PubMatic, Inc.

Hello everyone and welcome. We will begin momentarily. Hello everyone and welcome to Pubmatic's second quarter 2026 earnings call. My name is Annabeth and I will be your Zoom operator today. Thank you for your attendance today. As a reminder, this webinar is being recorded. I will now turn the call over to Stacey Clements.

Good afternoon everyone and welcome to Pubmatic's earnings call for the second quarter of 2026. This is Stacey Clements and I'll be your operator today. Joining me on the call are Rajeev Goel, co-founder and CEO, and Steve Pantelick, CFO. Before we get started, I have a few housekeeping items. Today's prepared remarks have been recorded, after which Rajeev and Steve will host live Q&A. If you plan to ask a question, please ensure you've set your Zoom 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 our website at investors.pamatic.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, macroeconomic environment, and 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 and uncertainties in our reports filed with the Securities and Exchange Commission and available at investors.pomatic.com, including our most recent Form 10-K and any subsequent filings on Forms 10-Q or 8-K. 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 6, 2026, 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, adjusted EBITDA margin, non-GAAP net income, cash flows from operations, free cash flow, and free cash flow margin. 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 measure is available in a press release. And now I will turn the call over to Rajeev.

Thank you, Stacey, and good afternoon, everyone. We delivered an outstanding second quarter. More importantly, we returned to double-digit year-over-year revenue growth well ahead of schedule, and we expect that growth will accelerate through the second half of the year. I'm extremely proud of what the team has accomplished, in particular our innovation and leadership in agentic advertising. Over the past several years, we've made disciplined investments to diversify the business and strengthen our competitive position to deliver both faster growth and strong operating leverage. Today, approximately 60% of our business comes from CTV, mobile app, and emerging revenues, all of which fuel profitable double-digit growth. This represents a remarkable transformation of our business and fundamentally strengthens our long-term growth profile. With this strong foundation in place, Steve has announced his plans to retire. He will remain as CFO into the first quarter of 2027 and then in an advisory role through July 1st, ensuring a smooth transition as we conduct a search for a successor. Steve and I have worked together for 15 years, and it's difficult to overstate the impact he's had on Pubmatic. Under his leadership, we built a global company with the financial discipline to invest for the future while consistently generating cash, maintaining a debt-free balance sheet, and returning capital to shareholders. I'm deeply grateful for his partnership, his friendship, and his many, many contributions to PubMatic. He's built an exceptional finance organization that positions PubMatic to create long-term value for years to come. Helping us build that future is our new Global Chief Revenue Officer, Megan Ram, who joins us on Monday, August 10th. Megan brings deep direct-to-brand and performance advertising expertise with established relationships across marquee brands. Her rigor around sales process and execution will enhance our sales effectiveness and is a natural fit with our culture. Together, these strengths will help accelerate the adoption of our AI-powered platform while strengthening our commercial capabilities. These leadership milestones reflect the evolution of both our company and our industry. It is clear digital advertising is entering its next major technology transition as AI reshapes how media is bought and sold across the open internet. And Pomatic is at the epicenter of this change with market meeting scale. Since launching Agentic OS in January, we've delivered over 80 Agentic campaigns, including with all five global agency holding companies. This is up from 30 campaigns just a quarter ago. For years, the Walt Gardens have delivered superior advertising performance because they operate a single integrated technology platform that optimizes media and audiences for advertisers. With Activate and a Genetic OS, we're bringing those same performances and technical advantages to the open internet. As a result, we're monetizing far more of the value chain between advertisers and publishers than at any point in our history and attracting entirely new customer types to our platform. And because our business is built on outcomes and usage, we generate revenue when we deliver the best outcomes for our customers. The advantage will be determined not by traditional software user interfaces, but rather by AI-native infrastructure, proprietary intelligence, and the ability to consistently deliver superior outcomes. We've spent two decades building these capabilities. Today, they're redefining how value is created across the open internet by delivering compelling, measurable outcomes. Level Agency is a great example of this. In a controlled comparison against their incumbent DSP, the Genentech OS delivered in excess of two times more reach per dollar on qualified audiences, while significantly accelerating campaign setup and activation time. Additionally, AgenticOS delivered retargeting at scale within days compared to the one to two months ramp typically required by DSP-led campaigns. As a result, Level increased ad spend with Pumatic to expand its buying across the open internet. Patrick Van Gorder, Chief Partnership Officer at Level Agency, said it best. What Agentic OS delivered changed how we're thinking about where the open internet can compete for client budgets. And that's exactly the kind of adaptive advantage and innovation we're always looking for. Level is one of many examples. Across Havas and Telefonica, Amnet and Interbev, above Omax Fleet, Butler Till, and many others, we're consistently delivering better performance, faster execution, and greater efficiency. And it's changing how buyers are thinking about the value chain. Those results are driven by our unified platform, where multiple competitive advantages compound and are increasingly difficult to replicate. They're built on years of investment across our infrastructure, intelligence, solutions, and customer relationships. First is Agentic OS. We have deployed over 20 agents to automate and optimize core buying and selling workflows. As Agentic advertising compresses the traditional workflow, more of the transaction runs through Pubmatic's infrastructure. This allows us to create more value for our customers and drive incremental revenue back to Pubmatic. This week, we announced an exciting new agent for enterprise buyers. It provides configurable controls, approved workflows, and full audit trails for autonomous campaigns. As customers move more budget into agentic buying, trusted governance becomes essential, and we believe this capability will help accelerate enterprise adoption of agentic OS. Second is Activate. Activate enables advertisers to buy directly in our SSP. This significantly increases working media and operational efficiency while also targeting audiences at the point of auction. The result is better advertiser performance, including Comscore, Nielsen, Experian, TransUnion, PayPal, Intuit, Klarna, Walmart, and more, with our own proprietary Bitstream data, which exists only on PodMatic. As our business continues to grow, particularly in login environments like CTV and mobile app, the quality and depth of those signals continues to improve, making our platform smarter with every campaign and every transaction. This intelligence runs on our AI-native infrastructure. Through our partnership with NVIDIA, we're able to process massive amounts of data and execute increasingly sophisticated AI-driven decisioning in real time. And fourth is our premium SSP inventory, which includes nearly the entire open internet. Over 2,000 publishers representing 100,000-plus streamers, mobile apps, and websites. Most recently, we added Marquee Broadcaster Channel 4 in the UK and announced a strategic partnership with Sony Pictures Entertainment as their preferred sell-side platform, delivering access to hundreds of millions of monthly users across PlayStation and Sony Broad via TVs. Importantly, these advantages reinforce one another. The premium supply generates unique signals. Those signals strengthen our proprietary intelligence. That intelligence improves advertising outcomes. Better outcomes attract more advertisers, more campaigns, and more data, creating a compounding advantage with every transaction. Building on this advantage, in Q2 we introduced Decision Fabric, the next evolution of our platform. Introduced in June, Decision Fabric enables advertisers, DSPs, and technology partners to securely deploy their proprietary models directly within Pubmatic's infrastructure. This is commonly referred to as containerization. By running their models closer to our inventory data and the point of auction, customers will removed the traffic shaping and latency constraints that have historically limited performance across the open internet, allowing them to unlock better advertising outcomes. We're seeing encouraging transaction with launch partners, including MIQ, Chalice AI, Swim.ai, Empowered, and a growing number of DSPs. This is an exciting opportunity that we believe will transform the way advertising is transacted on the open internet. More importantly, our unified platform and compounding intelligence are unlocking performance advertising budgets on PubMatic. It's expanding our wellness brand, expanded into premium CTV without sacrificing the performance measurement and optimization it relies on in social media. Using a genetic OS, the campaign delivered a 5x return on ad spend, double the client's original objective, while significantly accelerating optimization and campaign execution. We're seeing this same trend scale across our DSP partnerships. SmartX, a leading performance CTV advertising platform for apps and games, and a business unit of EntryVision partnered with Matic to leverage our premium CTV inventory using our first-party audience targeting and cross-device measurement capabilities. As performance improved, Smotic's increased spend on Pomatic over 10x year-over-year, with 75% of that incremental spend flowing into CTV. This kind of measurable performance is unlocking entirely new advertising budgets for Pomatic, and it's reshaping the inventory advertisers want to buy. Creator-led video is another incremental opportunity, which now accounts for 26% of all TV and video viewers. Yet, much of that market has remained within walled gardens, even as TV platforms have brought creator content to the living room. As brands look to stand out, they're increasingly seeking creators whose audiences, values, and content naturally align with their brand. With the launch of our Creator Marketplace, we're bringing our infrastructure and agentic OS to the creator economy, enabling advertisers to connect to a premium inventory and reach highly engaged audiences while giving creators new ways to monetize across the internet. For Pomatic, this positions us well as the creator economy, which is approximately $250 billion globally, moves into the open internet advertising market, representing an entirely new category of publishers to our platform. Performance is also driving growth across our live sports marketplace, where activity more than doubled year over year, highlighting the scale of our premium inventory and the strength of our offering. We were recently recognized with several industry awards, including the Drums Technology Innovation Award, for helping advertisers buy live sports inventory with precision. As more premium events enter the programmatic market like US Open for Tennis, NFL, NBA, MLB, and NCAA, there is significant opportunity to scale growth from this vertical. Accelerating the value of our live sports offering, we recently partnered with GraceNote to bring real-time content and make decisions within the milliseconds available before every impression is served. That's particularly valuable in live sports, where context changes continuously and buyers need to optimize campaigns in real time. Whether it's contextual signals from live sports or commerce signals tied to purchasing behavior, our strategy is the same, bringing differentiated data closer to every advertising decision. As more buyers, publishers, and transactions run across our platform, that intelligence compounds and improves advertiser performance, increases publisher yield, and makes our platform more valuable with every interaction. That's the power of the platform we built. The investments we've made over the last several years are translating into accelerated, profitable growth. By investing early in AI, we've established a leadership position that continues to widen as more customers adopt our platform. We built a platform that is attracting more buyers, more publishers, more data, and more advertising to spend. Just as importantly, we're expanding the market we can serve, bringing new forms of advertising, new sources of demand, and new intelligence onto our platform. That not only increases the value we can create for customers, it also expands the long-term growth opportunity for Pomatic, which we believe is significantly larger than the business we operate today. I'll now turn the call over to Steve for the financials.

Thank you, Rajeev, and welcome, everyone. We delivered an outstanding second quarter, significantly exceeding our expectations on both the top and bottom line. Our revenues grew 11% year-over-year, adjusted EBITDA increased 38%, and free cash flow increased 47%. We saw strength across channels and formats, underscoring the breadth and depth of our platform. Our high-value formats and channels gained momentum and scale, and we continued diversifying the business. AI adoption across our company is accelerating innovation, driving revenue growth, improving customer outcomes, and unlocking incremental cost efficiencies. Importantly, we returned to double-digit revenue growth ahead of schedule. Today, our revenue mix is fundamentally different than it was three years ago. The majority of our business now comes from high-value formats and channels, which are the fastest-growing segments of digital advertising. In Q2, approximately 60% of our revenue came from CTV, mobile app, and emerging revenue streams, double that from three years ago. Together, these categories grew nearly 40% year-over-year, Breaking this down further, CTV growth was led by the Americas, which grew 25% year-over-year, driven by new CTV advertisers and expansion of premium inventory, including live sports. Globally, CTV revenue grew 13% year-over-year and accounted for approximately 20% of total revenue. Mobile app grew more than 40% year-over-year and represented approximately 25% of total revenue due to it. Growth was driven by the mediation platform integrations we highlighted last quarter, ongoing product innovation, and continued expansion of our global app publisher base. Emerging revenue streams continued their strong momentum and nearly doubled year-over-year, reaching an all-time high of approximately 15% in total revenue. Growth was driven by increased adoption of our new AI products, including Agentech OS. on a global basis, direct buying on Activate more than doubled year-over-year. Total display revenues grew strongly at 12% year-over-year, primarily driven by mobile app growth. In Q2, we saw the benefit of our broad, diversified omnichannel platform. Across our channels and formats, we generated several million dollars of incremental revenues from the World Cup, Amazon Prime Day, and political advertising. We continue to enhance our platform with capabilities that make it easier for advertisers of all sizes to achieve strong ad performance. This is contributing to a broader and more diversified DSP mix. Activity from our mid-market DSP partners accelerated compared to the first quarter, growing over 25% year-over-year in Q2. Looking ahead, we expect activity from mid-market DSP partners to further increase, driven by new inventory categories like content creators, growing demand from direct-to-consumer roles, and continued investment in our go-to-market teams. Turning to our diversified ad verticals, in aggregate, our top 10 ad verticals increase 15% year-over-year. We saw a double-digit percentage growth in five of the top 10 verticals led by shopping, health and fitness, and personal finance. This helped offset some softness in food and drink, arts and entertainment, and travel. Our own and operating infrastructure continues to be a significant competitive and financial advantage. The investments we've made over the last five years are enabling us to introduce higher value capabilities while improving the efficiency of our platform. That was evident in the second quarter, where revenue grew 11% and gross profit increased 19%. We intend to reduce the number of gross impressions processed to unlock cost savings and repurpose compute capabilities while increasing the number of monetized impressions. We saw the first results of these efforts in the second quarter as we reduced gross impressions sequentially by 2% while increasing monetized impressions by 4%. This is an intentional outcome of how we are evolving the platform and ensuring results in an even more efficient business over time. As we prioritize the impressions that create the most value, we expect our monetization rate to continue rising in future quarters. AI is also improving productivity across the organization. In the second quarter, total headcount declined year-over-year as AI and automation increased efficiency across engineering, marketing, customer success, and finance. AI funded incremental investments in our buyer-focused sales team and broader go-to-market organization, while holding total OPEX growth to 4%, well below our revenue growth. Q2 adjusted EBITDA was $19.6 million or 25% margin compared to the 20% margin a year ago, our 41st consecutive quarter of positive adjusted EBITDA. Q2 gap net loss was $1.2 million or minus $0.03 per diluted share. Moving to cash and our capital allocation, our balance sheet remains a core strategic advantage. We generated $20.2 million in net operating cash flows in the second quarter, up 36% over last year, and delivered free cash flow of $13.7 million, a 47% increase over last year. To underscore our long-term ability to generate cash since the beginning of 2021 through Q2 2026, we have generated nearly $450 million in net cash from operations and more than $246 million in free cash flow. During the quarter, we used $21.5 million in cash to repurchase 2.1 million Class A common shares. We ended the quarter with $137.5 million cash in marketable securities and zero debt. Our capital allocation strategy remains disciplined and balanced, focused on long-term shareholder value creation. We continue to invest in innovation and infrastructure to drive incremental organic growth while maintaining the flexibility to pursue strategic M&A opportunities. We have also made a long-term commitment to return capital to shareholders via our share repurchase program. Since the inception of our repurchase program in February 2023, through the end of Q2, we have bought back 15.5 million Class A common shares for $211.4 million. We have $63.6 million remaining in this program and authorized to the end of 2026. Moving on to our outlook, the strong momentum we built throughout the second quarter continued into July. In Q3, we anticipate continued double-digit year-over-year revenue growth with revenue of $75 to $77 million, or 12% growth at the midpoint. Q3 adjusted EBITDA is expected to be in the range of $17 to $19 million. We expect cost of revenue and OPEX to increase by a low single-digit percentage sequentially in Q3, with continued go-to-market investment through the balance of the year. As revenues expand with our leveraged cost model, we expect Q4 adjusted EBITDA margins similar to last year's fourth quarter, leading to a meaningful full-year margin expansion. Last quarter, we described our plans to further shift our platform investments to target GPU-centric infrastructure that will strengthen our proprietary data intelligence, creating a compounding advantage as the business continues to grow. We believe this approach will be a durable accelerant to growth over the long term while also supporting the broader industry shift to performance-based advertising. Our results in the second quarter and our momentum in AI-powered products reinforce this strategy. Accordingly, we are increasing our full-year capex outlook to a range of $20 to $25 million. These additional investments support increased AI workloads and our strategic innovation with NVIDIA, and we expect them to generate incremental revenues with a payback of approximately 12 months or less. In closing, This quarter reinforced what we've been building over the past several years. We returned to double-digit revenue growth ahead of schedule, continued to shift our revenue mix towards high-value formats and channels, and demonstrated the strength of our financial model through expanding profitability and higher free cash flow. Hubmatic is reshaping digital advertising by leveraging our AI-native infrastructure, compounded intelligence, and automation to deliver better outcomes for customers. These are durable, competitive advantages that we believe will continue to strengthen our financial model and drive long-term profitable growth. Let me close with a personal note. As Rajeev mentioned, I plan to retire early next year. It wasn't an easy decision. Rajeev recruited me in 2011 when Palmatic was a small private company, and together with an exceptional team, we built something I'm very proud of. a global public company with revenue that's nearly doubled since our IPO, zero debt, and 41 consecutive quarters of positive adjusted EBITDA. I'm grateful to Rajeev for his partnership every step of the way. On the transition, my successor will inherit a financial organization we've spent 15 years building and a leadership team as strong as any I've worked with. One of the greatest privileges of my career has been working alongside such talented team members and building trustable relationships with our customers, investors, and analysts. I believe Pallmatic is in the strongest position I've seen in my time here. My priority is to continue the momentum of our business.

With that, I'll turn the- As a reminder, you can ask a question by raising your hand located on the dashboard. The first question comes from Shweta Kadaria. Please go ahead, Shweta.

Are you unmuted? Thanks, Stacey. Can you hear me?

Yes. Yes.

Thank you. First of all, Steve, congratulations. And I'll miss you. We have some time with you still, but congratulations. And I'm super happy for you. And it's been a great run. And it's been nothing but a joy to work with you. So all the best.

Thank you, Shweta. Very much appreciate that.

Well, on to the earnings. I guess a couple of questions for me, please. One is what are some of the top two to three things that you would point to that imply durability of this strength? that you're seeing, whether it is top line growth, demand trends, product adoption, anything that you can point to on the durability of the growth you're seeing? And second, at a high level, are you seeing clear indications that the overall environment is changing to benefit the supply side? And if so, what are some of the tangible indicators that you're seeing that are to your advantage? Thank you.

Yeah, thanks for that. I can kick that off. Great. And I think the two questions are actually closely related. So I think it's clear that the industry is rapidly moving towards an agentic future, and Pomatic is not only at the epicenter of that shift, but we're driving it. and with that comes a shift in decisioning to the PubMatic platform. So you saw some of the stats, you know, rapid agentic adoption, obviously it's still early, but the trend is very clear. 80 agentic campaigns, 4,000 AI power deals and agentic is driving improved ad performance, so advertisers are getting better performance while also reducing ecosystem complexity and operational overhead, you know, which is growing our addressable market. And I think when we look at our platform, we're very uniquely positioned with our AI-native owned and operated infrastructure, the scale of our publisher relationships, Activate, which we've been building for several years now, direct buying in the SSP, with the Genetic OS, the 20-plus agents, and then the intelligence that we have from our own proprietary data, from all the impressions that we process, as well as over 300 data partners. And as I talked about in the prepared remarks, I think the competitive advantage of the past that was built around the software user interface and the lock-in that created with buyers, that's very rapidly eroding. Now I think competitive advantage is increasingly being determined by AI-native infrastructure, proprietary intelligence, and the ability to consistently deliver advertising performance. We have a second major front in this AI area with Decision Fabric. Decision Fabric allows curators and DSPs to run their models in our infrastructure, which leverages the impressions and data from our SSP along with our proprietary intelligence. So I think these are what we see in terms of customers of not only our ability to continue to grow at double digits, but also this structural shift towards the sell side with more of the decisioning, more of the processing happening in our infrastructure, which allows us to add more value and participate in that value creation.

Thanks, Rajeev.

And just to add to Rajeev's comments, and that is, as an organization, we've always been very focused on operational excellence and execution is in our DNA. And when you think about our strong innovation and all the things that we pioneered over the last 15 plus years, we've really been working towards this position for a very long time. And we're very confident in sort of the trajectory and the durability of everything we've built. And part of it is, it's our DNA. And we're very enthusiastic about the future.

Thanks, Steve. Our next question comes from Nima Khan, Abby Riley.

Please go ahead, Nima. I'm going to keep moving.

Just in the interest of time, I'll come back to you if we can get you back on the line. Our next question comes from Andrew Merrick. I'm sorry. Hold on a second. From Rob Colbert. Please go ahead, Rob.

All right. First of all, Steve, you're my idol. I don't give you permission to leave, but congratulations on an amazing run at the company and best wishes for your retirement. Thank you. Very, very appreciated. We're looking forward to spending a lot more time with you between now and when you eventually leave. So, Rajeev, I wanted to ask you maybe about the pace at which agencies and advertisers are leaning into a Gentic OS and Gentic more broadly across the landscape. Any way to contextualize that? You know, a lot of this sounds very exciting. I just wanted to think about how you're thinking about, or ask how you're thinking about, you know, how quickly this could go in terms of genetic penetration of programmatic media budgets and pools. It seems to be going fast. It seems like there's a lot of incentive for people to make this move, but I wanted to ask about that. And then, you know, just wanted to ask you, Meg, broadly for your thoughts on a lot of different flavors, different approaches to how people are talking about a genetic programmatic need right now. You know, maybe some hops in the supply chain being cut out. Some people thinking about, you know, fee savings in different parts of the ecosystem. What do you think is going to be most essential? Do you have a robust, highly-decisioned programmatic landscape? Any thoughts there on what's going to remain after we have this agenda?

Yeah, thanks, Rodney. So on the first part of your question, in terms of the agentic pace, maybe the Clayton Christensen framework is useful. We're definitely still in the phase of the early adopters. but what I think is very promising is that all of the clients that we've run agentic campaigns or execution with, they've all come back for much more. So it's working. We put out, I think, case studies and 10 different countries around the world, maybe half a dozen around the world at this point. We're running things with every agency . So the seeds are planted and the grass is starting to grow. We can very clearly see the shoots. I've said publicly that I think by the end of 28, about 25% of our ecosystem will be traded agentically. And by the end of 2030, it will be 50%. And I continue to believe that that's the case. And so that implies a pretty rapid increase Thank you very much. On your second question, in terms of what are some of the benefits, you talked about ops and other things. I think our focus is really on how do we use this amazing technology as more than just a technical revolution, but really around value chain or supply chain revolution. So our focus is really on compressing the distance between the publisher and the advertiser, whether it's programmatic transactions or it's agentically executing IOs, bringing the publisher and advertiser much closer together so that when they transact, they can transact more directly. primarily on our platform, in our case, where between Agentic OS, Activate, and our SSP, we have all of the components that are needed for full end-to-end execution of the transaction. And by doing that, we're able to demonstrate very clearly significantly increased advertiser performance, but also a lot less operational overhead and complexity. And that's leading to, I think, a massive win for our clients and for our business. Thank you.

Our next question comes from Nived, who I think I have back now. Nived, if you can, there you go.

All right. Can you guys hear me now? Yes, we can. Perfect. So maybe a question on this monetization of the Agent Tech OS. Is this, like, what are your thoughts? How are you, is this something you're charging for as an added feature, or are you just monetizing because of the lift you might be seeing to the CPM and to the overall monetization getting, you know, participating in that? Just give us your thoughts on that, and then I'll follow up. Sure, Steve, you want to?

Sure. I mean, first of all, so, you know, the identical best opportunity, first and foremost, is, you know, It's new channels, new opportunities. So that's step one. And Agentico S can be either a DSPs agent, it could be Pubmatics, it could be any number of third party agents. But what we've done is we've created Activate that we launched several years ago. And so that's the direct bind interface onto our platform. And so when that happens, we generate a buying fee as a result of that. And really what's important when you think about the economics of what we're building here is that dollar now is entirely within our ecosystem. And so we're making incremental fees and the absolute dollar amount is growing. So it's very much a compounding benefit to us as a company. And you're seeing some of those strong results. Overall, our portfolio of emerging revenues nearly doubled in the quarter, and that's been a very... consistent trajectory. That category hit an all-time high of 15% of revenues. So from our perspective, we're building on the platform that we created. We're making that platform even stronger and broader and more efficient. And so what you're seeing as a business is we're getting leverage not only from top-line growth, but also the cost structure. So you should expect to see margin expansion as well.

Okay, that's great to hear and pretty impressive performance across the board. I want to ask maybe versus your own expectations that you set for us for the quarter, coming into the quarter, where were you surprised in terms of the amount of upside?

So, yeah, from our perspective, you know, we were very pleased because we saw positive incremental results across the board. So areas that we've been investing in, executing against, all of them came in better than we expected. CTV, you know, better. As a reminder, CTV in the Americas grew 25% year over year. Total CTV globally was up 13%. Mobile app, which is about 25% of our revenues, grew 40% in the quarter, and that's better than we anticipated. And then I just referenced emerging revenues nearly fell below. So we really saw great incremental progress across the board. And then in addition to that, we also saw a display increase double digits. And that was largely a function of our mobile app progress. So we're very pleased with the results. And it wasn't just one factor. It was across the board. And that's something that we've been sharing with analyst investors consistently. that we see a very big vision and we've been building it on our platform and now we're just starting to see the early stages of that ramp.

Perfect. Thank you. Congrats on the retirement. Thank you. Really appreciate that.

Our next question comes from Eric Martinuzzi at Lake Street. Please go ahead, Eric.

My congrats as well to you, Steven. Thanks for sticking around through our September investor conference. Thank you. I was curious to know, we are sort of one year removed from a pretty substantial disruption that you experienced with a large DSP. Your business has changed dramatically in those 12 months. I was just wondering if there was sort of a decrementing of your inventory with that DSP. I was wondering if there's been a return or a warming of the relationship, if you could comment there.

So from our perspective, we've been investing in modifying and evolving our business for a number of years. We shared a stat that about 60% of all of our revenue comes from high value formats. And that's a pretty material number. And that's growing double the distance. And so we've been growing through the challenges that we've called out in the past. And we had anticipated this was going to happen. And as both Rajeev and I called out, we did it ahead of schedule. And so from our perspective, our focus has always been on investing and making sure that we are developing our capabilities for wherever the fastest growing opportunities are. We're seeing that in our results. At the same time, we really have been building out our relationships with DSPs and continue to maintain very healthy, positive relationships. I'll turn it over to Rajeev for any other comments.

Yeah, thanks. So the relationship with the DSP remains positive and healthy. We continue to do significant business together, but as Steve pointed out, our DSP base has diversified significantly. I think in general what we're seeing in the market is DSP growth and penetration is diversifying into many different facets of the market. Vertical specialization, mid-market advertisers, SMB advertisers, performance CTV, performance mobile app. So the market, I think, has grown much faster than that DSP in question. And so that's contributing to the diversification on our platform. At the same time as well, as we have been growing our sales team, we've been connecting more directly with advertisers as well as agencies. We've always been deeply connected to the agencies. But as we've gone deeper into building those advertising relationships, It's giving us more directed ability to demonstrate the capabilities of our platform where then the advertisers are saying, okay, we specifically want to be buying on Pugmatic because of the agentic OS capabilities, the activate capabilities, decision fabric now. So I think our solution set and our ability to take that to market to the end customer, the end decision maker is also strengthening the diversification in our business.

Okay, and I wanted to follow up. You talked about a grid of a doubling of the agentic OS adoption within the install base. As far as the size of those campaigns, you know, the 80 campaigns versus the 30, are we getting, is there repeat? Because I realize it's early adopters, but are they coming back with larger campaigns or are they still kind of the same size campaign dipping their toe in the water?

Yeah, so there's kind of two aspects to it. One is there's more new buyers every quarter, and those new buyers are typically starting with small campaigns and then ramping from there. The existing buyers, so the ones that are repeating, let's say, from Q1 to Q2, They're absolutely ramping the size, you know, volume of their buys as they work through the change management within their own organization and they rapidly see the benefits from agentic execution on Pomatic.

Got it. Thank you.

Our next question comes from James Heaney at Jefferies.

Great. Thank you, guys. And Steve, congrats on the retirement. Really enjoyed getting to work with you, I think, since the IPO. So wishing you all the best. Thank you. Maybe I'll start with you. Could you just talk about the pockets of strength and weakness, probably more strength than weakness, but just what you're seeing across different verticals. Do you want to ask specifically on maybe categories like prediction markets that we've been seeing doing quite well and interested that that's Thank you for joining us.

and a couple other categories that helped offset some softness, let's say food and drink and travel. And so the strength that we have developed over time is being able to really be a place for any type of advertiser. And the opportunities vary depending on the time of the year, macro conditions. And so overall, we haven't seen any material softness. I shared that the July was fairly healthy in terms of momentum. And I think there are certain pockets, as you just point out, prediction markets that get rolled up into certain advertising categories. We see some growth there. And from our perspective, we're doing what we need to do. Making sure that we continue to develop the relationships on the publisher side that provides all that valuable inventory and then exposing that to an emerging group of new buyers. We've talked about performance DSPs, of which the category that you described would largely fit in. and that part of our business, which we call mid-market DSPs, actually accelerated in the second quarter with 25% year-over-year. So overall, you know, there might be, you know, quarter to quarter, some verticals that are softer and others stronger, but we have a very diverse set of verticals that help us navigate that period to period. James, I'll be able to add a little bit to that, which is...

There has been some kind of notable standouts around prediction markets within our live sports business. So that live sports business has been growing pretty rapidly. And we saw, for instance, with World Cup, you know, some of them, I forget which one, one of the two major prediction markets advertising pretty heavily. and so on.

Thank you so much for having me. Thank you so much for joining us.

Thank you so much for joining us. a significant portion of their inventory and we'll expect that to expand and continue with Fox. We also shared earlier in the quarter that we'll be the primary SSP partner for Sony Pictures Entertainment, their streaming service launch at some point later in the year. So that I think is a prime example of where I think if we were three or four years ago, somebody may have approached that as a wealth garden. but here now they're doing that from an open perspective and they've chosen our platform with which to do that. And there's many other examples, Roblox and others that we've talked about in prior quarters and years. So I think we remain really encouraged by the open nature of monetization and the strength of our platform and our buyer relationships creates an ability for us to monetize that inventory.

Great, thank you.

Our next question comes from Barton Crockett of Risenblatt.

Okay, great. Thanks for taking the question. I was curious about share of your business. I mean, you've given us some growth for Activate, doubling. You said that the mid-market DSPs grew 25%. But can you give us a sense of how much of your business is on Activate now? And just broadly, how How much of your business is not involving a DSP on the other side, just kind of coming direct through your platform one way or the other?

So I'll take that. So from our perspective, you know, we've shared in the past, you know, that we estimate, you know, our market share to be about 4% globally. And, you know, that's obviously has been growing over time. The categories that you mentioned, who just referenced that sit within our emerging revenues portfolio are clearly growing quite significantly. And the way that we, just to level set the approach that we take is these are all rapidly evolving new opportunities and they are self-reinforcing. And so we are capturing them in this portfolio. We're not currently planning on breaking them out specifically until they get to a certain size, but clearly as a category, emerging revenues at 15% of total revenues is becoming more and more material. The other thing to bear in mind is that we've been growing in the fastest growing areas of the market. We expect to grow at or faster than the market now and into the future as a result of all of our investments and the progress that we're making. And then the last thing I'll comment on, none of our expectations or guidance assumes any resolution of the DOJ case against Google. So all of that would be upside to our market share background.

Okay, well, you know, if I could just follow up, because, I mean, your earnings call is kind of coincident with the trade desk, which, you know, the revenues really kind of flattened out this quarter, and, you know, yours accelerated. You know, in just broad strokes, is there some broad kind of transition among DSPs and SSPs, some kind of shakeup, you know, there that... You can speak to that maybe these things are all kind of related or is it just, you know, coincidental but not really related?

Yeah, I can take that. I mean, I think, Barton, that there are some broad macro trends that are favoring the sell side and in particular Pugmatic. And I think we've been talking about some of them for a while. But first of all, I think the agentic opportunity, right, the industry movement towards agentic monetization, agentic execution. We're obviously aggressively driving that and that comes with a shift in decisioning to the Pumatic platform, right? So we're processing more and more of the transaction between agentic OS activate our sell side platform and our data platform. More of that end-to-end transaction between the publisher and the advertiser is being processed in our platform. including the decisioning, which means we're adding more value and we're participating in that value creation. More recently, we've opened a second front of this area with Decision Fabric. So Decision Fabric is our containerization solution, and it allows curators and DSPs to run their models directly in our infrastructure. And so that leverages the impressions and data from our SSP, along with our proprietary intelligence. It gives them more time to make bidding decisions, allows the buyer to use a more complicated model, and we're hosting all of that in our infrastructure. That's still early, but that, again, is another, I think, sign of the shift that's happening towards the sell side of the ecosystem. And I think underlying all of it is, you know, if we kind of go back in time, it's a little bit, I think, clearer in hindsight, is that the user interface that some of the primary buying platforms had trained into agencies and advertisers over years, that had created, I think, substantial lockdowns. You know, where trading organizations were used to a particular user interface. And now with AI and with decision fabric, the UI, the value or the lock-in from that UI layer is now eroding. And instead, I think advertisers and publishers are saying, well, hey, what is the greatest performance? What's going to generate the most ROI and the most yield? and that's exactly the opportunity that we're focused on with the genetic OS and decision-making.

That's interesting. And just one final just checkbox. You guys in the past few quarters have talked about a drag from a DSP transition. That's not happening this quarter, right? That's done.

Yeah, that is now, Barton, fully up behind us.

Okay, great. Thank you.

Thanks, Barton.

Our next question comes from Sinran Biswal at RBC. Please go ahead.

Hey guys, this is Zimmerman from Matt Swanson. Congrats on the quarter and congrats Steve. Just thinking about your go-to-market investments, how are they balanced across your growth initiatives versus how much are you leaning into your customers to understand a gen pick or do you think it's becoming more pervasive?

So our approach on the go-to-market side is really to think about different segments of the buyer community and then to go in with value propositions that are tied to performance, transparency, and control. And so we think about those audiences, the primary audiences, although not the sole audiences, but the primary ones are advertisers, agency, old codes, and then independent agencies. And those sit alongside some of the more tech forward companies like DSPs and curators. So our go-to-market investment is really about broadening the sales footprint that we have so that we can go deeper into each of those categories. So for instance, with advertisers, we want to be covering the top several hundred, not just the top 100. With holdcos, we want to cover not only the investment teams, but also brand by brand, the key teams. With independent agencies, we're going from the top 50 to the top 250. So that's how we're thinking about some of the investment that we're making. And as we grow and as we penetrate, there's both an account management function as well as a sales function. And so we need to add the right number of people from an account management perspective. But with our own usage of AI internally, what we're seeing is that each account manager can handle more and more accounts. and put more time into the relationship side of things rather than the day-to-day management. And so you're seeing that flow through in terms of the leverage, shall we call that, in the quarter.

And a quick stat for you, Sherman. In the quarter, on a year-to-year basis, we were able to increase our investment and headcount in these areas, go-to-market areas that you just described, by 12%, while our total headcount was slightly down. So this is a reflection of just how we plan and manage and execute using AI as a financial lever, just not on the top line, but also delivering on the bottom line.

Okay, cool. That's helpful. And then, Steve, just really quickly, anything from political that you're embedding in to Q3 guidance? Yes.

We are assuming that there is going to be incremental political. You know, if you just A large benefit to the company back at the 24 presidential cycle. The good news there is many of the capabilities that we first developed there in terms of Activate and our AI capabilities have just gotten better, stronger over time. And so we are very well positioned to take advantage of the political dollar opportunity. We saw a small amount, relatively speaking, in the second quarter. We expect that to ramp up the balance of the year. We don't think it's going to be as large as it was in the 24 presidential cycle, but we are very optimistic about us getting, I would say, probably more than our fair share based upon all the capabilities that we built. And obviously, I'll update as we go along in the quarter. But I do expect it to be more back and loaded in the third quarter, but mostly fourth quarter impact.

Great. Thanks, Doug. We have time for one more question from Brianna Diaz, The Citizens. Brianna, can you hear us? Thank you, Stacey.

We delivered an outstanding second quarter, returning to double-digit revenue growth well ahead of schedule, while expanding profitability and free cash flow. Importantly, our growth was driven by the strategic areas of our business where we've invested over the past several years, reinforcing our confidence in continued double-digit growth in the second half of the year. Our leadership in agentic advertising continues to strengthen as more customers choose Plamatic for superior ad performance and measurable business outcomes, and that performance is expanding our addressable market. We look forward to seeing many of you at upcoming conferences, including Oppenheimer's 29th Annual Tech Internet and Communications Conference, Rosenblatt's Age of AI Virtual Conference, Wolf's TMT Conference in San Francisco, and Lake Street's Big Investment Conference in New York. Thank you everyone for joining us today. Have a great rest of your afternoon.