Good day, and welcome to Magnite Third Quarter 2024 Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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 third quarter 2024 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'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 anticipated financial performance and strategic objectives, including the potential impacts of macroeconomic factors on our business. These statements are not guarantees of future performance that 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 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 third quarter 2024 Quarterly Report on Form 10-Q and our 2023 Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements or relative 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 to the dynamics of our business. Please be advised that this additional detail may be one-time in nature, and we may or may not provide an update on the future of these metrics. I encourage you to visit our Investor Relations website to access our press release, financial highlights deck, periodic SEC reports, and 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. We are pleased to deliver another strong quarter of CTV growth and a strong beat on adjusted EBITDA allowing us to boost full year numbers. For the quarter, our year-over-year growth rate and contribution ex-TAC from CTV accelerated to 23% from a 12% growth rate in Q2. Strong CTV performance was driven by overall ad spend growth, increasing programmatic adoption by the industry's largest players, ad serving strength, and solid contribution from political. Our growth rates in contribution ex-TAC from CTV and ad spend have significantly narrowed showing a stabilization in our mix and corresponding take rate. Robust programmatic CTV adoption is also continuing across a broad set of partners. As volumes continue to scale and CPM pressures persist, our clients are increasingly looking for us to help them add value to their inventory by layering on data to target and segment audiences. It is critically important for these partners to utilize programmatic selling to reach all demand sources including SMB advertisers that didn't historically play in linear. We believe these trends are very powerful in expanding industry usage of programmatic and growing our accessible TAM. Partners more fully embracing programmatic include Roku, Netflix, Paramount, Warner Discovery, and Disney. Next, I want to highlight our Netflix and Disney partnerships. Netflix's rollout of Magnite powered programmatic solutions continues to ramp and we anticipate the partnership to grow in revenue contribution through 2025. We recently announced a two-year extension and expansion of our relationship with Disney. The recently signed deal now expands our partnership to include live sports like college football, the Latin American region, and podcasts for ESPN and ABC News. We will also make Disney inventory available through ClearLine. Magnite will continue to be a key partner for Disney in the years to come and we are pleased to further broaden our partnership. We are also seeing a nice boost from live sports this summer and fall. Recent areas of growth are college football, NFL from the top MVPDs, and Olympics internationally. This is a market that is beginning its journey to programmatic. In our industry-leading tech offering combined with our scale to monetize real-time inventory is unmatched. We expect growth in live TV and live sports to continue with more sports and more partners in the coming years. This is a key investment focus for the company. We are optimistic about the commerce media vehicle being a powerful long-term growth driver and I'm working on many new opportunities in this space. Our partnership with United Airlines announced this summer is progressing well. We are now powering ad serving on personal devices on hundreds of planes and look forward to expanding beyond personal device entertainment to include seatback screens in 2025. ClearLine, our self-service direct buying platform is continuing to grow and gain traction. We now have more than 20 agencies and brands buying through ClearLine and continue to ramp their efforts. I want to double-click on our CTV ad serving business, which has been operating at nearly twice the ad impression volume from a year ago. Our software is deeply embedded within our partner workflows and go-to-market solutions as a core part of their operations, comparable to enterprise software solutions. It's very sticky and allows us to provide superior overall monetization. Our market leadership position in CTV continues to get stronger and we remain extremely focused on innovative features and services that will extend our lead into the future. Evidence of this is our deep and evolving partnerships with the likes of Netflix, Disney, Roku, Warner Brothers Discovery, Paramount, Fox, Samsung, LG, and Vizio. The fastest growing account this quarter included Roku, Warner Brothers Discovery, Disney, and LG. A solid portion of this growth comes from our SpringServe and Magnite streaming SSP combination, which gives us a competitive advantage as a programmatic-first partner and is a major differentiator. Now to DV+, Q3 once again finished in line with our expectations with contribution ex-TAC growth of 5%. Contributing to growth are investments in emerging formats such as native, audio, podcasts, and digital out-of-home. Our volume of ad requests continues to grow, and we continue to get much more efficient with our cost per ad request coming down by approximately 30% versus last year. Our improving efficiency is driven by filtering, traffic shaping, and AI. Another tailwind aiding our DV+ and CTV businesses is the increased importance of sell-side audience aggregation, a practice that is commonly referred to as curation. In simple terms, curation is the selective packaging of ad inventory using audience data to help advertisers reach audiences they might otherwise miss. For sellers, it means driving substantially higher yields on impressions that might have gone unsold. As noted, there's an ongoing industry shift toward curation on the sell-side, being fueled in part by signal loss on the demand side, where data collection is becoming more restricted due to privacy changes in browsers and devices. We'd add that within the sell-side there's no better home for curation than the SSP, where it's easiest for premium publishers to ally with their peers to attract spend they'd have a harder time getting individually. In fact, Magnite's revenue from curating publisher audiences has grown over 100% year-over-year. It’s early days, and we anticipate this growth to continue for the foreseeable future, given our strong toolset and unrivaled publisher footprint. Just last week, a report evaluating 10 SSPs highlighted curation as one of the top three capabilities publishers should prioritize to drive higher yields and differentiate themselves. Not only did Magnite receive the highest possible score for curation, but I'm proud to say, we also achieved the highest overall score for the totality of our current offering. Expanding our leadership in curation is critical and is another example of how our omni-channel footprint will enable capabilities for both CTV and DV+ that no one else has and will drive outsized market share gains. In closing, we delivered strong Q3 results and Q4 guide. The strategic investments we've made to create the world's leading programmatic CTV platform are clearly paying off. We are confident about a strong finish to the year. It's an exciting time for the role of programmatic in the evolution of CTV advertising. And as the industry scales and this evolves to bring in thousands of new buyers, we are also optimistic about 2025, as programmatic continues to gain steam at CTV. We ramp up new and existing partners and see continued acceleration in sports and further growth of ClearLine. With that, I'll turn the call over to David for more detail on the financials.

Thanks, Michael. The third quarter was another strong quarter for Magnite, beating the high end of CTV top-line expectations and exceeding adjusted EBITDA expectations. Our results drove very strong free cash flow during the quarter. Our strong financial performance, debt refinancing, and early achievement of net leverage ratio goals allowed for a tighter focus on equity dilution management. Our business is in a very solid position and we are set up for a strong Q4, which is reflected in our updated guidance. Total revenue for Q3 was $162 million, up 8% from Q3 2023; contribution ex-TAC was $149 million, up 12%. CTV contribution ex-TAC was $64.4 million, up 23% year-over-year and again above the top end of our guidance range. Ad spend growth and strong momentum with our SpringServe ad serving and programmatic growth drove the outperformance in the third quarter. DV+ contribution ex-TAC was $85 million, an increase from $81 million or 5% compared to the third quarter last year. Our contribution ex-TAC mix for Q3 was 43% CTV, 40% mobile, and 17% desktop. From a vertical perspective, as expected, political was the strongest performing category at approximately 3.5% of contribution ex-TAC. News and retail were strong as well. Categories that did not perform as well were food and beverage and health and fitness. Total operating expenses, which includes cost of revenue for the third quarter, were $147 million, a decrease from $168 million for the same period last year. The primary driver of the decrease was the result of the SpotX acquired intangible assets that became fully amortized in the third quarter of last year. Adjusted EBITDA operating expense for the third quarter was $99 million, well below the low end of our guidance range. In Q3, we had a temporary benefit of approximately $1.5 million in lower rent related expenses from one of our offices. The increase from $93 million last year was primarily driven by personnel costs, software costs, and cloud costs. Net income was $5.2 million for the quarter compared to a net loss for the third quarter of 2023 of $17.5 million. Adjusted EBITDA grew 26% year-over-year and was $51 million with a margin of 34%, which compares to $40 million and a margin of 30% last year. As a reminder, we calculate adjusted EBITDA margin as a percentage of contribution ex-TAC. GAAP earnings for basic and diluted share was $0.04 for the third quarter of 2024 compared to a loss of $0.13 for the third quarter of 2023. Non-GAAP earnings per share in the third quarter of 2024 grew 42% and was $0.17 compared to $0.12 last year. The reconciliations to non-GAAP income and non-GAAP earnings per share are included with our Q3 results press release. Operating cash flow, which we define as adjusted EBITDA less CapEx was $40 million for the quarter. Overall, cash generation was very strong in the third quarter and our cash balance at the end of Q3 was $387 million, an increase of $61 million or 19% from the end of Q2. The increase was due to strong results and typical seasonality in our business, partially offset by share repurchases. Capital expenditures including both purchases of property and equipment and capitalized internal use software development costs were $10 million for the quarter, bringing the total to $40 million year-to-date. Our net interest expense for the quarter was $7 million. We are pleased to report that our net leverage ratio was 0.9x at the end of Q3, a sequential improvement from 1.3x at the end of Q2. This result achieves our goal of less than 1x ahead of schedule. I'd also like to highlight that we re-priced our $364 million Term Loan B debt at SOFR+ 3.75, a 75 basis point reduction. This will decrease interest expense by roughly $2.7 million annually. We're very focused on managing shareholder dilution after having successfully solidified our capital structure. During the third quarter, Magnite utilized approximately $14 million to effectively reduce dilution for shareholders by 1.1 million shares. Year-to-date through November 6, our repurchase program and withhold to cover activity have effectively reduced dilution by 2.9 million shares for $32 million. We expect net share dilution in 2024 to be approximately 2% excluding potential additional activity under the repurchase program. Through November 6, we have plenty of additional capacity with $110 million remaining in our authorized repurchase program. I'll now share our expectations for the fourth quarter and updated guidance for the full year. For the fourth quarter, we expect contribution ex-TAC to be in the range of $182 million to $186 million; contribution ex-TAC attributable to CTV to be in a range of $75 million to $77 million, reflecting year-over-year growth of approximately 20% at the mid-point; contribution ex-TAC attributable to DV+ to be in the range of $107 million to $109 million. We anticipate adjusted EBITDA operating expenses to be between $102 million and $104 million, which implies adjusted EBITDA margin of approximately 44% for Q4 at the mid-points. For the full year, we're raising our expectation for contribution ex-TAC to now grow between 11% and 12%. We're raising our expectation for adjusted EBITDA margin to expand 150 basis points to 200 basis points over 2023. We're raising our expectations that adjusted EBITDA will now grow more than 15% year-over-year and raising our expectations for free cash flow to grow approximately 20%. And we now expect total CapEx to be above $50 million. We also expect to be net income and EPS positive for the full year on a GAAP basis. Q3 was another solid quarter for Magnite and I'm very pleased with our consistent results. We have momentum and significant opportunities ahead and I'm looking forward to the strong finish we expect for 2024.

Thank you. We will now begin the question-and-answer session. Our first question is from Laura Martin with Needham and Company. Please proceed.

Great, great numbers, you guys. My two questions are these often, net leverage 0.9x, are we on our way to zero? It feels like you guys are levered given your strong free cash flow. So that's my first question. My second question is on generative AI. One of the things we're seeing is that companies that are using generative AI are growing their costs much slower than they're growing revenue. So I'm wondering how you guys are using generative AI and what the roadmap for that is so we can get cost growth, like more operating leverage into the model. Thank you.

Great. I'll take the first one. This is David. Yes, we're really pleased with our current balance sheet and capital structure. Our goal was to achieve a net leverage ratio of 1x or lower, and we're content with our results. In some respects, our focus is shifting toward managing equity dilution. Therefore, I believe our net leverage ratio could decrease over time, but we will also prioritize share repurchases.

Yes, and hey, Laura, I'll take the generative AI question. Yes. So it's a journey for us as a company. We started a task force within the company comprised of engineering, go-to-market folks, product, et cetera, to look at a slew of tools that are out there as well as our own development. As you know, we have a very large data science team and a lot of the machine learning that we're doing isn't true generative AI per se, but that's really where it's driving our cost efficiencies. As we pointed out, our volume on the DV+ platform continues to go through the roof, but our cost of processing has come down roughly 30%, largely because of machine learning, filtering, et cetera. And we have talked about AI that we've pushed to our customers in the form of our demand manager that's going over very well in creating revenue lists up to 30% for some of our customers. So like most companies, it's a work in progress and we see a lot of the efficiencies are going to be gained internally, probably through software development on our teams’ front. But we'll have more to say on that in the coming quarters.

Hey team, great work this quarter. I have a couple of questions. Michael, you mentioned both of these topics in your opening remarks. Could you provide more detail on Netflix? It seems like a strong partnership. I'm curious about how you expect that to grow in the fourth quarter of next year and beyond. Also, it's encouraging to see the expansion of your partnership with Disney. Could you explain what led them to choose Magnite for these new areas and what they appreciated about the company and its technology that resulted in the renewal? Lastly, do you foresee additional revenue growth from this relationship over time? Thank you.

Yes, those are excellent questions. Regarding Netflix, we are very cautious with our messaging. Many people inquire about Netflix, and while I’m not suggesting you are, they often seek insights regarding Netflix's advertising business rather than our own. We maintain our role as their programmatic partner on the sell-side. As Netflix enters international markets, we are right there with them. The extension and implementation have been smooth so far. They are still in the initial stages of managing programmatic sales. However, we believe that by 2025, Netflix could become one of our largest—if not the biggest—customers. As for Disney, it's important to consider the history of our relationship and the software we’ve developed for them, which they utilize internally through their DRAX system. This is more of an enhancement of our ongoing relationship rather than a complete request for proposals. Disney is becoming increasingly confident about what they wish to do in-house versus what they prefer to outsource. The progression of our partnership suggests that Magnite is a trusted ally for them, and I expect that to continue for many years.

Great, thank you. Michael, there's been a lot of focus on direct connections over the last couple of quarters. Just wondering if you can maybe revisit that and give us your thoughts on how direct connections evolve over the long term.

Yes. I mean, as you well know, Jason, it's a little bit different for both platforms. For DV+, the dust is kind of settled there. It's a little bit easier to do a direct connection because of pre-bid software being predominantly used by all DV+ kind of publishers. As we said, there hasn't been much change in the kind of two pipe strategy that Trade Desk has deployed. One pipe for the direct connection, the second pipe to compete in the unified auction that is pre-bid and continue to see large amounts of spend from Trade Desk in the pre-bid unified auction area. As it relates to CTV, there are no pre-bids, so to speak. It's a bespoke kind of connection to each player's ad server. In many cases, we're either the primary ad server or we're the programmatic layer by which the DSP would connect through to the ad server. We don't see much loss in economics for Magnite in a direct connection scenario in CTV by the Trade Desk in non-proprietary ad serving CTV players. Even in those cases, you're dealing with a two pipe scenario. I think that one of the things that gets slightly conflated is the success that the Trade Desk is seeing with greater matching with UID. A lot of people think UID in CTV equals direct connection, which is very far from the truth, like look at Roku for instance. Roku talks about UID and how it's helping them generate more revenue through the Trade Desk pipe. But keep in mind, UID is serviced by Magnite to the Trade Desk through Roku. People sometimes think if UID is mentioned, Magnite gets cut out of the picture; it’s far from the truth.

Thank you. A lot of good color. You talked a little bit about curated audience too. Just curious, I would think that that's relatively nascent in terms of adoption there, but can you talk about where there's some early success as far as DV+, CTV and kind of the scale of publishers that are looking at something like a curated audience solution?

Yes, I'll tell you, it's incredible. We've been talking about moving audience targeting to the sell-side and what's been holding it back is third-party cookies. Most publishers thought, until the third-party cookie goes away, they would continue to transact as they always did. Now that they feel that it is going away, even with the hiccup with Chrome's deprecation of cookies, they're really leaning into it. We have seen a big explosion from theory to reality. Quite a few publishers are adopting it. Curation is about looking for finite audiences. There are only so many audiences that any publisher would have. But if Magnite can group together 1,000 publishers, now all of a sudden you have a curated audience segment that is scaled and buyers can now take advantage of that. In CTV, a lot of that world is first-party data and almost everything is curated in that respect. We believe this is a logical outcome of what we've been talking about; when third-party cookies go away, the signal loss goes away. This is an encouraging opportunity for publishers and their partners like Magnite to participate in those economics. Early days, but it’s very encouraging in the direction it's heading.

Hey, thanks very much. Michael, could you talk a little bit more about the transfer their shift into more bidded programmatic? It was only a year or so ago that there was a weird fluctuation with a lot of direct sales, which coincided with linear TV advertising being soft and what was happening upfront at the time. But now linear TV advertising is still soft. There’s a lot more supply on the market from the likes of Amazon Prime and so on at CTV. I think there's been a shift toward using more bidded tools, which should be good for you, your business and your take rate. I wonder if you could just give us an update on transitions in the industry, please.

Yes, Tim, really good observation. Buyers have always wanted to activate programmatic buys in a biddable fashion because it provides value for their advertisers. The top premium publishers have been reluctant to play in that game due to historical practices. In an environment where we've had a surplus of CTV inventory as opposed to two years ago when it was supply constrained, it’s not surprising that you're seeing behavior shift toward what buyers want. We're seeing more demand on the OEMs, the FASTs, and the streaming-first players. If you look at the plus streamers, the premium big programming, legacy broadcast folks, they are leaning into biddable programmatic, but it's still not the prevalent way they conduct business with the buyers. There’s a long way to go in that area, which is good from a Magnite economic standpoint.

Hey, thanks a lot for taking my question. So happy to hear about the extension of the Disney. I was just wondering if you could talk a little bit about the economics and if you can't do so in absolute terms, possibly in relative terms, versus the kind of the prior deal or relationship you had with them. In particular, is the take rate changing at all or were there any other kind of value exchanges in this extension?

Yes, Omar, obviously can't go into great detail on that. But suffice it to say, the products that we sell to Disney carry with them take rate bands that are similar to other premier clients. Disney has predominantly sourced their own demand through their sales team, whether it's programmatic or direct sold. In those cases, that's again a very low range of our take rate. As we look at the expansion of opportunities, some of those carry with them the idea of Magnite bringing demand in. When that happens, it comes at a more attractive take rate, just like it would for any other publisher. So I think the expansion opportunities are great. It validates our partnership and the strength of it. But more importantly, it probably carries with it more attractive economics as those new avenues start to light up. Net-net, we view Disney as a big revenue grower for Magnite in the years to come.

No real update on the ad tech trial piece of it; the remedies are going to be argued coming soon. There has been a slight delay in it. Listen, when the dust settles, we believe it will be more attractive for Magnite to compete in an industry where Google has a stranglehold on share on the DV+ side. We've been very successful in competing against them on the CTV side. We think there’s significant opportunity for growth once some of the structural inefficiencies in the marketplace get worked out. Impossible to tell when that might be, but we think overall we're quite positive about the direction it's heading.

Yes, thanks. Michael, you’ve kind of touched on this and you raised the sort of confusion issue which I think is very prevalent out there. Maybe it would be helpful if you updated your thoughts on the increasing prevalence of first-party ad tech stacks, how much you think the split of volume ends up being between the two, how much they lean on kind of third-party versus first-party. There's been noise on who has better signal strength between the two. I think you guys have argued that you win every AV test. I'd love to hear kind of your thoughts there.

On the first-party data versus third-party data; I think you have to view it in two buckets. Third-party data will be prevalent in DV+. Look at the traditional DV+ publishers; they often do not have a logged-in relationship with the consumer. Therefore, the fidelity of signals isn't as strong compared to the CTV world. I think CTV will predominantly be a first-party world. In cases of third-party, it’s coming from the advertisers. There are a lot of activities using clean rooms to match advertisers with audiences, which will play a role in driving signals in the DV+ world. However, that will be a portfolio approach; there won't be one killer data signal that will replace the deprecation of third-party cookies. But I think in CTV, a very strong first-party world will emerge.

Hi guys, this is Brian Kraska for Shweta. Thank you for taking the questions and congrats on the quarter. Just wanted to see if you could provide an update on Trade Desk and OpenPath if there's any impact you're seeing there. I know you mentioned in the first quarter that you're gaining share in DV+ and accelerated growth. Just any update on that commentary from the quarters today. Thank you.

No real update on OpenPath again; it's here to stay. We participate in the economics of OpenPath on the CTV side and we have a growing share of spend with Trade Desk in the DV+ side. We feel as though we're well-positioned as a leading omni-channel SSP.

Hi, good afternoon. Thanks for taking my questions. Is there any way you could provide any sort of incremental update around the Mediaocean partnership? I know it was something announced earlier this year, but any sort of incremental update on that would be appreciated.

Yes. Thanks, Zach. As we had said before, we think it's a great partnership filled with opportunity for both of us. But we caution that from a sales cycle standpoint and an activation standpoint, that it's going to take some time. We're in a test mode with folks sampling the tool and actively coursing spend through it; probably doesn't activate in terms of any substantial spend until Q1, Q2 of next year.

Understood. That's helpful. And realizing that DV+ is facing some near-term headwinds, what's the right way to think about a sustainable growth rate in that business as we move forward? Just curious about how you're thinking about investing in opportunities on that side.

Yes, we feel good about DV+. There's no reason that we can't continue to be a share taker. Depending on the macro and overall spend, we certainly think that our DV+ growth rates could increase from the levels that they are at now. We're investing in new formats and the curation that Michael mentioned earlier. We believe we have the scale, footprint, and technology that, that could be an additional driver for us both in space and for taking share.

Hey guys, this is Simran on for Matt Swanson. Thanks for taking the question and congrats on the results. For my first question, it seems like you guys have partnered with almost everyone in CTV. So what would you say is the strategy to grow these partnerships from here?

Great observation. There aren't too many folks that we aren't their primary programmatic partner. Our strategy is to mature programmatic with our partners. For top premium partners, the plus services programmatic is almost exclusively sold by the publisher, which means our take rate is on the lower range. As it becomes more biddable, as new advertisers test CTV for performance advertising, that's where we can bring demand, offering increased monetization capabilities. Our idea is to partner with everyone, ride the maturation of programmatic with them, and improve our economics significantly. So on the political side, there's always going to be dislocation. There's a finite number of ad times in CTV. When political comes in, it pushes out other advertisers as it was quite contentious. The mood of the programming generally drives a shutdown of general advertising brand spend. We anticipate that that will come back going into the holiday season, which historically has strength in Q4. So we anticipate that will return. And David, do you have any color as it relates to that?

As I mentioned, political was about 3.5% of our total revenue in Q3, and since the election is over, we can discuss the political part in the past tense here. In absolute terms, we more than doubled Q3 spend concentrated in the pre-election time frame. Big picture, we had expectations of political coming in at around $20 million of contribution ex-TAC for the year, and we came in right around those expectations.

Hi, good afternoon. Thanks for taking our questions. I wanted to ask quickly if you have any update on the managed service business in the quarter and then wanted to follow up on curation, maybe from more of an advertiser perspective. Our understanding is that with one of the major DSPs and their sort of preferred ID solution, there's probably a policy limitation on using third-party data segments. Are you seeing any advertisers trying to get ahead of that? And I'm wondering if there's anything you might be able to share in terms of share gain opportunity if you're lighting up these audience segments with a different SSP solution and take rate opportunity or uplift opportunity anything you can share about that? Thank you very much.

Sure. I'll take the curation piece and then David can talk about managed service. Curation is gaining popularity; there used to be many services around it. A lot of publishers are saying they'd rather transact through their exchange relationships. It lets buyers conduct their spend through Magnite while activating special units and unique ad inventory. The targeted solution finds audience segments and bands them together. I'm not aware of any DSP restriction on that occurring, as advertisers are driving that demand. If they're finding success reaching audiences, they would drive it towards us.

In the third quarter, managed service was about 4% of our total contribution ex-TAC, and that’s down about 20% year-over-year. We expect managed service to be down in those levels or perhaps greater going forward. Our mid-market sales folks help agencies and buyers lacking in-house resources, but many of them are growing their ability to run programmatically. We're seeing those dollars shift into programmatic. These relationships are important to our managed service team, but that business is becoming smaller as we move forward.

Thanks so much. Could you double-click on the 30% reduction in cost per ad request year-over-year? That seems like a pretty meaningful improvement. I think you called out filtering and traffic shaping as the two drivers in the prepared remarks. Could you maybe just spend a little bit more time elaborating on what specifically that means or what functionally is changing there? And any feedback on how growth spending trended in the quarter relative to contribution ex-TAC would be helpful. Thanks.

Great, Alec. I'll touch on the efficiency gains on the DV+ platform and then have David expand on gross spend. Costs are incurred when receiving ad requests, but those can change based on the auction. The goal is to identify the most sought-after ad requests and prevent unnecessary costs by filtering those that won’t lead to purchases. Most of the filtering and shaping occurs with the trillions of ad requests that we quickly analyze and allocate. This has made us significantly more efficient. David?

Yes, from a gross and ad spend perspective; we look at DV+ and CTV separately. In DV+, our ad spend grows at rates similar to revenue growth. In CTV, ad spend continues to grow faster than our CTV contribution ex-TAC growth. The difference between the growth rates has narrowed as our contribution ex-TAC lifts closer to the ad spend run rates, indicating stabilization.

Hey guys, just one from me. If we go back to the Disney renewal and you guys talked about sourcing your own demand and taking a higher take rate on that; is that something you weren't previously doing or can you help me understand? Is that something new you're doing with Disney, I guess, any comments you can provide?

Yes, Max, good observation. It’s more of a statement about the growing evolution of premium publishers' willingness to do programmatic in a biddable fashion. Early on, audience segments were defined by the publisher, and pricing set by them, which limited our take rates. After experiencing biddable opportunities, the perception has changed and can yield higher value auctions with multiple advertisers bidding together. The maturation of the Disney relationship reflects that expansion of opportunities, allowing us to increase our yield.

We can go ahead and move on to the next one if there are no others, and we can wrap up.

Thank you, Sherry. Before wrapping up, I would like to thank the great Magnite team around the world for their dedication and hard work in delivering another strong quarter that exceeded expectations. Our team's success is publicly recognized by securing the highest score in the current offering category of the 10 vendors evaluated in the Forrester Wave Sell-Side Platforms Q4 2024 report. We're looking forward to speaking with many of you at our upcoming investor events. Thank you all for joining, and have a great evening.

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