PubMatic, Inc.

Hello everyone and welcome. We will begin momentarily. Hello everyone. Welcome. We will begin momentarily. Hello everyone and welcome to Pubmatic's fourth quarter and full year 2022 earnings call. My name is Kelly and I will be your Zoom operator today. Thank you for your attendance. This webinar is being recorded and I will now turn the call over to Stacey Clements with the Blue Shirt Group.

Good afternoon everyone and welcome to Pubmatic's earnings call for the fourth quarter and year ended December 31st, 2022. This is Stacey Clements with the Blue Shirt Group, and I'll be your operator today. Joining me on the call are Rajiv Goel, co-founder and CEO, and Steve Pantelik, CFO. Before we get started, I have a few housekeeping items. Today's prepared remarks have been recorded, after which Rajiv and Steve will host live Q&A. If you plan to ask a question, please ensure you've set your Zoom name to display your full name and firm. If you would like to ask a question during this time, please use the raise hand function located at the bottom of your screen. A copy of our press release and accompanying slides can be found on our website at investors.pomatic.com. I would like to remind participants that during this call, management will make forward-looking statements, including without limitation statements regarding our future performance, market opportunity, growth strategy, and financial outlook. Forward looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. These forward looking statements are subject to inherent risks, uncertainties, and changes in circumstances that are difficult to predict. You can find more information about these risks, uncertainties, and other factors in our reports filed from time to time with the Securities and Exchange Commission. including our most recent Form 10-K and any subsequent filings on Forms 10-Q or 8-K, which are on file with the Securities and Exchange Commission and are available at investors.pomatic.com. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. All information discussed today is as of February 28, 2023, and we do not intend and undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law. In addition, today's discussion will include references to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP net income. These non-GAAP measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release. With that, I will now turn the call over to Rajiv.

Thank you, Stacy, and welcome, everyone. Revenue for the year grew 13% over 2021, yet again outpacing the global digital ad market forecasts of 8.6% growth. Omnichannel video grew 42% year over year, and CTV alone tripled over last year as the format continues to evolve towards programmatic. These high-growth, highly profitable channels drove adjusted EBITDA margins of 38%. We generated over $87 million in net cash from operating activities and $38 million in free cash flow. Altogether, a compelling financial profile combined with ongoing targeted investments for long-term growth. The fourth quarter undoubtedly had its challenges. Performance was slightly below expectations as sharp declines in ad spend across the industry, particularly in December, impacted our business. In our case, we saw the largest sequential drop over November in the last 10 years. This primarily impacted the display portion of our business, which declined 11% over last year and continues to pressure overall growth. While omnichannel video continues to gain share at a rapid pace, display remains roughly two-thirds of our business. Revenues for our omnichannel video business in the fourth quarter continued to grow 25% year-over-year, and connected TV and over-the-top streaming more than doubled over Q4 last year. These high-growth areas remain intact, and we have reorganized resources to move quickly to innovate and execute across these areas. While these long-term growth drivers will diversify our revenue over time, we believe that when ad spend growth re-accelerates, display will recover as well. While visibility is limited due to the uncertain economic environment, our business model is unique with respect to our ability to consistently generate cash and maintain 30% plus annual adjusted EBITDA margins while also investing in future growth opportunities. We are efficient as a company and technology platform. We are highly nimble and innovative, leading in our category, and we have a strong balance sheet coupled with a long track record of profitability. As a result, we will use the current challenging economic environment to build even deeper relationships with our customers and make highly focused innovation investments that we believe will position us for outsized gains when digital ad spend growth inevitably turns upward. Moreover, we have taken significant steps to operate within the current environment, protect our cash flow, and set ourselves up for higher margins in the future. We ended 2022 with an estimated market share of 4% to 4.5%, significantly up from when we went public just over two years ago. We are well on our way to our stated goal from the time of our IPO of 20% market share, and we intend to use the downturn to further accelerate our gains. Stepping back, the opportunity for open Internet advertising has never been greater. Advertisers and publishers continue to seek alternatives to the walled gardens. This tailwind, along with the structural changes, including ongoing antitrust activities, will only expand our total addressable market as an independent technology provider. Moreover, consumers are increasingly seeking ad supported content experiences to offset other household budgetary priorities. As the ecosystem grows more complex, the need for greater efficiency is driving publishers and buyers toward technologies that help them better compete. The challenges of today's macro environment will pass, and we believe the investments we make today will have exponential impact as we continue to increase the value proposition and stickiness of our platform and expand our addressable market. We have a sizable global TAM that includes high growth ad formats such as CTV, online video, and mobile. In addition, we recently entered new markets like France, Spain, South Korea, and non-domestic China. We expand our addressable market even further. We see strong signs of success in these new markets, with nearly 90 customers signed in 2022 alone, such as French media company Amari Media, Spanish mass media company Vocento, the CTV content and ad business of electronics giant TCL, known as TCL Falcon, and Korean addressable TV leader SK Broadband. We have 1,600 plus publishers we already work with and continue to acquire new marquee customers such as Roku and TiVo in CTV and Kroger in retail media. In this slower economic environment, our priority is to deepen our relationships with existing customers and build the technical pipes for integrations with our customers for inventory and data access so that we are in an advantage position when ad spend growth picks up. Publishers are actively looking to add the right partners that can help them increase their revenue in these uncertain times. I have spent significant time in the last several months with a number of customers, and my view is that today's economic environment is likely to accelerate programmatic growth as publishers seek greater operational efficiencies to the alternatively high costs of managing a traditional insertion order-based business. In fact, we closed 50% more new customer additions and upsells in January 2023 as compared to January 2022. Once we sign a new customer, our focus turns to expanding that relationship through our sticky portfolio of solutions, such as a wrapper, mobile app SDK, identity, and data solutions, which further embed us into publisher monetization and workflows. Once integrated, customers continue to grow with Pubmatic. In 2022, we had high publisher logo retention of 97% and benefit from a high net dollar based retention rate of 108%. We spent the last two years investing in our sales and customer success team. We believe we have strong market coverage in place to continue to execute and drive market share gains. We entered 2023 having significantly reduced the pace of hiring, focusing instead on a very select number of high priority roles. At the same time, ad buyers are looking for more data-driven decision-making and measurable results. Major ad buyers are looking to consolidate their budgets with fewer partners in order to drive operational efficiency and effectiveness. The majority of ad spend comes from top agencies and advertisers. These powerhouses typically have multilayered decision-makers across multiple regions and require vast market coverage and expertise. We believe we are well positioned to gain share for two reasons. First, we've made the investments in our go-to-market coverage over the last two years, and our teams are already executing. Second, our differentiated technology, including workflow and data solutions, provide buyers with greater control over their ad budgets and ultimately higher return on ad spend. Activity from SPO grew to over 30% in Q4 2022, up from 21% in 2020. We continue to expand our relationships with major holding companies like GroupM and Havas, and recently with independent agencies like Horizon. We are one of only two independent global and omnichannel platforms at scale. And so it's quite possible that this economic environment will accelerate our SPO penetration in 2023. Let me turn now to our focus as it relates to product innovation. In 2022, we increased the number of product and features released by 30% over 2021 to almost 400, including Connect, OpenRap for CTV and mobile app, private marketplaces, CTV monetization, agency-specific solutions, and infrastructure upgrades. Looking to 2023, the key pillars of our focus for this year are supply path optimization and retail media. We are accelerating our cadence of product releases in these two areas based on product and engineering investments made over the last couple of years and our acquisition of Martin last fall. Our first priority is expanding our SPO offering. We have been hard at work integrating Martin technology, and we are receiving great feedback from agencies and advertisers on how we can help them further drive return on ad spend, measurement, and operational efficiency. We will make a series of product releases for buyers on our platform over the course of this year with a particular focus on CTV and online video monetization. Our second priority is retail media, which is one of the fastest growing categories within our addressable market. Over the past several quarters, we have been running existing capabilities in onsite monetization, data management, and audience targeting, specifically for retail media customers. Over the course of this year, we will make a series of product launches that brings automation, scale, and efficiency to this market. There is no doubt that we are in a challenging economic environment with muted digital ad spend growth in the near term. Based on our prior experience in such downturns, however, we expect to come out of this period even better positioned. We believe this environment favors scaled companies like Pubmatic that are efficient, highly innovative, nimble, and profitable. our focus on acquiring new customers and deepening integrations with existing customers as well as rapidly innovating in spo and retail media will be well rewarded when ad spend growth re-accelerates importantly we have built a durable business and we enter this period with a very strong financial profile generating healthy free cash flow and no debt this attractive profile provides us with an opportunity to expand our priorities with respect to capital allocation We operate in a large and growing market, and so we will continue to appropriately invest in the business to drive market share gains both organically and via acquisition from time to time. In addition, we are announcing a share repurchase program that allows us to return more value to shareholders. And finally, I want to add that we have aligned our investment strategy and continue to optimize for maximum productivity in anticipation of a less robust economic environment in the second half of the year, compared to what many are assuming. If the economy rebounds at a faster rate, we will adjust our plans appropriately to capture the opportunity. And now, let me turn it over to Steve to provide additional detail.