Magnite(MGNI) - 2019 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's analysis of financial performance and condition Item 1. Condensed Consolidated Financial Statements (Unaudited) Unaudited financial statements reflect revenue growth, reduced net loss, positive operating cash flow, ASC 842 adoption, and the $11 million RTK.io acquisition Condensed Consolidated Balance Sheets The balance sheets detail the company's financial position, including assets, liabilities, and equity, reflecting the impact of ASC 842 adoption Balance Sheet Items (in thousands) | Balance Sheet Items | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $263,179 | $300,541 | | Cash and cash equivalents | $85,122 | $80,452 | | Accounts receivable, net | $172,284 | $205,683 | | Total Assets | $335,321 | $360,012 | | Total Current Liabilities | $214,524 | $240,982 | | Accounts payable and accrued expenses | $207,033 | $239,678 | | Total Liabilities | $231,198 | $241,999 | | Total Stockholders' Equity | $104,123 | $118,013 | - The adoption of ASC 842 on January 1, 2019, resulted in the recognition of a Right-of-use lease asset of $22.7 million and corresponding lease liabilities (current and non-current) totaling $23.5 million as of September 30, 2019[10][29] Condensed Consolidated Statements of Operations The statements detail revenue, expenses, and net loss, indicating significant improvements in operational efficiency and profitability Metric (in thousands, except EPS) | Metric (in thousands, except EPS) | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $37,642 | $29,729 | $107,928 | $83,253 | | Loss from operations | $(6,681) | $(14,266) | $(28,569) | $(61,125) | | Net loss | $(6,174) | $(13,792) | $(27,001) | $(59,592) | | Net loss per share (Basic & Diluted) | $(0.12) | $(0.27) | $(0.52) | $(1.19) | - Revenue grew 27% for the third quarter and 30% for the nine months ended September 30, 2019, compared to the same periods in 2018, with net loss significantly narrowing in both periods, demonstrating improved operational efficiency[12] Condensed Consolidated Statements of Cash Flows The statements present cash flows from operating, investing, and financing activities, highlighting a positive shift in operating cash flow Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $9,808 | $(22,552) | | Net cash (used in) provided by investing activities | $(4,105) | $28,844 | | Net cash used in financing activities | $(841) | $(470) | | Change in cash, cash equivalents and restricted cash | $4,670 | $5,712 | - Cash flow from operations showed a significant positive swing to $9.8 million provided by activities for the first nine months of 2019, compared to $22.6 million used in the same period of 2018, primarily driven by a lower net loss and changes in working capital[19][148] Notes to Condensed Consolidated Financial Statements These notes provide additional details on the company's business, revenue segmentation, subsequent events, and credit facilities - The company provides a technology platform to automate the purchase and sale of digital advertising inventory, operating in a rapidly changing industry and facing risks from demands for lower costs and increased competition, leading to continued net operating losses[22][23] Revenue by Channel (Q3 2019) | Revenue by Channel (Q3 2019) | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | Desktop | $15,936 | 42% | | Mobile | $21,706 | 58% | | Total | $37,642 | 100% | Revenue by Geography (Q3 2019) | Revenue by Geography (Q3 2019) | Amount (in thousands) | | :--- | :--- | | United States | $26,378 | | International | $11,264 | | Total | $37,642 | - On October 21, 2019, the Company acquired RTK.io, a provider of header bidding solutions, for cash consideration of $11 million, intended to extend the Demand Manager product portfolio and client base[78] - The company has a senior secured revolving credit facility of up to $40.0 million with Silicon Valley Bank, maturing in September 2020, with no amounts outstanding and compliance with all financial covenants as of September 30, 2019[72][75][77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth, strategic focus on mobile and header bidding, controlled expenses, and sufficient liquidity Industry Trends and Trends in Our Business This section discusses the company's strategic focus on mobile, video, and header bidding, and its susceptibility to emerging privacy regulations - The company is capitalizing on industry growth in mobile and video advertising, with mobile revenue growing 41% for the first nine months of 2019 versus the prior year period, significantly outpacing the 18% growth in desktop revenue[92] - Header bidding has become a core part of the business, now representing over 80% of revenue, with the company evolving its solutions from client-side to server-side to improve performance[97] - In May 2019, the company introduced the beta version of Demand Manager, a service to help sellers easily deploy and optimize Prebid-based header bidding solutions, further enhanced by the October 2019 acquisition of RTK.io[98] - The company believes it is well-positioned to benefit from Supply Path Optimization (SPO), a trend where buyers consolidate their spending with fewer, more efficient vendors, due to its transparency, buyer tools, and brand safety measures[100] - The business is susceptible to emerging privacy regulations like GDPR and CCPA, which create uncertainty and could negatively impact revenue until compliance practices are standardized[106][107][108] Results of Operations This section analyzes revenue growth, cost of revenue efficiency, and expense control, while anticipating slower Q4 revenue growth - Q3 2019 revenue increased 27% year-over-year to $7.9 million, and nine-month revenue increased 30% year-over-year to $24.7 million, driven by increased advertising spend and higher take rates, with most take rate increases occurring in 2018[123] - Cost of revenue decreased 6% in Q3 2019 year-over-year, reflecting a continued focus on infrastructure serving efficiency, with expectations for this cost to be lower in absolute dollars for the full year 2019 compared to 2018[125][126] - General and administrative expenses decreased 12% for the nine months ended September 30, 2019, compared to the prior year, primarily due to cost control initiatives from 2018 that reduced personnel and professional services fees[132] - The company expects year-over-year revenue growth in Q4 2019 to be lower than in the first nine months, as growth will be driven primarily by ad spend increases rather than take rate improvements, which have stabilized[124] Liquidity and Capital Resources This section assesses the company's cash position, credit facility, and ability to meet working capital needs, noting credit facility renewal considerations - Principal sources of liquidity are cash and cash equivalents of $85.1 million (as of September 30, 2019) and a $40.0 million revolving credit facility with SVB, which was undrawn[138][139] - Management believes existing cash and investment balances are sufficient to meet working capital requirements for at least the next twelve months[141] - The company's credit facility matures in September 2020, and renewal may be challenging if a path to consistent positive cash flow is not demonstrated[142] Cash Flow Summary (in thousands) | Cash Flow Summary (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Cash from Operating Activities | $9,808 | $(22,552) | | Cash from Investing Activities | $(4,105) | $28,844 | | Cash from Financing Activities | $(841) | $(470) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company, as a smaller reporting company, is not required to provide the information for this item - This item is not required for smaller reporting companies[167] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2019, the company's disclosure controls and procedures were effective at the reasonable assurance level[168] - No changes in internal control over financial reporting occurred during the third quarter of 2019 that have materially affected, or are reasonably likely to materially affect, internal controls[169] Part II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and exhibits, providing additional context to the financial statements Legal Proceedings The company is involved in various legal proceedings, but management anticipates no material adverse effect on its financial condition or results - The company states that while it is party to various legal proceedings, it does not expect the outcomes to have a material adverse effect on its financial condition or results[171] Risk Factors There are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for 2018 - There are no material changes to the Risk Factors from the company's Annual Report on Form 10-K for the year ended December 31, 2018[172] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered equity sales or publicly announced stock repurchase programs, confirming IPO proceeds were used as described - There were no unregistered sales of securities in the period[174] - The company does not have a publicly announced stock repurchase program, and there were no shares withheld to cover taxes on vested employee stock awards accounted for as repurchases in Q3 2019[176][177] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, officer certifications, and XBRL data files