PubMatic Inc

Previous wording

The digital advertising ecosystem continues to evolve and adapt at a rapid pace. Some noted trends include the continued growth of digital media across multiple platforms, a continued increase in the number of ad impressions processed and analyzed in real-time by each participant in the digital advertising ecosystem, and a desire for transparency and control throughout the supply chain from both the buyers and publishers. Additionally, rapidly evolving data and privacy regulations and industry standards continue to impact our business. For example, in April 2024, Google announced it will delay its phase out of third-party cookies in Chrome until at least 2025, which may impact the industry’s anticipated shift to alternative identity solutions.

Current wording

The digital advertising ecosystem continues to evolve and adapt at a rapid pace. Some noted trends include the continued growth of digital media across multiple platforms, a continued increase in the number of ad impressions processed and analyzed in real-time by each participant in the digital advertising ecosystem, and a desire for transparency and control throughout the supply chain from both the buyers and publishers. Additionally, rapidly evolving data and privacy regulations and industry standards continue to impact our business. For example, in July 2024, Google announced it will no longer deprecate its use of third-party cookies in Chrome and instead ask users to opt-in or opt-out of cookies in Chrome, which may impact the industry’s anticipated shift to alternative identity solutions.

Previous wording

Our net dollar-based retention rate equals the Current Period Revenue divided by Prior Period Revenue. Our net dollar-based retention rate was 106% for the trailing twelve months ended March 31, 2024 and 105% for the trailing twelve months ended March 31, 2023. Our revenue growth in the period ended March 31, 2024 and 2023 was primarily attributable to an increase in the number of ad impressions processed from our publishers, upselling additional products, penetration of header bidding for mobile app and digital video, and increased demand from the growth of our buyer relationships primarily through SPO agreements. Our net dollar-based retention rate and revenues for the period ended March 31, 2024 improved by one percentage point versus the prior trailing twelve month period.

Current wording

Our net dollar-based retention rate equals the Current Period Revenue divided by Prior Period Revenue. Our net dollar-based retention rate was 108% for the trailing twelve months ended June 30, 2024 and 100% for the trailing twelve months ended June 30, 2023. Our revenue growth in the period ended June 30, 2024 and 2023 was primarily attributable to an increase in the number of ad impressions processed from our publishers, upselling additional products, penetration of header bidding for mobile app and digital video, and increased demand from the growth of our buyer relationships primarily through SPO agreements.

Previous wording

Further, we work with DSPs to help them reduce their costs and improve advertiser ROI, which in turn makes us the specialized cloud infrastructure platform of choice for many of our buying partners. We depend upon a limited number of large DSPs for a large percentage of impressions purchased and our business results, including revenues, may be impacted by changes in their pricing strategies, bidding algorithms or go-to market efforts. As buyers increasingly consolidate their spending with fewer larger technology platforms, we seek to bring an increased proportion of their digital ad spending to our platform through direct deals. Supply Path Optimization (“SPO”) continues to be a major growth driver for us as we add new SPO relationships and expand existing ones. We have been investing in SPO technology and partnerships for five years and SPO represented approximately 50% of total activity for the three months ended March 31, 2024.

Current wording

Further, we work with DSPs to help them reduce their costs and improve advertiser ROI, which in turn makes us the specialized cloud infrastructure platform of choice for many of our buying partners. We depend upon a limited number of large DSPs for a large percentage of impressions purchased and our business results, including revenues, may be impacted by changes in their pricing strategies, bidding algorithms or go-to market efforts. As buyers increasingly consolidate their spending with fewer larger technology platforms, we seek to bring an increased proportion of their digital ad spending to our platform through direct deals. Supply Path Optimization (“SPO”) continues to be a major growth driver for us as we add new SPO relationships and expand existing ones. We have been investing in SPO technology and partnerships for five years and SPO represented over 50% of total activity for the three months ended June 30, 2024.

Previous wording

We focus on monetizing digital impressions by coordinating over a hundred billion real-time auctions and nearly a trillion bids globally on a daily basis, using our specialized cloud software, machine learning algorithms, and scaled transaction infrastructure. Valuable ad impressions are transparent and data rich, viewable by humans, and verifiable. Each ad impression we auction consists of 592 independent data parameters, which can yield valuable insights if recorded and analyzed properly. This processing of voluminous data for each ad impression must occur in less than half a second as consumers expect a seamless digital ad experience. We continually assess impressions from new and existing publishers through a rigorous validation process. We add or remove impressions from our platform based on an assessment of the projected value of the impressions, which is influenced by the type of publisher and its related consumers, as well as the potential volume of monetizable impressions and ad format types, such as digital video. We continuously create and iterate algorithms that leverage vast datasets flowing through our infrastructure to improve the liquidity in our marketplace. Our ability to drive successful outcomes in the real-time auction process on behalf of our publishers and buyers will affect our operating results.

Current wording

We focus on monetizing digital impressions by coordinating over a hundred billion real-time auctions and nearly a trillion bids globally on a daily basis, using our specialized cloud software, machine learning algorithms, and scaled transaction infrastructure. Valuable ad impressions are transparent and data rich, viewable by humans, and verifiable. Each ad impression we auction consists of 606 independent data parameters, which can yield valuable insights if recorded and analyzed properly. This processing of voluminous data for each ad impression must occur in less than half a second as consumers expect a seamless digital ad experience. We continually assess impressions from new and existing publishers through a rigorous validation process. We add or remove impressions from our platform based on an assessment of the projected value of the impressions, which is influenced by the type of publisher and its related consumers, as well as the potential volume of monetizable impressions and ad format types, such as digital video. We continuously create and iterate algorithms that leverage vast datasets flowing through our infrastructure to improve the liquidity in our marketplace. Our ability to drive successful outcomes in the real-time auction process on behalf of our publishers and buyers will affect our operating results.

Previous wording

Our recent growth has been driven by a variety of factors including increased access to mobile web (display and video) and mobile app (display and video) impressions and desktop video impressions. Our performance is affected by our ability to maintain and grow our access to valuable ad impressions from current publishers as well as through new relationships with publishers. In March 2024, our platform processed approximately 648 billion ad impressions daily, each in a fraction of a second.

Current wording

Our recent growth has been driven by a variety of factors including increased access to mobile web (display and video) and mobile app (display and video) impressions and desktop video impressions. Our performance is affected by our ability to maintain and grow our access to valuable ad impressions from current publishers as well as through new relationships with publishers. In June 2024, our platform processed approximately 687 billion ad impressions daily, each in a fraction of a second.

Previous wording

The benefit from income taxes consists primarily of federal, state, and foreign income taxes. Our income tax benefit may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate and other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimates based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision. We reevaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period.

Current wording

The provision for (benefit from) income taxes consists primarily of federal, state, and foreign income taxes. Our provision for income taxes or income tax benefit may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate and other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimates based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision. We reevaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period.

Previous wording

(1)Amounts include stock-based compensation expense before tax benefit as follows:

Current wording

(2)Amounts include stock-based compensation expense before tax benefit as follows:

Previous wording

Revenue for the three months ended March 31, 2024 increased by $11.3 million, or 20%, compared to the three months ended March 31, 2023. Our revenues were primarily driven by increased impressions processed on our platform, emerging revenue streams, and growth in customer relationships. Our business continues to be impacted by the macro environment.

Current wording

Revenue for the three months ended June 30, 2024 increased by $3.9 million, or 6%, compared to the three months ended June 30, 2023. Revenue for the six months ended June 30, 2024 increased by $15.2 million, or 13%, compared to the six months ended June 30, 2023. Our revenues were primarily driven by increased impressions processed on our platform, new revenue streams, and growth in customer relationships. Our business was negatively impacted by bidding methodology changes implemented by one of our buyers in the second half of the second fiscal quarter.

Previous wording

As of March 31, 2024, we served approximately 1,800 publishers and app developers worldwide on our platform, compared to approximately 1,700 publishers and app developers worldwide as of March 31, 2023. For purposes of our publisher count, we aggregate multiple business accounts from separate divisions, segments or subsidiaries into a single “master” publisher based on our assessment of the related nature of the group.

Current wording

As of June 30, 2024, we served approximately 1,800 publishers and app developers worldwide on our platform, compared to approximately 1,750 publishers and app developers worldwide as of June 30, 2023. For purposes of our publisher count, we aggregate multiple business accounts from separate divisions, segments or subsidiaries into a single “master” publisher based on our assessment of the related nature of the group.

Previous wording

Our revenues may be affected by macroeconomic conditions for the remainder of 2024, as well as bidding methodology changes implemented by one of our buyers which may result in lower bid prices following such change, and the magnitude of these impacts on our future revenues is difficult to predict.

Current wording

We expect our revenues to be affected by macroeconomic conditions for the remainder of 2024, and will continue to be impacted by the bidding methodology changes implemented by one of our buyers in the near term. The magnitude of these impacts on our future revenues is difficult to predict.

Previous wording

Cost of revenue increased $1.6 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to a $0.6 million increase in depreciation of data center equipment and amortization of internal-use software, a $0.2 million increase in support and maintenance costs, and a $0.7 million increase in personnel costs as headcount increased. Overall, our cost of revenue per impression processed for the three months ended March 31, 2024 decreased by approximately 14% compared to the three months ended March 31, 2023.

Current wording

Cost of revenue increased $0.1 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to a $0.4 million increase in depreciation of data center equipment and amortization of internal-use software and a $0.4 million increase in personnel costs as headcount increased, offset by a $0.5 million decrease in data center costs. Overall, our cost of revenue per impression processed for the three months ended June 30, 2024 decreased by approximately 19% compared to the three months ended June 30, 2023.

Previous wording

Our gross margin of 62% for the three months ended March 31, 2024 increased compared to 57% for the three months ended March 31, 2023 primarily due to acceleration of revenue growth.

Current wording

Our gross margin of 63% for the three months ended June 30, 2024 increased compared to 60% for the three months ended June 30, 2023, and our gross margin of 62% for the six months ended June 30, 2024 increased compared to 59% for the six months ended June 30, 2023 primarily due to acceleration of revenue growth.

Previous wording

The increase in technology and development costs for the three months ended March 31, 2024 was primarily due to an increase of $1.6 million in personnel costs as headcount increased, partially offset by an increase of $0.5 million related to the capitalization of internal-use software.

Current wording

The increase in technology and development costs for the three months ended June 30, 2024 was primarily due to an increase of $2.1 million in personnel costs as headcount increased, partially offset by an increase of $0.5 million related to the capitalization of internal-use software.

Previous wording

Sales and marketing costs for the three months ended March 31, 2024 increased primarily due to a $2.2 million increase in personnel costs and a $0.2 million increase in facilities costs, offset by a decrease in amortization of intangible assets of $0.9 million.

Current wording

Sales and marketing costs for the six months ended June 30, 2024 increased primarily due to a $5.1 million increase in personnel costs and a $0.5 million increase in facilities costs, offset by a decrease in amortization of intangible assets of $0.9 million.

Previous wording

Interest income increased for the three months ended March 31, 2024 compared to the prior year period due to the increase in interest rates.

Current wording

Interest income increased for the three and six months ended June 30, 2024 compared to the prior year period due to the increase in interest rates.

Previous wording

Other income (expense), net increased for the three months ended March 31, 2024 compared to the prior year period mainly due to currency fluctuations.

Current wording

Other income (expense), net increased for the three and six months ended June 30, 2024 compared to the prior year period due to other income of $4.0 million from the Google Privacy Sandbox initiative in connection with their previous initiative to phase out the use of third-party cookies. This income was related to our efforts to build and test integrations with the privacy sandbox.

Previous wording

The difference between the effective tax rate for the three months ended March 31, 2024 of 9% and the federal statutory income tax rate of 21% was related to tax benefits from foreign-derived intangible income, research tax credits, and deductions for equity awards, partially offset by nondeductible stock-based compensation and Section 162(m) limitation on the tax deductibility of officers compensation. The effective income tax rate was 37% for the three months ended March 31, 2023 was related to the effects of stock-based compensation, foreign and state taxes, partially offset by foreign tax credits, and federal and state research credits.

Current wording

The difference between the effective tax rate for the six months ended June 30, 2024 of (51)% and the federal statutory income tax rate of 21% was related to tax benefits from foreign-derived intangible income, research tax credits, and deductions for equity awards, partially offset by nondeductible stock-based compensation and Section 162(m) limitation on the tax deductibility of officers compensation. The effective income tax rate of 20% for the six months ended June 30, 2023 was related to the tax benefit from foreign-derived intangible income (FDII), foreign tax credit and research tax credit partially offset by an increase in nondeductible stock-based compensation, global intangible low-taxed income (GILTI), and Section 162(m) limitation on the tax deductibility of officers compensation.

Previous wording

In addition to our results determined in accordance with U.S. generally accepted accounting principles (“GAAP”), including, in particular, operating loss, net cash provided by operating activities, and net loss, we believe that Adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We define Adjusted EBITDA as net loss adjusted for stock-based compensation expense, depreciation and amortization, interest income, acquisition-related and other expenses, and provision for (benefit from) income taxes.

Current wording

In addition to our results determined in accordance with U.S. generally accepted accounting principles (“GAAP”), including, in particular, operating loss, net cash provided by operating activities, and net income (loss), we believe that Adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We define Adjusted EBITDA as net income (loss) adjusted for stock-based compensation expense, depreciation and amortization, interest income, and provision for (benefit from) income taxes.

Previous wording

The following table presents a reconciliation of Adjusted EBITDA to net loss for each of the periods indicated:

Current wording

The following table presents a reconciliation of Adjusted EBITDA to net income (loss) for each of the periods indicated:

Previous wording

(1)We exclude acquisition-related and other expenses incurred in connection with our acquisition of Martin from Adjusted EBITDA because we do not believe such expenses are reflective of our ongoing core operations. Acquisition-related expenses incurred in connection with our acquisition of Martin include third-party transaction costs. Beginning in the third quarter fiscal 2023, we no longer exclude the impact of post-acquisition cash compensation arrangements for certain key acquired employees from our Adjusted EBITDA calculation. We have updated prior period results for comparability.

Current wording

(1)Beginning in the third quarter fiscal 2023, we no longer exclude the impact of post-acquisition cash compensation arrangements for certain key acquired employees from our Adjusted EBITDA calculation. We have updated prior period results for comparability.

Previous wording

We have financed our operations and capital expenditures primarily through utilization of cash generated from operations as well as sales of equity securities. As of March 31, 2024, we had cash, cash equivalents, and marketable securities of $174.1 million and net working capital, consisting of current assets less current liabilities, of $173.1 million.

Current wording

We have financed our operations and capital expenditures primarily through utilization of cash generated from operations as well as sales of equity securities. As of June 30, 2024, we had cash, cash equivalents, and marketable securities of $165.6 million and net working capital, consisting of current assets less current liabilities, of $161.8 million.

Previous wording

We believe our existing cash, cash equivalents, marketable securities and anticipated net cash provided by operating activities, together with available borrowings under our credit facility, will be sufficient to meet our working capital requirements for at least the next 12 months. However, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Risk Factors.” As of March 31, 2024, our material cash requirements included the contractual commitments set forth under “Contractual Obligations and Future Cash Requirements.”

Current wording

We believe our existing cash, cash equivalents, marketable securities and anticipated net cash provided by operating activities, together with available borrowings under our credit facility, will be sufficient to meet our working capital requirements for at least the next 12 months. However, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Risk Factors” in this report and in our Annual Report on Form 10-K for the year ended December 31, 2023. As of June 30, 2024, our material cash requirements included the contractual commitments set forth under “Contractual Obligations and Future Cash Requirements.”

Previous wording

In February 2023, our board of directors authorized the 2023 Repurchase Program. Subsequently in February 2024, our board of directors authorized the 2024 Repurchase Program. During the three months ended March 31, 2024, we repurchased 894,651 shares of Class A common stock under the 2023 Repurchase Program and 2024 Repurchase Program, collectively, for an aggregate purchase price of $15.7 million. As of March 31, 2024, $100.0 million remained available for future share repurchases under the 2024 Repurchase Program. The U.S. Inflation Reduction Act of 2022 was enacted on August 16, 2022 and requires a one percent excise tax on certain share repurchases in excess of shares issued for employee compensation made after December 31, 2022. For purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain stock issuances against the fair market value of stock repurchases during the same taxable year, with certain exceptions. We do not expect this provision to have a material effect on our condensed consolidated financial statements.

Current wording

In February 2023, our board of directors authorized the 2023 Repurchase Program. Subsequently in February 2024, our board of directors authorized the 2024 Repurchase Program. During the six months ended June 30, 2024, we repurchased 1,777,846 shares of Class A common stock under the 2023 Repurchase Program and 2024 Repurchase Program, collectively, for an aggregate purchase price of $35.9 million. As of June 30, 2024, $79.9 million remained available for future share repurchases under the 2024 Repurchase Program. The U.S. Inflation Reduction Act of 2022 was enacted on August 16, 2022 and requires a one percent excise tax on certain share repurchases in excess of shares issued for employee compensation made after December 31, 2022. For purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain stock issuances against the fair market value of stock repurchases during the same taxable year, with certain exceptions. We do not expect this provision to have a material effect on our condensed consolidated financial statements.

Previous wording

For the three months ended March 31, 2023, net cash provided by operating activities of $12.8 million resulted primarily from adjustments for non-cash expenses of $14.6 million, including $11.4 million for depreciation and amortization and $7.1 million for stock-based compensation, lease expense of $1.5 million, a decrease in accounts receivable of $61.3 million, offset by a net loss of $5.9 million, a decrease in other non-current liabilities of $0.7 million and a decrease in accounts payable of $55.4 million.

Current wording

For the six months ended June 30, 2024, net cash provided by operating activities of $36.2 million resulted primarily from adjustments for non-cash expenses of $33.6 million, including $22.5 million for depreciation and amortization and $18.8 million for stock-based compensation, a decrease in accounts receivable of $23.9 million, offset by a net loss of $0.5 million, an increase in prepaid expenses and other assets of $3.4 million, a decrease in operating lease liabilities of $3.0 million, and a decrease in accounts payable of $14.8 million.

Previous wording

For the three months ended March 31, 2024, net cash provided by operating activities of $24.3 million resulted primarily from adjustments for non-cash expenses of $16.1 million, including $11.2 million for depreciation and amortization and $9.1 million for stock-based compensation, a decrease in accounts receivable of $72.2 million, offset by a net loss of $2.5 million, a decrease in accounts payable of $58.4 million, and a decrease in accrued liabilities of $1.8 million.

Current wording

For the six months ended June 30, 2023, net cash provided by operating activities of $28.6 million resulted primarily from adjustments for non-cash expenses of $29.8 million, including $22.3 million for depreciation and amortization and $14.3 million for stock-based compensation, provision for bad debt of $5.7 million relating to a DSP buyer of our platform that filed for Chapter 11 bankruptcy, a decrease in accounts receivable of $41.7 million, offset by a net loss of $11.6 million, and a decrease in accounts payable of $30.1 million.

Previous wording

For the three months ended March 31, 2024, we used $3.9 million in investing activities, consisting of $0.8 million in purchases of property and equipment (primarily data center infrastructure), and $7.2 million of investments in capitalized internal-use software, and a net decrease in investments of marketable securities of $4.2 million.

Current wording

For the six months ended June 30, 2024, we used $5.9 million in investing activities, consisting of $1.5 million in purchases of property and equipment (primarily data center infrastructure), and $11.5 million of investments in capitalized internal-use software, and a net decrease in investments of marketable securities of $7.2 million.

Previous wording

For the three months ended March 31, 2023, we used $18.3 million of cash in investing activities, consisting of $1.4 million in purchases of property and equipment (primarily data center infrastructure), $6.0 million of investments in capitalized internal-use software, and a net increase in investments of marketable securities of $10.8 million.

Current wording

For the six months ended June 30, 2023, net cash provided by investing activities of $6.2 million was primarily due to sales of marketable securities prior to maturity of $18.9 million, and decreases due to $2.6 million in purchases of property and equipment (primarily data center infrastructure), and $9.9 million of investments in capitalized internal-use software.

Previous wording

For the three months ended March 31, 2024, net cash used in financing activities of $18.7 million was primarily due to purchases of treasury stock of $17.5 million, including the prepayment of funds for future purchases of approximately $1.8 million, and payment of a business combination indemnification holdback of $2.1 million, offset by proceeds from employee stock option exercises of $0.9 million.

Current wording

For the six months ended June 30, 2024, net cash used in financing activities of $35.4 million was primarily due to purchases of treasury stock of $35.9 million, payment of a business combination indemnification holdback of $2.1 million, offset by proceeds from employee stock option exercises of $1.3 million and proceeds from our employee stock purchase plan of $1.5 million.

Previous wording

For the three months ended March 31, 2023, net cash used in financing activities of $7.6 million was primarily due to purchases of treasury stock.

Current wording

For the six months ended June 30, 2023, net cash used in financing activities of $21.6 million was primarily due to purchases of treasury stock.

Previous wording

As of March 31, 2024, we had $5.0 million of long-term income tax liabilities, including interest, related to uncertain tax positions. Because of the high degree of uncertainty regarding the settlement of these liabilities, we are unable to estimate the years in which future cash outflows may occur.

Current wording

As of June 30, 2024, we had $5.1 million of long-term income tax liabilities, including interest, related to uncertain tax positions. Because of the high degree of uncertainty regarding the settlement of these liabilities, we are unable to estimate the years in which future cash outflows may occur.