PubMatic, Inc.

Hello everyone and welcome. We will begin momentarily. Hello, everyone, and welcome to Pubmatic's second quarter 2023 earnings call. My name is Catherine, and I'll be your Zoom operator today. Thank you for your attendance today. This webinar is being recorded. 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 second quarter ended June 30th, 2023. 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 and use the raise hand function located at the bottom of your screen. A copy of our press release can be found on the website at investors.pubmatic.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. These 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 our subsequent filings on Forms 10-Q or 8-K, which are on file with the Securities and Exchange Commission and are available at investors.pubmedx.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 August 8, 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, non-GAAP net income, and free cash flow. 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 gap measures is available in our press release. And now I will turn the call over to Rajiv.

Thank you, Stacey, and good afternoon, everyone. We drove strong results without performance on the top line, driven by the strength of our omnichannel platform and deep relationships with customers and partners. Adjusted EBITDA was $12.0 million, which includes the impact from a demand-side platform customer that filed for bankruptcy. Excluding this impact, adjusted EBITDA would have been $17.7 million, highlighting the strength of our business model and our ability to drive incremental profit and generate healthy free cash flow. As we highlighted at the beginning of the year, we continue to focus on deepening our customer relationships and making highly focused innovation investments that we believe will position us for outside share gains when digital ad spend growth inevitably turns upward. This strategy continues to yield results and is strengthening our position within the ecosystem. We continue to build deeper, stickier relationships with customers. At the same time, we are adding new publishers and buyers to our platform. Our total number of active customers grew 13% year over year, and we are now monetizing inventory from over 1,750 publishers. In the last year, we've also increased the number of advertisers on the platform by almost 30%. New product innovation is driven by the same land and expand approach. The two major technology launches we have announced this year activate and very recently convert. Each significantly expand our total addressable market while providing incremental growth opportunities with our existing customers. We do all of this on our owned and operated infrastructure, which allows us to deliver productivity and efficiency gains that we anticipate will improve margins in the future. These efficiencies also benefit our customers, which in turn drive greater customer success and expansion on the platform. In the near term, the current digital advertising environment continues to be fluid. Many advertisers remain cautious about the economic environment as they closely manage ad budgets in case of a potential recession, particularly around brand advertising. In addition, current supply growth is outpacing ad budget growth. Combined, these two factors are resulting in an industry-wide downward impact on CPMs or ad pricing in the short term. This will normalize once ad budgets stabilize and start to grow. As a result, impression volume on the Pubmatic platform continued to grow in the second quarter. However, CPMs were softer than expected, particularly in June with continued downward trends in July. Despite these headwinds, we remain in a leadership position. We have increased capacity on our platform toward higher value formats, optimizing for impressions that command higher overall CPMs. I am confident in our growing list of long-term revenue drivers and ability to gain market share. We have a strong and sustainable financial profile, and our deep technology innovation is widening our competitive mode. What's more, we benefit from industry-wide shifts and consolidation. The current macro environment is forcing publishers and buyers to do more with less. Publishers are looking to better monetize their inventory across a wider set of channels and formats, and they are abandoning homegrown technology and increasingly relying on technology providers such as ourselves. At the same time, buyers are seeking greater efficiencies and control across their digital advertising supply chains. Both require integrating leading global omni-channel and transparent technology solutions that are market leaders in innovation. This trend is rapidly playing out across the broadcast industry, resulting in a shift from traditional guaranteed upfront media buying to a scatter market or programmatic approach. Publishers, including large CTV publishers, are following suit in order to maintain access to advertiser budgets. As we predicted at the time of our 2020 IPO, we are seeing the programmatic disruption of CTV take hold. As a result, we delivered over 30% growth in CTV and our pipeline of tier one streamers is growing. We are in active conversations with dozens of CTV publishers, including some of the biggest names in streaming media. We have new and expanded partnerships with premium video providers, including AMC Networks, DirecTV, Fox Digital, TiVo, and Warner Brothers Discovery EMEA. Accelerating this pipeline is Activate, which provides publishers with unique buyer demand not available elsewhere. As buyers continue to consolidate via supply path optimization, we've increased our sales focus and investments in this area. As a result, activity from SPO continues to climb. In the second quarter, SPO made up over 40% of activity on our platform, an all-time high. Our long-term expectation has been that SPO would eventually reach 50% or more of total activity, and we are well on our way to reaching this milestone. Not only is SPO a significant contributor to top-line growth, but it's an important driver of incremental long-term margin expansion. Our continuous reinvestment of profit into targeted innovation underpins our long-term growth strategy. With generative AI, we can further expand and accelerate our innovation. While still early, we are seeing gains in engineering productivity across many use cases, including building proofs of concept for future products. We're also seeing greater efficiencies through use of generative AI to increase automation, such as software testing. As a result, we have already started to shift hiring away from software testing engineers to feature development engineers. It's still very early in the application of generative AI, and we continue to experiment with many different opportunities. Exactly three months ago, we launched Activate, our end-to-end SPO solution that enables buyers to execute non-bidded direct deals on Pubmatic's platform while accessing CTV and premium video inventory at scale. Activate represents a nearly 65 billion expansion of our total addressable market. We couldn't be more pleased with the industry reception and interest that this highly innovative product has received. We're seeing traction and enthusiasm across every region and have active agency and advertiser discussions with several dozen accounts. We are hard at work building more features into the platform based on our vision and customer input. While we are scaling up existing customers and adding new ones, we are investing in building out a global customer success team to help our customers expand their usage of Activate. Over the next couple of months, we will extend the availability of Activate from the Americas and EMEA regions into APAC. Two weeks ago, we launched Convert, our unified solution for commerce media that leverages our global infrastructure, ad monetization expertise, and customer relationships. Over the years, we've built relationships with retail and commerce customers and have gained a deep understanding of the unique technological challenges they must solve for in order to build out their multi-pronged ad businesses. One of the biggest challenges that these retailers or commerce media participants face is the fragmentation of the advertising ecosystem and the complexity that it creates. For example, a grocery store chain may use one platform for their on-site sponsored listings, another for on-site display and video ads, and yet another for off-site audience extension across the open internet. Not only does this require their teams to learn multiple systems, but their advertising data is also proliferated across various partners, causing challenges for closed loop reporting and optimization, in addition to privacy or data security concerns. For advertisers, this challenge is multiplied across the different retailers they want to work with. Our latest offering, Convert, is built to solve these challenges by centralizing commerce media capabilities in a single self-service platform that offers onsite and offsite monetization across a variety of ad formats, including our newly available sponsored listings capability. For the past two years, we have been building the new platform to work for both traditional retailers as well as high-transaction businesses, such as transportation or food delivery providers, travel companies, or any scaled commerce company that processes transactions. We have seen strong interest among commerce companies around the globe, including rideshare provider Lyft and Wallapop, a leading European classified listing site. By integrating sponsor listings into our existing omnichannel solutions, CTV, video, and display, all onto a single platform, agencies and advertisers can easily access all available inventory and programmatically deploy working media dollars with the same transparency and fee and pricing structures that Pubmatic is known for. Major media buyers like Dentsu, IPG, and MIQ are partnering with us to help their advertisers more efficiently scale access to commerce media inventory and data. With the addition of Convert to our growing software suite, including our SSP and Connect, we now offer a comprehensive solution for commerce media that allows commerce media networks to tap into Pubmatic's nearly two decades of success, helping media and data owners safely and securely monetize their assets programmatically. With this launch, we are significantly expanding our total addressable market by 10 billion and growing. Much of this TAM expansion is from performance marketing budgets, which will allow us to further diversify our business beyond brand ad spend. I'm extremely proud of our team and all that we've accomplished so far this year. We've increased suppression capacity to accelerate the shift in our business towards higher value formats and channels, while also significantly expanding our TAM with the launch of two innovative solutions. Our land and expand strategy is proving successful, adding more publishers to the platform and building stickier relationships with existing customers and partners. We remain a leader in a rapidly evolving industry, and our investments and achievements today strategically position Podmatic for long-term, durable growth. We believe the industry will continue to consolidate, strengthening the leaders in the space that provide omnichannel global scale and creating more opportunities along the way for technology innovation to play an even bigger role across the ecosystem. I'll now hand it over to Steve for the financial details.