Magnite(MGNI) - 2019 Q4 - Annual Report

Part I Business The company provides a technology platform for programmatic advertising and is pursuing growth through a merger with Telaria - The company provides a technology solution to automate the purchase and sale of digital advertising inventory for buyers and sellers[20] - Revenue is generated via a take rate on advertising spend, which was 14.0% in 2019[25][57] - A stock-for-stock merger with Telaria, Inc was announced to create a leading sell-side platform focused on Connected TV (CTV)[31][32] - Strategic focus on high-growth areas saw mobile revenue grow 34% to $88 million and video revenue grow 43% to $29 million in 2019[36][259] - The business is subject to evolving data privacy regulations like GDPR and CCPA, which became effective in January 2020[73][76][78] Risk Factors The company faces significant risks from its Telaria merger, competitive pressures, and evolving privacy regulations - Significant risks exist regarding the proposed merger with Telaria, including potential integration failure and not achieving expected benefits[85][88] - The shift to a higher-volume, lower-cost business model may not succeed without a substantial increase in transaction volume[102][104][105] - The digital advertising market is intensely competitive, dominated by large companies like Google, Facebook, and Amazon[131][132] - Evolving privacy laws (GDPR, CCPA) and ad-blocking tools could diminish the value of the company's advertising solutions[135][137][143] - The business is vulnerable to the loss of major buyers, as two buyers indirectly accounted for 37% of 2019 revenue[169][171] Properties The company leases its corporate headquarters in Los Angeles and other key office and data center locations globally - Corporate headquarters are in a 47,000 square foot leased space in Los Angeles, with the lease expiring in 2021[240] - The company leases other key offices, including a 15,000 square foot space in New York, and data centers globally[240] Legal Proceedings The company faces a stockholder complaint challenging the proposed merger with Telaria, which it deems without merit - A complaint was filed by a Telaria stockholder challenging the proposed merger, alleging violations of the Exchange Act[243] - The company believes the claims in the merger-related complaint are without merit[243] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under "RUBI," and it does not currently pay dividends or have a repurchase plan - The company's common stock trades on the NYSE under the symbol "RUBI"[246] - The company has never paid dividends and does not anticipate doing so, partly due to credit facility restrictions[248] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2019 saw a 25% revenue increase to $156.4M and a return to positive Adjusted EBITDA, driven by higher ad spend and take rates Key Financial Performance (2019 vs. 2018) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Revenue | $156.4M | $124.7M | +25% | | Advertising Spend | $1,117.3M | $992.1M | +13% | | Net Loss | ($25.5M) | ($61.8M) | +59% | | Adjusted EBITDA | $25.7M | ($11.2M) | Favorable | | Take Rate | 14.0% | 12.6% | +140 bps | - Revenue growth was driven by increased ad spend and a higher take rate resulting from seller pricing improvements[256] - The company is focused on Supply Path Optimization (SPO) to consolidate buyer spending and drive ad spend growth[257] - Cash from operations was $32.0 million in 2019, a significant improvement from a $22.7 million use of cash in 2018[317][319] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and accompanying notes for fiscal years 2019 and 2018 Consolidated Statement of Operations Highlights (in thousands) | Line Item | 2019 | 2018 | | :--- | :--- | :--- | | Revenue | $156,414 | $124,685 | | Total Expenses | $183,997 | $188,293 | | Loss from Operations | ($27,583) | ($63,608) | | Net Loss | ($25,478) | ($61,822) | | Net Loss Per Share | ($0.48) | ($1.23) | Consolidated Balance Sheet Highlights (in thousands) | Line Item | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $88,888 | $80,452 | | Total Current Assets | $313,050 | $300,541 | | Total Assets | $395,120 | $360,012 | | Total Current Liabilities | $267,499 | $240,982 | | Total Liabilities | $283,184 | $241,999 | | Total Stockholders' Equity | $111,936 | $118,013 | Consolidated Statement of Cash Flows Highlights (in thousands) | Line Item | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $31,983 | ($22,686) | | Net cash provided by (used in) investing activities | ($23,388) | $27,947 | | Net cash used in financing activities | ($205) | ($1,279) | | Change in cash, cash equivalents and restricted cash | $8,436 | $3,810 | Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal controls were effective as of year-end 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[518] - Management concluded that internal control over financial reporting was effective based on the COSO framework[521] Part III Directors, Executive Officers and Corporate Governance This section details the company's board of directors, executive officers, and corporate governance framework - The board of directors consists of seven members, including Chairman Frank Addante and CEO Michael G. Barrett[526][527] - The executive team includes the CEO, CFO, and CTO, along with other key leaders in legal, revenue, and accounting[538] - The board has determined that five of its seven directors are independent under SEC and NYSE rules[681] Executive Compensation Executive compensation includes salary, cash incentives, and equity, with 2019 incentive payouts at 118.3% of target - For 2019, there were no changes to base salaries or target cash incentive opportunities for named executive officers (NEOs)[559] - The 2019 annual cash incentive payout was 118.3% of target, based on revenue and adjusted EBITDA less capex goals[581][584] 2019 Named Executive Officer Compensation | Name | Position | Salary ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Michael Barrett | President and CEO | 515,000 | 1,799,000 | 883,827 | 609,503 | 3,813,065 | | David Day | Chief Financial Officer | 400,000 | 924,960 | 454,019 | 307,710 | 2,115,229 | | Thomas Kershaw | Chief Technology Officer | 425,000 | 1,028,280 | 504,779 | 325,463 | 2,289,257 | - The company maintains executive officer equity ownership guidelines, requiring the CEO to hold 5x base salary in equity[599][600] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters BlackRock, Inc is the largest institutional shareholder (6.3%), while directors and officers as a group own 8.1% - As of February 23, 2020, BlackRock, Inc was the only beneficial owner of more than 5%, holding 6.3% of common stock[671][673] - All current executive officers and directors as a group beneficially owned 8.1% of the outstanding common stock[673] - As of December 31, 2019, 5,672,260 securities remained available for future issuance under equity compensation plans[661] Certain Relationships and Related Transactions, and Director Independence The company had no related person transactions in 2019 and confirms that a majority of its board members are independent - The company has a formal policy for the audit committee to review and approve related person transactions exceeding $100,000[678] - No transactions requiring disclosure under this policy have occurred since January 1, 2019[676] - The Board of Directors has determined that a majority of its members are independent directors[681] Principal Accountant Fees and Services This section details fees paid to the principal accountant, Deloitte & Touche LLP, which were pre-approved by the audit committee Accountant Fees (2019 vs. 2018) | Firm | Fee Category | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Deloitte & Touche LLP | Audit Fees | $932,775 | $812,516 | | | Audit-Related Fees | $325,289 | $0 | | | Total | $1,261,854 | $816,306 | | PwC | Audit Fees | $0 | $292,200 | | | Audit-Related Fees | $0 | $44,000 | | | Total | $0 | $340,743 | - The audit committee has policies for pre-approving all audit and non-audit services, and all 2019 and 2018 services were pre-approved[687][691] Part IV Exhibits, Financial Statement Schedules This section lists all documents filed with the Form 10-K, including the Telaria merger agreement and other material contracts - This section contains the index of all exhibits filed with the 10-K, including material contracts and corporate governance documents[694] - Key exhibits include the Agreement and Plan of Merger with Telaria, Inc, equity plans, and loan agreements[694][695]