Investing.com -- On February 21, 2025, Moody's (NYSE: MCO ) Ratings upgraded the corporate family rating (CFR) and probability of default rating (PDR) of Magnite, Inc., a leading advertising technology solutions provider. The company's CFR was raised to B1 from B2, and its PDR to B1-PD from B2-PD. Moody's also affirmed the Ba3 ratings on Magnite's senior secured bank credit facilities, which include a $175 million revolving credit facility due 2029 and a $364 million outstanding term loan due 2031. The outlook for the company was adjusted to stable from positive.

The upgrade in Magnite's CFR is a reflection of its strong operating performance and improving credit profile, supported by a 10% organic revenue growth through September 30, 2024, and expanding free cash flow to debt. The company's financial leverage strengthened to 4.6x at LTM September 2024, down from 5.3x at year end 2023, and is forecasted to decrease to around 4.3x by the end of 2024 and further to the 3.5x–4x area by year end 2025.

The change in outlook to stable is based on expectations that Magnite's total debt to EBITDA will remain in the 3.5x–4x range over the rating horizon. The outlook also reflects projected revenue growth in the low-teens percentage range in 2025, supported by CTV and DV+ channels, and Magnite's expanding partnerships. EBITDA margins are expected to strengthen due to top-line revenue growth, economies of scale on operating expenses, and benefits from full integration of prior acquisitions.

Magnite's B1 CFR reflects its solid market position in automating the buying and selling of digital advertising inventory to digital publishers and ad networks. The company has benefitted from fast growth in the CTV and mobile markets, which account for nearly 85% of its revenue. Magnite is expected to sustain industry growth rates in the 10% area over the next several years, supported by the shift of advertising to digital/mobile platforms and convergence of TV and digital.

Despite exposure to cyclical ad spending and rising tech infrastructure costs, which can depress margins, Magnite is expected to continue showing quarterly improvement in margins this year. This is due to projected revenue expansion in the low-teens percentage region, a steady supply of premium-priced CTV ad inventory, and costs expanding at a slower pace than revenue.

Magnite's credit profile is constrained by its moderately high financial leverage and small but expanding scale in a rapidly evolving landscape. Over the next 12-18 months, Magnite is expected to maintain very good liquidity, with cash balances of at least $250 million and access to the $175 million revolver, which is forecasted to remain largely undrawn.

Ratings could be upgraded if Magnite demonstrates solid revenue growth, improved EBITDA margins, and profitability such that total debt to EBITDA is sustained below 3.5x. Ratings could be downgraded if total debt to EBITDA is sustained above 4.5x due to operating underperformance, lack of progress with integrating acquisitions, or debt financed distributions or acquisitions among other factors.

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