PubMatic Inc

Previous wording

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”).

Current wording

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31,2024 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”).

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 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.

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 April 2025, Google confirmed that it was abandoning its effort to deprecate the 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

Additionally, recent interest rate increases, foreign currency fluctuation and persistent inflation in the U.S. and other markets globally continue to create economic volatility and dislocation in the capital and credit markets in the U.S. and globally. To date, we have not observed material impacts in our business or outlook, but we intend to continue to monitor macroeconomic conditions closely and may determine to take certain financial or operational actions in response to such conditions to the extent our business begins to be adversely impacted.

Current wording

Additionally, recent macroeconomic uncertainty, including adopted or proposed changes in the trade policies and tariff rates of the United States and international trade partners, slowing domestic growth, economic recession concerns, interest rate fluctuations, volatility in domestic and international equity and debt markets, foreign currency fluctuation and weakening of the U.S. Dollar, and persistent inflation in the U.S. and other markets globally, continue to create economic volatility and dislocation in the capital and credit markets in the U.S. and globally. To date, we have not observed material impacts in our business or outlook, but we intend to continue to monitor macroeconomic conditions closely and may determine to take certain financial or operational actions in response to such conditions to the extent our business begins to be adversely impacted.

Previous wording

See “Risk Factors” in this report and in our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion of the risks related to inflation, rising interest rates, foreign currency fluctuations and public health crises on our business.

Current wording

See “Risk Factors” in this report and in our Annual Report on Form 10-K for the year ended December 31, 2024 for further discussion of the risks related to inflation, volatile interest rates, foreign currency fluctuations and general macroeconomic uncertainty on our business.

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 112% for the trailing twelve months ended September 30, 2024 and 97% for the trailing twelve months ended September 30, 2023. Our revenue growth in the period ended September 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.

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 102% for the trailing twelve months ended March 31, 2025 and 106% for the trailing twelve months ended March 31, 2024.

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 over 50% of total activity for the three months ended September 30, 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 over five years and SPO represented over 55% of total activity for the three months ended March 31, 2025.

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 631 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 665 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 September 2024, our platform processed approximately 781 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 March 2025, our platform processed approximately 842 billion ad impressions daily, each in a fraction of a second.

Previous wording

We report revenue on a net basis. This represents gross billings to buyers, net of amounts we pay publishers. We record our accounts receivable at the amount of gross billings to buyers, net of allowances, for the amounts we are responsible to collect, and we record our accounts payable at the net amount payable to publishers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue, which is reported on a net basis.

Current wording

We report revenue on a net basis. This represents gross billings to buyers, net of amounts we pay publishers and rebates associated with SPO agreements with buyers. We record our accounts receivable at the amount of gross billings to buyers, net of allowances, for the amounts we are responsible to collect, and we record our accounts payable at the net amount payable to publishers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue, which is reported on a net basis.

Previous wording

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

Current wording

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

Previous wording

Revenue for the three months ended September 30, 2024 increased by $8.1 million, or 13%, compared to the three months ended September 30, 2023. Revenue for the nine months ended September 30, 2024 increased by $23.3 million, or 13%, compared to the nine months ended September 30, 2023. Our revenues were primarily driven by increased impressions processed on our platform, new revenue streams, and growth in customer relationships. In addition,our revenues for the three and nine months ended September 30, 2024 benefited by approximately $4.2 million and $5.3 million, respectively, from incremental political spend in the United States due to the 2024 presidential election. Our business was negatively impacted by bidding methodology changes implemented by one of our buyers in the second half of the second fiscal quarter.

Current wording

Revenue for the three months ended March 31, 2025 decreased by $2.9 million, or 4%, compared to the three months ended March 31, 2024. Our revenues were primarily driven by impressions processed on our platform, new revenue streams, and growth in customer relationships. These were negatively impacted by bidding methodology changes implemented by one of our buyers in 2024 resulting in a year over year decline in revenues.

Previous wording

As of September 30, 2024, we served approximately 1,900 publishers and app developers worldwide on our platform, compared to approximately 1,750 publishers and app developers worldwide as of September 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.

Current wording

As of March 31, 2025, we served approximately 1,950 publishers and app developers worldwide on our platform, compared to approximately 1,800 publishers and app developers worldwide as of March 31, 2024. 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

Cost of revenue decreased $0.6 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to a $1.1 million decrease in data center costs offset by a $0.4 million increase in personnel costs as headcount increased. Overall, our cost of revenue per impression processed for the three months ended September 30, 2024 decreased by approximately 22% compared to the three months ended September 30, 2023.

Current wording

Cost of revenue increased $0.2 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to a $0.5 million increase in depreciation and amortization, offset by a $0.4 million decrease in personnel costs. Overall, our cost of revenue per million impressions processed for the three months ended March 31, 2025 decreased by approximately 22% compared to the three months ended March 31, 2024.

Previous wording

The increase in technology and development costs for the three months ended September 30, 2024 was primarily due to an increase of $2.9 million in personnel costs as headcount increased, partially offset by an increase of $1.0 million related to the capitalization of internal-use software.

Current wording

The increase in technology and development costs for the three months ended March 31, 2025 was primarily due to an increase of $0.9 million in personnel costs as headcount increased, partially offset by an increase of $0.2 million related to the capitalization of internal-use software.

Previous wording

Sales and marketing costs for the three months ended September 30, 2024 increased primarily due to a $3.8 million increase in personnel costs and a $0.2 million increase in facilities costs.

Current wording

Sales and marketing costs for the three months ended March 31, 2025 increased primarily due to a $0.9 million increase in personnel costs and a $0.9 million increase in travel and entertainment costs.

Previous wording

We expect sales and marketing expenses to increase in 2024 compared to 2023 in absolute dollars primarily due to additional headcount investment and marketing programs.

Current wording

We expect sales and marketing expenses to increase in 2025 compared to 2024 in absolute dollars primarily due to additional headcount investments.

Previous wording

General and administrative expense increased for the three months ended September 30, 2024 primarily due to a $1.9 million increase in personnel costs and a $1.0 million increase in professional services fees.

Current wording

General and administrative expense increased for the three months ended March 31, 2025 primarily due to a $0.4 million increase in personnel costs.

Previous wording

We expect general and administrative expenses to increase in 2024 compared to 2023 in absolute dollars primarily due to additional headcount.

Current wording

We expect general and administrative expenses to increase in 2025 compared to 2024 in absolute dollars primarily due to employee compensation.

Previous wording

Interest income decreased for the three months ended September 30, 2024 compared to the prior year period due to a decrease in the Company’s interest-bearing securities balance. Interest income increased for the nine months ended September 30, 2024 compared to the prior year period due to the increase in interest rates.

Current wording

Interest income decreased for the three months ended March 31, 2025 compared to the prior year period due to a decrease in the Company’s interest-bearing securities investments.

Previous wording

Other income (expense), net decreased for the three months ended September 30, 2024 due to foreign exchange rate fluctuations. Other income (expense), net increased for the nine months ended September 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.

Current wording

Other income (expense), net decreased for the three months ended March 31, 2025 due to foreign exchange rate fluctuations.

Previous wording

The difference between the effective tax rate for the three months ended September 30, 2024 of (180)% and the federal statutory income tax rate of 21% was related to tax benefits from foreign-derived intangible income (FDII), 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 6% for the three months ended September 30, 2023 was related to the tax benefit from FDII, the 2022 federal tax provision to return adjustments and research tax credit, partially offset by an increase in nondeductible stock-based compensation and Section 162(m) limitation on the tax deductibility of officers’ compensation.

Current wording

The difference between the effective tax rate for the three months ended March 31, 2025 of 16% and the federal statutory income tax rate of 21% was related to tax benefits from foreign-derived intangible income (FDII), 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 9% for the three months ended March 31, 2024 was related to the tax benefit from FDII, 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.

Previous wording

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

Current wording

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

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 September 30, 2024, we had cash, cash equivalents, and marketable securities of $140.4 million and net working capital, consisting of current assets less current liabilities, of $137.0 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 March 31, 2025, we had cash, cash equivalents, and marketable securities of $144.1 million and net working capital, consisting of current assets less current liabilities, of $155.1 million.

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 nine months ended September 30, 2024, we repurchased 3,572,563 shares of Class A common stock under the 2023 Repurchase Program and 2024 Repurchase Program, collectively, for an aggregate purchase price of $64.8 million. As of September 30, 2024, $50.9 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.

Current wording

In February 2023, our board of directors authorized the 2023 Repurchase Program which was to terminate as of December 31, 2024 (as amended, the “2023 Repurchase Program”). In February 2024, our board of directors authorized an additional $100.0 million for repurchases under the 2023 Repurchase Program, and extended the termination date to December 31, 2024 (the “2024 Repurchase Program Extension”). During the three months ended March 31, 2025, we repurchased 339,000 shares of Class A common stock under the 2023 Repurchase Program for an aggregate purchase price of $3.6 million. As of March 31, 2025, $36.8 million remained available for future share repurchases under the 2023 Repurchase Program.

Previous wording

Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our buyers and related payments to our publishers, as well as our investment in personnel to support the anticipated growth of our business. Cash flows from operating activities have been affected by changes in our working capital, particularly changes in accounts receivable and accounts payable. The timing of cash receipts from buyers and payments to publishers can significantly impact our cash flows from operating activities. For example, we noted an impact to our operating cash flows for the nine months ended September 30, 2024 as a result of shifts in spend from one of our large DSPs. In addition, we expect seasonality to impact quarterly cash flows from operating activities.

Current wording

Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our buyers and related payments to our publishers, as well as our investment in personnel to support the anticipated growth of our business. Cash flows from operating activities have been affected by changes in our working capital, particularly changes in accounts receivable and accounts payable. The timing of cash receipts from buyers and payments to publishers can significantly impact our cash flows from operating activities. For example, we noted an impact to our operating cash flows for the three months ended March 31, 2025 as a result of shifts in spend from one of our large DSPs. In addition, we expect seasonality to impact quarterly cash flows from operating activities.

Previous wording

For the nine months ended September 30, 2024, net cash provided by operating activities of $55.4 million resulted primarily from adjustments for non-cash expenses of $52.8 million, including $33.9 million for depreciation and amortization and $28.3 million for stock-based compensation, offset by a net loss of $1.4 million, an increase in accounts receivable of $1.3 million, an increase in prepaid expenses and other assets of $1.6 million, a decrease in operating lease liabilities of $4.7 million, and an increase in accounts payable of $8.8 million.

Current wording

For the three months ended March 31, 2025, net cash provided by operating activities of $15.6 million resulted primarily from adjustments for non-cash expenses of $17.9 million, including $11.7 million for depreciation and amortization and $9.7 million for stock-based compensation, a decrease in accounts receivable of $75.7 million, a decrease in prepaid expenses and other assets of $5.7 million, offset by a net loss of $9.5 million, a decrease in accounts payable of $62.6 million, and a decrease in accrued liabilities of $11.3 million.

Previous wording

For the nine months ended September 30, 2023, net cash provided by operating activities of $52.4 million resulted primarily from adjustments for non-cash expenses of $48.3 million, including $33.7 million for depreciation and amortization and $21.5 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 $8.4 million, offset by a net loss of $9.8 million, and an increase in accrued liabilities of $3.2 million.

Current 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.

Previous wording

For the nine months ended September 30, 2023, we used $7.7 million in investing activities, consisting of $5.4 million in purchases of property and equipment (primarily data center infrastructure), and $13.7 million of investments in capitalized internal-use software, a net increase in investments of marketable securities of $7.4 million, offset by an increase from sales of marketable securities prior to maturity of $18.9 million.

Current wording

For the three months ended March 31, 2025, we used $10.1 million in investing activities, consisting of $1.4 million in purchases of property and equipment (primarily data center infrastructure), and $6.9 million of investments in capitalized internal-use software, and a net increase in investments of marketable securities of $1.7 million.

Previous wording

For the nine months ended September 30, 2024, we used $9.6 million in investing activities, consisting of $13.3 million in purchases of property and equipment (primarily data center infrastructure), and $16.1 million of investments in capitalized internal-use software, and a net decrease in investments of marketable securities of $39.0 million.

Current 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.

Previous wording

For the nine months ended September 30, 2024, net cash used in financing activities of $64.6 million was primarily due to purchases of treasury stock of $65.4 million, payment of a business combination indemnification holdback of $2.1 million, offset by proceeds from employee stock option exercises of $1.6 million and proceeds from our employee stock purchase plan of $1.5 million.

Current 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.

Previous wording

As of September 30, 2024, we had $5.4 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 March 31, 2025, we had $5.3 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.

Previous wording

Besides the update to our allowance for credit losses as included within "Note 2 – Basis of Presentation and Summary of Significant Accounting Policies" to the condensed consolidated financial statements in this report, there have been no significant changes in our critical accounting policies and estimates from those disclosed in our audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2024.