extent. That is a good call within there. All right. Good afternoon. I'm Justin Patterson. I lead the Internet Research Team at KeyBanc. Really excited to have Nick from Magnite with us here today. Welcome back to Deer Valley, Nick. Excellent. Thank you, Justin. Really appreciate being here. This is a really, really phenomenal location to come to, so you didn't have to twist many arms to get us here. There you go. Well, glad to hear that. Let's kick things off just with an overview of Magnite. You reported last week, you had some very solid trends in the ad business. Talk through just what your business is doing right now and what's driving the strength you've seen year- to- date. Yeah, no, great question. I appreciate catching that. Last week was a flurry of activity. We've been talking for probably about a year and a half now about a growth rate inflection in the CTV business, right? It started with better than mid-teens, which it had been kind of stuck in for a couple of years. It really started to inflect in the back half of last year to the 20s, then high 20s, then mid-20s. So 36% feels really good. We were very, very careful to call out that it was broad-based, right? And we represent a lot of suppliers who work on the supply side of the equation. But you don't get that without demand, right? So it's great to have a store, but unless anybody's shopping, you're not going to do very well. We've really seen demand in CTV broaden out. SMBs are entering, people focused on sports are entering into the market. The way in which demand is finding its way into the CTV ecosystem is broadening out, whether it is self-service marketplaces or agencies or new DSPs focused on the SMB market, as well as our traditional partners are all expanding. We are very careful to say it is very broad-based, and it is not being seen in just one or two partners ramping. It is across the business. Got it. Thank you for that. I want to stick high level for a little bit before we go deeper into the business model itself. Historically speaking, investors would often view the demand side as the more safe, durable place than the supply side. Yet this past quarter, those results seemed to flip within there, where there was a lot more volatility around the demand-side platforms and some very resilient growth around the SSPs, the more publisher-focused businesses. I would love to hear what you think is driving that divergence right now. Yeah, I think some of that is not new, right? I think that if you look at CTV specifically, the market structure is radically different than the open internet, right? The open internet is comprised of millions of websites and millions of apps, right? It is really, really hard to get critical mass. As a result, we have no publisher that represents even 1% of our overall revenue on the Magnite DV+ or the non-CTV side of the business. In CTV, there are 30 global publishers that account for 80% of the world's CTV inventory. So it is very concentrated, and all of them view each other as a walled garden. We like to call them hedged gardens because you cannot have 30 walled gardens all playing in the same garden. So in that regard, we have been sought out as a trusted partner, and it takes a long time to earn that trust, right? Data transacts, in many cases, on the CTV side, where publishers do not necessarily want their ID to be able to leak out to a buyer, right? They like to control where the match happens. They import signal and then make sure that match happens on the other side. So first of all, if you are not independent and do not have trust, they really have a hesitation of wanting to work with you if you have got a competing business with them. We have taken a long time to scale business, and it has taken a while to get all the tech and the programmatic execution capabilities in place. What you are finally seeing is that start to ramp and them really leaning into it for a variety of reasons. You see a lot of broadcasters talk about improving the profitability of their CTV businesses. That's just not more monetization and more revenue. That's also on the cost side. Programmatic is a very efficient way, lower cost of revenue than a traditional sales force to be able to access that market. We're starting to see more and more of that transact. I think the difference in the market setup is what says the broadening amount of buyers entering into CTV is finding a smaller number of publishers, and we represent all those publishers. I think that dynamic between supply and demand is causing some of this difference between SSPs and DSPs. Now, you don't just have the buying path into connected TV coming from only DSPs. The early DSPs into the market did a phenomenal job of whale hunting and landing all the largest accounts, the largest agencies, the largest brands, with a very, very sticky interface and a very clean way of being able to get into market rapidly. But once you get past the largest 100 global advertisers really that migrated over from linear TV into connected TV, it's really a heavier lift to access SMBs. It's a different set. They're different how they want to transact, how many vendors and how many partners they want to be able to get into CTV. They want this frictionless. They want this self-service. They want this easy to choose. They want this transparent. I think there's a bit of work to be done, and there's other people dabbling there that are trying to attack that market in different ways. The fact that Magnite services every different type of demand to access all the CTV inventory in the market is truly what's differentiated, and we don't have any blind spots. You can be any type of buyer. You can be any type of broadcaster. We service the market broadly, and I think that's what's starting to accrue in our favor and participating in all parts of the market. Got it. Got it. To stick with that theme a little bit and give another shameless plug to Deer Valley, I remember last year we were outside talking around launch in Milan about how if you look at the business over the next year or so, you've got sports, you've got SMB, both as big growth vectors for CTV. As you reflect a year later, how has that really played out against your vision? Are we starting to see more of the impact from those initiatives within your CTV growth, or is that still to come? Yeah, we are starting. I would say we still have not hit an inflection point where you see a massive acceleration. I think, as happy as we are about 30% growth rates last quarter, 36% this quarter, that still doesn't speak of a mass inflow of SMBs or a large amount of sports immediately flipping over to CTV. If you think about live sports, it is generally seen as 40% of all TV ad spend. If sports really leaned in and half of it went that way, we would be growing at triple digits, not mid-30s or 36%. I think we are still early in that journey. I think in sports, we have a long way to go. We didn't participate in any significant way in World Cup, so that is still an opportunity. We just started participating in NFL last year when ESPN leaned on the Disney tech stack and opened that up programmatically. That was a good guy, but I would say we are just starting. It proved our CEO wrong that we would never touch the NFL. We are thrilled to be involved, but there is a long growth pattern moving forward, as is with NCAA football, as is with March Madness. So we think there is plenty of running room and opportunity as it continues to rely more heavily, and it makes sense. What makes sense is no head of advertising, no Chief Revenue Officer at any large rights owner of sports content is going to say, "You know what? This programmatic stuff is kind of cool. I am going to put 50% of my revenue at risk and see what happens." So they are going to do this very methodically year- after- year. SMB is the same way. SMBs are not new. Amazon started their DSP started attacking SMBs when Prime Video went all ad supported three years ago. So it has been a journey. MNTN has followed. You get other DSPs that are focused on that market as well. So I think we have a long way to go. It is not easy just to ring the bell and all SMBs come running and buy CTV inventory where they didn't the day before. But I think there is lots of industrial logic around it. I think that is one of the reasons Google's DSP has continued to do well, is because they tackle not just enterprise and midsize enterprise, they also tackle SMBs. I think that is the reason Amazon is focused in on it. There are obviously conversations in the market about what Meta possibly could or couldn't do in the market. I think there is a lot of push there. I think there is a lot of momentum, but I think there is a lot of growth to come. For sure. There's even one player you didn't mention within there, Walmart, which had the VIZIO acquisition out there. It does seem like there's a lot more focus on providing those on-ramps for the SMBs and really activating more retail media. I'd love to hear how retail media fits within your platform today. Sure. We define, because it's ad tech and we like to call things difficult and make naming of things difficult, we call it- It's job security. We call it commerce media. We've kind of rebranded retail media, got a good name for a while, and then it lost a little luster, so we rebranded that commerce media, and I think a few of our other partners have followed along. We think it's a very interesting part of the market that has potentially some ad inventory that they'd like to monetize with their own data, and that's a phenomenal play to be able to take your inventory. If we can assist in layering your own retail data or your own commerce data or your own user data on top of that, your immediate lift is better CPMs. It is an obvious button to say, "Hey, how do we maximize that opportunity?" I think the bigger thing that the reason that we get called into play is not just to be able to drive demand to people's own and operated inventory with their own data, and enabling that broadly, and to all the world's programmatic demand, which we are the go-to source outside of, say, a Google or other. I think the value that we can provide is also creating an exhaust revenue stream for taking your data and being able to sell it off property to third-party inventory that has a valuable view of your data and your users to be able to target them directly. In other words, think of Walmart's data or Pinterest data, or United Airlines user data, where you know a lot about where people are traveling or where people are shopping or what they are doing to behave. Then you can layer that into web inventory or in-app inventory or other CTV ad inventory and find that user. Pinterest might have an interest in running a connected TV RH ad, but they do not have any ad units in CTV themselves. I think that partnership of being able to help different commerce media data owners, market their wares or market their data, we are a very logical choice omni-channel to be able to help sell that data in many, many other places. For sure. I am curious, how do you think about just that position, providing this on-ramp for more open internet publishers and even social businesses like Pinterest? How do you think that changes the opportunity set going forward for you? Yeah, I think, in a very big way, I think DV+ has been looked on. The SSP business is generic, and there are many partners that can be involved, and you just inject as many bidders and you hope to get bid density and get a better price. I think commerce media has flipped that in its entirety. I think what has happened is people have looked at what a Magnite might have done in connected TV in encrypting data, only protecting that data, but being an additional demand source. Now we are at a size and scale that we can bring in demand from every programmatic source and bring that in. I think trust is a big element for how you protect their data and not let that leak out to the buy side. I think what's happening, and the difference is before, we would win a player, a new publisher in DV+, in non-CTV, and it is great. Our overall market share is 6%. Woohoo, we can share that we have 6%, and then Google is still taking their 50% or 60% share, and we share that with five or six other SSPs that get to divide it and splice that apart. It is not very exciting if you have a win, but it is 6% of that business. In commerce media, just about all of our announcements are exclusive. So now, when you bring a new inventory type and you are protecting somebody's data and they are trusting you to do that, and you were 100% of their programmatic demand and the only place to get that inventory, now there is an incentive for you to really lean in. Now it really means something when you move the needle for them. I think that is why it is really significant for us, and it will be a growth driver in DV+, even though DV+ has a few troubled areas from a web traffic and a web search exposure perspective, but there are some very healthy areas, commerce media being one of them. Got it. I do want to touch on that web traffic headwind piece since there is a whole bunch of regulatory areas we could go down, but I think one of the more imminent ones at present is just Google AI Overviews and this potential for a publisher opt-out later this year. When you are talking to some of your publisher partners, how do they think about just the pros and cons of sitting within Google AI Overviews right now, and how can you help them navigate some of those challenges? Yeah, I think to- date, the way we have seen them try to navigate is ways to be able to work around that, not be as reliant. The web referrals relative to number of crawls are way down. I think it has been a challenge for them. I think some of the ways that they immediately respond is how do they do more in protected places like mobile app? How do they move more content from web to app? How do they make things more logged in, user-based? How do they move towards premium, where they can have more data targeting as opposed to search trends? Some of it has been tougher. Some of them hit the easy button and try to jam more ads per page in the places where they can still get it. That is not necessarily a winning equation that exists there. We cheer for them. We hope that they can get to a place where there's an equilibrium balance. Who knows? Maybe at one point we can run LLMs against each other in a biddable auction for search or crawls, that there's a fee related to that. Just kidding about that directive. But I think publishers will continue to try to develop and find ways, especially premium publishers. But I think long tail does have some significant challenges, as we've seen. And in that part of the business, we've probably seen our web part of the business down in the high single- digits, which isn't falling off a cliff, but is definitely not something that we like to see in any part of our business. Got you. Then there's the other side of regulation, the DOJ, trial number two around ad tech. Feels like we've been waiting for a decision there just about as long as whether or not Kawhi Leonard had something go on the side with Aspiration. Longer. Longer, yeah. But we'll see how that goes. Yes. But would love to hear your latest view on what the most likely outcome is and how structural versus behavioral remedies could change the opportunity set for Magnite. Yeah, no, great question, and I know we talked about this last year, and it is embarrassing to not have any type of a real update since a year ago, since some folks were focused on that at the time. Look, this is an outcome that is still to come, right? We have just as much confidence in a ruling that will generate behaviors that will shake some market share loose. How much is really the question. This is not something that has the capability of just fading to black, because there is a verdict in, right? It is not being re-litigated and reopened for a change of verdict. The guilty verdict on the ad server and the guilty verdict on the exchange side does need to have remedies put against it. We have always maintained that the behavioral remedies are the only thing that matter, because that truly is what will move market share. If something is ruled against, and the judge has been very clear that she would not wait for an appeal on behavioral remedies in order to put fair practices in place, right? That really is the needle-moving part of this for us, that really starts to move revenue. Despite the very nice headline of any structural remedy where Google might need to divest or be broken up or do things differently, that still would be stayed on appeal and have quite a bit of time before it actually plays out. It might actually be the biggest headline that people pay attention to, the equities of anybody that stands to benefit. But really, it is the behavioral remedy. What is the most likely thing to play out? I think breaking the ad server advantage to the exchange at Google is really what has not shown any change whatsoever. If we look at Google's results, the network business has not suffered any declines or degradation in their business since this has been announced or even since we have been at trial. I think in that part, if the exchange has to clear any data passed about the impression, about the time the impression is passed or the bid request is passed, to the time that people actually submit it to the data that is shared about it, whether it is clearing price or pricing floors or the amount of impression-level data. If that is done fairly to Google and everybody else, we think that is a market share moving event or equalizing event. Got it. Got it. Well, unfortunately, prediction markets on ad tech trials are not that built out. I guess I will still have to be waiting for the timing. If you know of one, let me know, yeah. Or if we see some unusual activity, for sure. Yeah. But moving along to just the rest of the product initiatives here. You've been early on with GenAI and using that to change just ad tech product as a whole. Would love to hear just your latest updates there. Sure. So back in April, right around the time of POSSIBLE, we had an announcement on kind of our agentic capabilities, and we announced more kind of advanced testing and some partner lists on the mediation agents that we have. Think of that really as yield management and yield optimization on the publisher side. Our seller agent that really helps replicate a seller graph, right? To be able to find and define audiences against demand that's coming in through the front door, as well as our own buyer agent, right? That's great. You have kind of three workflow tools. Buyer agent's kind of a head-scratcher. Do you have a DSP tool? Is it what an agency does? What are you really building with a buyer agent? I think we said we're agnostic. We have an agent, and it's connected all the way through. The fact that we connect buyers all the way through to publisher inventory, and we know all the steps that go in between, it puts us in a pretty compelling position because agentic tools, as we know, generally solve workflows. Workflows in ad tech, to the true industry insider, are not easily the most cleanest and easiest paths, and they still live in spreadsheets, and there's still more people involved than there probably should be in something that's technically programmatic in setting up campaigns. At that point, you do have a way to simplify workflows, but simplifying and condensing all of those workflows is really an advantage position from sitting in the middle between those two. I think the real advantage is how we connect buyer agents to seller agents and really solve for those two together with live inventory. You can test, refine, analyze, re-run, retest before you deploy an entire campaign. What we announced just before Cannes was an orchestration layer. Evidence and proof that we don't just want to push our buyer agent on everyone as opposed to taking in any other agent is we will work with anybody's buyer agent to tie together with our seller agents or a publisher seller agent, which, again, they might be working on them, and pull those together and optimize any friction or data signaling or other between them. That's what reduces friction overall into the environment, into the market that we think accelerates spend in. Let me be clear that today, if we simply replace with agentic workflows what we do in programmatic, there is no immediate massive unlock benefit, new pool of inventory that that opens up. That makes things more efficient. If there's less friction, maybe it helps us take market share, maybe that opens up new spend. But it really, from an overall immediate revenue perspective, making that shift over might be nice to put in a press release, but is it really needle moving from a P&L perspective? Not yet. What we're targeting initially is insertion orders that agencies are still handling. Our buyer agent is targeted there. We know that every agency out there is building their own buyer agent. We listen to what their buyer agent can do. We show them what our buyer agent does, and whether they want to use theirs or we want to use ours, we are specifically helping them go from step one, which is the goals of the brand and what they want to accomplish, to then creating a media plan, then being able to version different creatives, then turning around and running a test campaign tied to real live inventory, so it's a live test, not a theoretical. Then tied to that, analyzing, re-running, retesting, and doing that process 2x or 3x, which today is a six-to-eight-week process within an agency. We do that in a period of 10 minutes. I would call this still at very robust testing, and when partners are willing to put their names in press releases, you could assume that they've lit the fuse for when they have to be accountable or answer questions to the street of "How is this going?" Or to partners, "How is this going? How is this moving along? Where are you?" The fact that we have a long list of partners that we're working on this shows that it really is moving forward. Do we have a lot baked into the back half of the year that this is going to be a massive contributor, or has it been yet? No. But if it does continue to move along the track, it's probably the fastest product adoption that we've seen at Magnite of anything new we've brought to market. We're very encouraged that this does lead to revenue, but we're a little cautious to not promise that too early. For sure. From what it sounds like, it moves you closer to where the walled gardens are, where there's a lot more seamless workflows, ability to create ads and deploy them very quickly. Where the open internet, there's still, to your point, friction. It'll take six- eight weeks to create some of these campaigns, get them running, testing them. But it just seems like a lot of that collapses from abstraction, and you can now iterate on a much faster cadence. I guess, how do you think that changes the ROI these advertisers see over time? I think what it does is between time to deployment to time to measurement of performance, it speeds up the cycle, and it gives you much more granular visibility into the cycle. Said another way, I think we move from programmatic to a large degree, whether it's in connected TV or it's in Magnite DV+ being more brand or even lower funnel, moving to be more performant. And I think it allows you to deploy faster against it, and if it's working, you can really start to inflect your commitment and your spend there if it's performing for you. So I think it helps you in that journey and solve to be closer to what some of the walled gardens are able to achieve and show. Got it. As you look ahead here, you've got agentic as one tailwind. You still have a lot of tailwinds from the CTV side, and you still have a very attractive margin structure, I think 35%+ right now. How do you view this playing out financially in terms of how these tailwinds intersect with just the general profit level of the business? That's a great question. We have disappointingly lived in a 10%+ growth environment with CTV growing mid-teens and Magnite DV+ growing a bit slower than that to average out to about 10%, 11%-ish or more growth. I mentioned not satisfied to do that. At those levels, we had margin expansion. So the operating model worked very well there, which I think why we were able to pick up some investors along the way that were willing to be patient for when better days and when growth would start to inflect from all the deals that we've announced and the time to pass to get there. So at a 10%, 11% growth rate, EBITDA would grow in the mid-teens, so margin would expand 100 and 150 basis points, and free cash flow would grow at about 20%. We're now seeing acceleration. You saw that in our guide. We've now taken that up to 13%, 14%, which brings EBITDA up to 20%, which brings free cash flow this year actually up to over 40%. So it's having very, very positive influences on the model. Our normal year, we cover all of our fixed costs, a little bit of hiring, and yes, we are still hiring a little bit. We're seeing great velocity and accelerated performance out of folks that we hire. But we're seeing even after about 7%, we see margin increase, 7% revenue growth. That's at the point we're about margin neutral. Once you get above 10%, you start seeing about 80% flow-through of EBITDA from incremental revenue. That played out exactly that way this quarter. This quarter, we had a $10 million top-line contribution ex-TAC beat, and that translated into an $8 million adjusted EBITDA beat, which showed exactly what the operating model does. We have a target margin of 35%- 40%. Our EBITDA target margins for the year were about 35%, 35.5%. We just took that up to 37%+. But we also don't think that at 40% we're capped. So at those types of flow-throughs, as we're able to continue to show an elevated level of growth and performance, that will continue to accrete to the bottom line and margin expansion. Got it. As we run up against time here, as you look out three-five years, how do you think the industry looks different versus today? What impact will the rise of CTV and GenAI have had upon the open internet here? Yeah, I think CTV is really coming into its own, and programmatic is really having its day. We knew it would come. It happened probably more slowly than anybody would've liked, the Street, and us included. But I think it's happening, and I think it really will change the complexion of our overall business. I think that you will have areas of DV+ that are very strong growers. So I think the early year fears that DV+ will just trail away or kind of fade to black were overdone, and I think it'll be largely a mobile app business. It still has a growth profile. Maybe albeit not as fast as CTV, it will have a growth profile. I think you'll start seeing additional type commerce media partners that truly want to open up to programmatic that may not be playing there, that may be all direct sold today, continue to open up some more doors. So I think there is a role for an independent scaled player that is trusted, and I think we'll continue to execute along that path. Perfect. With that, we're out of time. Thank you so much, Nick. Thanks, Justin.