utilization of technology, AI tools for creative for tracking for measurement for attribution, you're starting to see the growth of DSPs like Mountain, TV Scientific, bringing social advertisers to TV.

And that's really where the [indiscernible] because they only are biddable. They don't know how else to do it. That's their playbook from Instagram, so they want to take it over and apply it to TV. And because of the excess supply of inventory out there right now, the price points are low enough for those performance advertisers to be able to have a good experience. And so I think one of the stories in the next several years is going to be moving from an arena of 500 national advertisers to 10,000 advertisers, many of them SMBs that are advertising on TV for the first time.

So I come back once again to sales. I guess, how is Magnite kind of staffed for that opportunity? Like I think when we look at your results, I think that the margin guidance you gave implied that you're going to be investing in the second half. How do you think about the sizing of your sales force and basically to kind of potentially push this opportunity and accelerated growth for you?

Yes. I think we are fully leveraged on our sales team in that it's not a question of adding more bodies. Rare instances, we recently opened an office in [indiscernible] we opened an office in India, and we opened an office in Norway. Those are kind of rare examples because we're very global as it is. So those are just some spots where we wanted boots on the ground. But generally speaking, we have a buy-side team, we call it demand facilitation that talks to agencies that talks to marketers that have in-house they're programmatic. They talk to mid-tier agencies in kind of the flyover states. And they talk to the DSPs.

And so we are able to bring that demand with the current sales force that we have, that the that world that we're talking about in 3 years from now, at tens of thousands of advertisers, they're going to be aggregated by DSPs. They're going to be aggregated by merchant aggregators. And so it's our job to make sure the plumbing is there for them, that it works that they're getting the right signals, we are not going to deploy and are many people chasing 10,000 advertisers.

As it relates to increased investment in the second half of the year, and we really haven't signaled a number, but that relates more to infrastructure pulling forward infrastructure investments because of what we are seeing when we are able to take some of the traffic off the cloud and put it on our prem -- on-prem. So if we know it works, and we know we have budgeted for 2025 x amount why wouldn't we pull over some debt if that means that payoff is that much quicker for us.

Got it. And so there are 2 sides to this market, the buy side and the supply side. I think you ran through a little bit of both. I'm still -- I still would like to better understand the connection like you -- you don't actually make any money off of the -- I shouldn't say it that way, but you don't...

It's true. They don't pay us. They have a lot of people calling and people that don't us [indiscernible] business model.

No, I'm trying to get at, you invest, where you invest against switch customers and you consider both sides of the market, your customers to some sense, right?

100%. Yes, you have to -- in order to create the smart place for our publishers to get the -- our job is to make sure our publisher has access to all the demand that there's out there. And we're not doing our job. People aren't going to just be in a path to Magnite. And so we make sure when our publisher [indiscernible] world's demand is bidding on their inventory.

Got it. So the investment you make in facilitating demand helps increase the value of the SSP to the publisher.

100% and increases our new wins with new clients because they look at it and say, wow, all that spend is -- they see a public company how much spend goes through our pipes in any given year, like, wow, it's 3x more than anyone else in your space, we cannot be there.

Got it. Well, another driver of growth is innovation, and maybe we could switch to that. So I noticed we had a quick chat in the hallway here, and I was asking about the general availability of spring surf and you rebranded, it sounded like. And I thought that was an interesting anecdote about kind of customer perceptions in the sales process, but touches a little bit on innovation as well. Why did you guys decide to do that?

Yes. There were a number of reasons and just to back up a bit, spring servers are ad server in connected television. So it's not a general ad server. It doesn't compete with [ GAM ]. It competes with [ 3 wheel ]. So it just does streaming high-value video. And when we first brought it to market, we were like, hey, we have an ad server, and we have an SSP. If you don't need an ad server, just pick this, if you need an ad server, pick that. If you need an ad server and an SSP, pick them both.

And it started to confuse people because a lot of the capabilities in the ad server were also some of the capabilities that we had in the streaming platform. So what we said was, why don't we just bring it together, call it [ all spring serve ]. So it's an SSP without serving capabilities. And if you don't want it as a primary answer or just don't flip that button, just use it as an SSP. But what we have found is generally speaking, people use elements of the ad server even if they have an ad server because of what it can do, how it can increase monetization. And so it just made all the sense in the world to bring it together. It's also a huge competitive advantage.

As I cited [ FreeWheel ] is our largest competitor in that market. But if you look at any of the other SSPs, they don't have ad serving capabilities. And so by incorporating that into the it kind of cuts the legs out from underneath them because now they have SSPs that are -- do not have the feature set that we do -- and we don't argue about whether it's ad serving or not any longer.

Well, that's really interesting. So you're putting a more powerful tool in the hands of your customers whether or not they use the entire functionality sounds like which will probably put you in a better competitive position because they can...

Very unique competitive position and by going out there and [ selling ] it as such, it really makes them ask harder questions of the competition as to why they would you use them if they don't have XYZ feature.

Very interesting. So maybe another 1 that I heard you talk about recently is some of your investments in artificial intelligence. And I'd like to maybe open a discussion about how these new AI capabilities basically make your products more sticky? That's potentially a very huge theme. Could you walk us through your thinking there?

Yes. I think -- and there's [ still ] more to come, but the ones that we've kind of centered on kind of all fall in the same kind of neighborhood. And that is making traffic making sense of this vast amount of traffic that we have on the platform. usually through the lens of, hey, I'm looking for a mom of young kids help me do that. And so AI tools, agenetic tools are able to spider the tens of thousands of sites that we have on the platform and be able to look for context. Oh, there's an article about parenting. that's a good environment to put an ad in or a signal from that publisher that says, hey, it's a mom with young kids because we're a registered site, and we know that profile.

And being able to assemble that audience segment and put it in front of the buyer as fast as we can, leads to a better buying experience leads to better monetization for our disparate publishers that couldn't sell that segment on their own until we brought it together as 1 segment across 10,000 publishers and we participate in the economics of an enhanced CPM, if not an outright economics of a data deal that if we imported like ACR data and put it on it. So generally speaking, the agentic work that we're doing right now is in, we call it curation. It's in building audience segments, discovering audiences for buyers to help them find it, buy more from us, and we become that trusted source of where they want to buy from.

Does this apply to both CTV and OpenWeb?

Yes. Last quarter alone, we added 50 curators, which we would never -- these are folks that specialize in doing that and then they go out to an advertiser and say, hey, would you like that, and we actually process the transaction and participate in those economics. We couldn't have -- it wouldn't have been possible to do that on just 1 of the 2 platforms that's across both.

Okay. And when you say you added 50 curators, I'm not sure I follow what -- because I just don't know the industry [indiscernible]

Yes. It's a funny term. maybe think of it like this. think of them as old school ad networks where they used to have to go door-to-door to sign up a publisher takes out the special ad unit. Like our ad unit is this. It's nonstandard and it dances and giggles. And it publishes like, okay, sure, I'll sign up to be part of your network. Then they'd have to go to the agencies and say, hey, I got this great network of this great ad, would you like to buy it? And that's how it used to work. Today, that same person is a special creative, we'll just go to Magnite put it in the marketplace. Publishers will say, yes, it looks pretty cool. Click, click, click. They'll sign up 1,000 publishers and then we'll merchandise it to the buy side and they'll -- they're the technology piece to it. They made it happen because they came with the innovative technology sound motion, whatever it was, and they don't have to hire a sales team for the supply. They don't have the higher sales team for the demand because all the agencies are saying, hey, great idea, just [indiscernible] Magnite and we'll buy it off [ of ] Magnit because they've collapsed our partners to 2 partners.

So that's a big growing business for us, which is nice. But even more, I think, impactful is that all that used to take place in the DSP, right? That's what the DSPs to do in a third-party clicky world, assemble your audiences in your DSP and then buy those audiences from an SSP. Now you're buying the audience from an SSP and assembling the audience on the SSP which we've been talking about for the last 24 months, that is a trend that is significant for Magnet and significant for the SSPs because we were always 24 months ago, we were the dumb pipes and the DSP was the brains and we are commodities. And I think little by little, what you're seeing is, wow, those guys are a lot more strategic than I thought, and I think you're starting to see that reflected in the energy around the story.

When I was listening to you now, I think I heard you talk mostly about creatives and what these curators create is creative. But why does that make them curators -- because when I hear the word curator, help me if I'm thinking about it incorrectly, it sounds to me like curation means you're looking at the audience and assembling audiences on the supply side. So that was the part that I'm missing.

Yes. In some of them, are technology companies that allow for the -- they're your video player. So they come in and they don't pay me for the video player, give me a slug your inventory. Where the curation comes in is you have this cool ad unit. It's across 10,000 publishers now they've adopted it. But I don't want to just buy a cool ad unit. I want to buy a cold unit that reaches moms with kids. So then the curation occurs on top of it that [indiscernible] they use our tools exactly to slice it in and say, okay, for $100,000, I got [indiscernible]

[indiscernible] Okay. That seems pretty powerful. And you said you signed up 50, in a very short period of time. So how long is this ramp?

There's always going to be diminishing scale. I mean our goal [indiscernible] 1,000 and have 500 [indiscernible] any revenue because we're literally getting people into business. We're putting them into business. So we'll obviously focus on the folks that have real demand behind them, like, hey, we prove this. The agency wants it, if enough publishers adopt it, they will spend on your platform. So we're prioritizing it based upon how much spend we feel they can bring to Magnite. So the number isn't finite, but it's not infinite either.

So we've covered a lot of things here, and it seems to me that there's a pretty strong trend of kind of value converging on the supply side and specifically on Magnite. And when a solution becomes industry standard, it becomes more sticky like it seems like you're becoming you would think that at some point, you would have more pricing power. And I wonder like how that potentially looks? Is it purely like kind of an upsell mix process -- or what elements of pricing power does Magna have once it becomes such an entrenched player?

Yes. So great question. And I think that -- if you look at the 2 businesses, again, the DV+ business very mature, legacy Rubicon started 2008 public in 2012 or '13. So it's I think we celebrate in that business stable take rates. The idea is that our value has been earned over the years. in that. We don't go through this savage cycle every year where people are trying to pound down the take rate. It's like it's a given. So that, to me, is great because with all the spend that we're adding on to it, it's just once you get to a certain point, that's ripping it 90% of margin.

CTV, it's a story of upsell and not necessarily pricing power, like just turning to Paramount and say, hey, your 3% is now 8%, take it or leave it. It is paramount -- we've talked about the journey. You're selling a lot of stuff programmatically direct. One you try billable auction, we'll rent it for you. We'll only invite the same advertisers you want for that service, we charge you x. So I think it's more walking them up to programmatic food chain so that the -- at the ultimate level, the service that they'll be using from us is significantly higher take rate than the service we're using today.

And do take rates ever change at all right? I mean, like you said, at 1 time in the past, I guess people try to pound them down, but is there a potential that they would ever go up, even if for like a small minuscule amount -- or is the goal generally just to kind of set a certain service level at a certain take rate and leave it there, so it becomes industry standard and easy for people to transact on.

I think for our strategic relationships, we're very pleased with where we are today, and we're not looking to see the marketplace power of Magnite walk it up much higher. A lot of publishers in a world of hurt. We don't want to be the guy to put the other nail in the coffin, if you will. But when we aren't used as a strategic partner, and we're just thrown in the mix as just another SSP, the traditional header bidding, web display, browser-based I'm always going to keep 8 guys in there and Magnite, I don't care what you say to me, you're just another SSP, I'm going to run you in competition in a unified auction against everyone else. That's when we say then, well, there's no take rate then because if we win the auction, what do you really care if I'm taking 50% or not, it's a unified auction.

And so we'll monitor the take rate on our side with a variable take rate. If it's an auction with low we can take a higher take rate. If it's an auction with high demand, we'll take a lower take rate, but will variable. And you'd be surprised at how many people are indifferent to take rates in that world. They're just like, you're right. to unified auction, you win, you win. I wish I had the 50% take rate you took, but he still won. And so it's the highest price that I could possibly get. So the marketplace is telling me take that offer.

Interesting. Okay. Well, we have 3 minutes left here. And maybe I'll just ask the last question here. Netflix has been doing programmatic now for a couple of months, I think. Any early learnings that you have from your partnership there that you can let us know about?

Yes. So we're very careful when we talk about specific partners, in particular, in Netflix. So we always kind of say it's their story to tell. But parroting what they've already said is, I think, fair game. And it took a and then to move off of the previous partner, Microsoft, onto our stack and their stack because they built their own ad server. Folks in North America first then went to EMEA and now in APAC. And it's been a tremendous relationship. They've hired some amazing talent on the technical side. We work extremely well and close to them. We're onboarding more supply -- more demand partners in international markets that aren't necessarily just the same big guys that are in North America. And I think that they're new to programmatic, too. their ad business is 2-plus years old, but it was never programmatic. They didn't do any -- it was all direct. And so they're kind of new to the programmatic rhythms and are being very careful about how they perceive the consumer experience, all that kind of stuff. But as we've said based upon what we're seeing they're going to exit the year as our largest client, if not one of our largest clients. On a run rate basis -- on a run rate basis, correct.

Okay. Well, a lot to look forward to, great potentially structural opportunity here. So thanks again, Michael, for were coming and I really enjoy the interesting conversation.

Outstanding. Thanks, Omar.

All right.