Q1 2022 PubMatic Inc Earnings Call

<unk> is focused on connected TV and online video that will increase media buying transparency and efficiency.

With our technology group <unk> is able to make the media buying process simpler and more transparent.

Enabling publishers to gain better inventory monetization and exposure to new clients within the group and portfolio as advertisers will be able to shift more of their AD spend to programmatic buying.

As more spending moves towards programmatic channels, we see opportunity in our omnichannel capabilities as buyers and publishers seek to simplify their workflows and tech stacks by leveraging a single technology platform that works across formats and channels.

For instance, we continue to drive expansion across the fastest growing AD format, CTV online video and mobile App and web.

With our single platform, we match fighter needs to publisher inventory at scale.

Regardless of device or content type and used by the consumer.

This omnichannel approach has positioned us as being particularly resilient over the last two years as we've seen rapid changes in consumer behavior.

CTV is in the early stages of market adoption. However, it's growing quickly group.

<unk> estimates global CTV AD spend to be $20 billion this year growing to $32 billion by 2026.

We believe this market can be substantially greater with the onslaught of premium inventory as large broadcasters and publishers broaden their offerings with AD supported models.

We are building for this future, whether it's state enrich deals private marketplace deals or programmatic guaranteed transactions.

Our vision continues to rapidly gain market traction and we delivered another great quarter of outsized growth revenue.

Revenue from CTV growth grew more than five times over Q1 2021.

We continue to add more premium CTV inventory to our platform and are now monetizing inventory from 176 CTV publishers.

We're also working with device manufacturers rising stakeholders within the CTV ecosystem with.

We recently signed three of the top five largest connected TV manufacturers, who are utilizing our.

Our platform to gain access to the rapidly growing programmatic CTV advertising demand that we bring to them.

In addition, we are seeing growth and significant opportunity in the mobile App channel.

We recently partnered with iron sorts to bring incremental brand advertising demand to their in App publishing inventory.

These ads kept users engaged it inside the app promoting a better user experience that benefits, both advertisers and publishers and proving the value buyers and publishers gain within App video.

A critical aspect of the digital advertising supply chain of the future is audience addressable.

As third party data becomes less sustainable when relevant the value of data is shifting to the sell side at the Nexus of the publisher and the consumer.

We see a significant role to play as a result of our being a leading technology provider to publishers.

We offer a portfolio of solutions using known identity first party data contextual advertising and cohorts with this approach we can create a stronger more sustainable and privacy safe advertising ecosystem that delivers superior monetization for publishers and increased ROI for buyers.

Our investments and advancements in addressable <unk> solutions help us unlock the massive retail media opportunity and expand our addressable market.

Retail media is expected to be a more than $140 billion market by 2020.

We are building technology and solutions to help retailers monetize their own media.

Extend their data offsite to monetize impressions from non retail publishers and to optimize ROI for buyers at.

At the same time, our addressable solutions are gaining traction with retailers and e-commerce companies today.

A major grocery chain and other retail giants are already choosing <unk> to monetize our valuable first party data offsite to unlock incremental revenue streams.

In addition, digital savvy e-commerce platforms are leveraging <unk> technology to power onsite audience based private marketplaces.

In summary, I'm extremely proud of the team and all that we've accomplished we operate in a large and growing market with significant long term opportunity.

Regardless of the near term macroeconomic conditions, we are incredibly excited about and focused on the long term growth runway ahead of us.

We've demonstrated resilience through peaks and valleys of the economic cycle, leveraging the strength of our infrastructure driven approach usage based business model and deep focus on innovation.

Our profitability allows us to focus on and invest in long term innovation and serve our customers, while delivering consistent durable growth quarter after quarter.

Let me now turn it over to our Chief Financial Officer, Steve <unk> to provide additional detail.

Thank you Rajiv and welcome everyone.

In Q1, <unk> continued its outstanding track record of durable growth.

Market share gains and profitability with revenue of $54 6 million representing year over year growth of 25%.

Seventh straight quarter above our long term target of 20%.

It was also our 12 straight quarter of positive GAAP net income and our 24th consecutive quarter of positive adjusted EBITDA.

As a reminder, 2021 was our ninth straight year of adjusted EBITDA profitability.

These results are particularly noteworthy and demonstrate the strength and resiliency of our business and build the various macro headwinds that have emerged over the last several months, notably in EMEA.

Robust growth in the Americas, and APAC regions have helped offset these challenges.

Our investments in innovation go to market resources and infrastructure have been instrumental to our financial results and produce a powerful network effect with increased visibility is scale.

Driving higher revenues from existing customers and delivering significant benefits to our customers and us.

We continued to outperform on the bottom line with first quarter GAAP net income of $4 8 million and adjusted EBITDA of $17 million, representing margins of 9% and 31% respectively.

Our cash flow from operations was $19 3 million and free cash flow was $14 9 million or 27% of revenue.

Before turning to the details of the quarter I want to highlight the drivers that have underpinned our financial success to date and gives us confidence in our long term growth and profit trajectory.

First.

We've built a scaled business in a highly fragmented industry that offers an omnichannel and global solutions for publishers empires.

Our purpose built globally distributed private cloud infrastructure.

And local go to market presence enables to do business in every major AD market apart from China.

This foundation allows us to expand across the world effectively and efficiently.

Second our usage based model combined with our proven ability to retain and grow revenues from existing customers.

<unk>, a high degree of revenue stickiness and corresponding visibility.

Third we have built a business with structural advantages emanating from our owned and operated infrastructure and offshore R&D that enables us to expand our competitive moat and consistently invest in innovation on behalf of our publishers and buyers.

Fourth our operating model and global teams have consistently achieved strong profit margins by staying focused on operational excellence, while delivering value to our customers.

And lastly, we generate consistent cash flow through rigorous working capital management and efficient capital expenditure.

Now turning to the highlights for Q1.

Despite the various macro headwinds in the quarter, we successfully navigated our business to deliver strong revenue growth across formats and channels.

We benefited from having a broad set of over 60000 advertisers, who leveraged our omnichannel global platform.

Our 25% growth in the quarter combined with last year's increase translates to a two year stack growth of 79%.

In aggregate spending from our top 10 AD verticals increased over 40% year over year.

Shopping grew well above the average supported by a strong rebound in travel at a 150% and arts and entertainment at nearly 100%.

All top 10 verticals grew double digits or more.

The benefit of having diverse business activity on our platform was born out of the quarter with faster growth verticals offsetting slower growth in the automotive and health and fitness verticals.

In April we saw some softening in several verticals that was partially offset by continued strength in shopping and travel.

Revenues for our mobile and Omnichannel video video business. The combination of online video and connected TV grew 41% year over year and accounted for 67% of our total revenues in Q1.

This growth was on top of the prior year's growth of more than 63%.

Revenue from CTV inclusive of OTT grew over five X over Q1 2021.

Our total desktop business comprised of display and online video also performed well with revenue up 15% year over year on top of prior year's 23% growth.

We also continue to diversify our customer base as Yahoo revenues represented less than 15% of our total revenues in the first quarter.

Supply path optimization relationships play a key role in terms of our growth and revenue thickness as advertisers and agencies expand usage of our platform.

In Q1, we continued to sign new spo deals renewing existing agreements and grow AD spending via these deals.

Our multi year success with SPL supports further investment behind this opportunity and we are building more tools to allow buyers to find the right audiences and media on our platform.

The proportion of spo spend to total AD spend increase from Q4 and represented over 27% of spending in the quarter.

An important indicator of publisher satisfaction and usage of our platform is net dollar based retention.

We again performed very well against this metric.

For the last 12 months through Q1 2022 net dollar based retention was 140%.

As a reminder, it will naturally normalize and come down from this level. Once Q2 2020 results are no longer in the comparisons.

Our long term success and achieving high gross margins as a result of our strategy and execution.

We aim to put in service our maximum capacity every calendar year by the beginning of Q4.

Once capacity as we put in place it becomes a fixed cost in the near term that we didn't leverage over the succeeding periods.

And seasonally lower spend period, such as Q1 and Q2, our gross margins are typically lower than the second half levels.

As the year progresses, the combination of ongoing infrastructure optimization.

<unk> of activity with our new and existing customers and higher seasonal AD spending resulting in significant structural leverage.

By owning and operating our infrastructure, we have been able to drive down our unit costs.

Over the last two years, we have reduced our cost of revenue per million impressions processed by 50%.

Our experience has shown us that the return on investment for incremental capacity is high and typically pays for itself on a cash basis in months.

With this cost advantage, we plan to continue expanding our processing capacity to capitalize on growth opportunities and to increase our competitive mode.

In Q1, the combination of increased head count for growth and stock based compensation resulted in operating expenses of 32 million up 30% year over year.

Excluding stock based compensation Q1 operating expenses increased 25%.

Over the last 12 months, we increased our technology team by 39% and our go to market team by 14%.

Q1, GAAP net income was $4 8 million.

non-GAAP net income, which adjust for stock based compensation the unrealized gain on equity investments and related income tax effects was $8 1 million or 15% of revenue.

Diluted EPS was <unk> <unk> and non-GAAP diluted EPS was <unk> 14.

Turning to our cash flow, we generated net cash from operating activities of $19 3 million in Q1 2022.

Our free cash flow was $14 9 million equal to our free cash flow margin of 27%.

We ended Q1 2022 with cash cash equivalents in marketable securities of $175 million and no debt.

Now onto our Q2 and full year 2022 guidance.

First and foremost the <unk>.

Factors that are driving a durable revenue profit and cash generation remains solidly intact.

We are confident in our long term growth trajectory we.

We have built a business with strong innovation capabilities, which allows us to capture digital advertising biggest opportunities in mobile and Omnichannel video today.

While positioning us to take advantage of new opportunities that are emerging.

Looking to Q2, while we see several headwinds our revenue is trending within the range of our expectations.

To be clear there is potential further softening of European consumer demand amidst the Ukraine, Russia War.

And challenging economic conditions, ranging from high inflation to rising interest rates that may dampen consumer activity and advertiser spending levels.

In addition, there is of course the reality is some parts of the world remaining COVID-19 induced lockdowns that affect both the supply chain and consumer activity.

If any of these trends significantly worse in our Q2 revenues may be affected.

For Q2, we expect revenue growth of 20% to 25% or 60% to $62 million.

As a reminder, we had a very strong Q2 last year with 88% growth on.

On a two year stacked basis, our guidance translates to over 100% for the two year period.

We expect adjusted EBITDA between $18 million to $20 million or approximately a 31% margin at the midpoint.

In terms of our investments to achieve our long term growth potential we plan to maintain our previously disclosed strategy of stepped up investment in our technology organization.

Over the next several quarters, we have had double this team with the majority of new hires to be added in our India Technology Center.

Our hiring was slower than anticipated in the quarter, but we have seen solid progress thus far in Q2.

We also plan to continue adding key go to market team members across the globe to drive new product adoption and new market expansion.

We believe we are still early days of our growth and realizing the considerable business opportunity ahead of us.

Accordingly, we are making investments now for long term market share gains.

So of course, we will revisit these plants if there are any major changes in macro conditions.

We are maintaining our full year revenue guidance of $282 million to $286 million or 25% growth at the midpoint.

Supported by the anticipated robust second half growth from our SPL relationships.

Continued ramp up of our CTV business and political ad spending.

Our full year guidance today assumes that macro conditions do not deteriorate significantly from where they are currently.

In terms of FX exposure, we believe the risk is limited because most of the transactions flowing on our platform are denominated in U S dollars.

On a full year basis, we anticipate that GAAP operating expenses will increase in absolute dollars.

Roughly a similar percentage rate as 2021 with some quarter to quarter variability as the year progresses based on timing of hiring and investments.

Our operating expense assumptions include increments operating cost of $5 6 million related to new offices, we are adding offices reopening and significantly higher travel and its payment expenses as our team engages in person with customers around the globe.

We're also maintaining our full year adjusted EBIT margin range between 101, and $106 million or approximately 36% to 37% margin.

We expect capex for the year to be $33 million to $36 million up from our original expectations at the beginning of the year.

We continue to see supply chain delays and therefore, we'll be accelerating some 2023 capex investments into 2022.

Based on timing of equipment availability and shipments the bulk of our Capex will occur in Q3 and will disproportionately affect free cash flow in that period.

As noted earlier, our proven track record of return on investment for incremental capacity is high and we believe this positions us well for future growth.

Overall, we expect to increase the total number of impressions processed in 2022 by over 50% compared to 2021.

In closing our first quarter results underscore the strength of our platform and the basis for our confidence in our future prospects.

We believe we have the right platform and the right approach to be at the forefront of our industry.

Automatic delivers a compelling combination of durable growth and profitability, including cash generation due to our unique infrastructure different approach to digital advertising, we see a long runway of growth ahead of us as our Tam continues to grow.

We are consolidated in the sell side is one of the few scaled global Omnichannel platforms.

And our profitability gives us a high degree of agility and the ability to invest in long term market share gains, which is our plan.

With that I'll turn the call over to Stacy to open it up for questions.

As a reminder, you can ask a question by raising your hand painted on the dashboard or if they're on your phone has started right.

Our first question comes Ken <unk> Evercore.

Our hedge for that.

Thanks, David.

Hi, Steve and Rajeev I guess, a couple of questions. When you think about the macro headwinds that you said.

Our assumption in the guide is not meaningful deterioration of trends from here on.

I guess could you talk about the magnitude of headwind you saw whether it is new crane supply chain or inflation and interest rates and how would you rank them in terms of the magnitude of the impact and second how are you what kind of impact are you expecting from political spend in the back half of this year you called that out. Thank you.

Sure nice to reconnect sweater, so from my perspective.

The ranking of the risk is.

Of course, there is.

Lot of challenges in the EMEA region.

Notably the award Thats going on there and that does have some potential to have an overhang effect on consumer behavior.

We have roughly a little over 25% of our business.

In the EMEA region, but the strength of our platform as an omnichannel platform and globally scaled really has allowed us to navigate quite successfully in spite of some of that softness as noted we saw very strong continued results out of our advertising verticals and shopping travel and.

And offsetting.

There were some other weaknesses in other couple of AD verticals. So overall, we feel that thats probably.

At the top of the most immediate risk.

The other factors are really industry wide questions in.

Aspects that everybody is dressing.

Trying to figure out how best to work through it of course, there is inflation risks as well as.

Rising interest rates, but overall, we built a business that is well balanced and diversified to allow us to navigate these macro headwinds.

In terms of the.

Anticipated upside from political ad spend.

We saw in the prior big spending cycle.

Anticipating several million dollars in the fourth quarter coming into our business as a result of that activity.

And so if I get to connect if I can just add a little bit of context as well. Obviously your question was on the short term economic dynamics.

From my perspective, I'd, just like to add.

See a long runway of growth ahead of us our addressable market continues to grow we're consolidating the sell side and that's one of the very few scaled global omnichannel platforms.

Have a very profitable business model, which gives us the ability to invest in innovation and be very agile.

So the economic environment will kind of be what it's going to be for the next couple of quarters, but we see great long term opportunity and ability to continue to grow our share.

Okay. Thank you Rajiv Thank you Steve.

And our next question comes from Brent Thill with Jefferies.

Thanks, Good afternoon, Steve.

No you mentioned youre, not an ending economy to get worse, but in the event that things.

Sit down.

Can you just give us a sense of how you would think about it.

Running the Bottomline would you continue to invest through this cycle or detail.

That you would take a different approach to the margins you're going to watch that.

Alright, well good to reconnect with you Brent and so with respect to your question one of the things that really has proven to be a big strength of our company is to be able to consistently invest over the long run and as a reminder, over the course of the pandemic we are.

Actually increased our global team by 50% and our technology team by 80% and that really set us up well for the growth that we're seeing today well above the industry average.

And so from our perspective, it's always a fine line to really assess.

The steepness of any particular point in time of the impact, but there are things that really give us.

A lot of confidence.

First of all we have a long track record of profitability based on structural benches that we built up over time.

That leads us to be able to invest.

Through headwinds and with the tailwind.

Second in terms of economic disruption.

We've historically seen is that advertisers will reduce their budgets potentially but then the shift towards the areas that we operate in which is programmatic advertising, where it's more measurable you can gauge the efficiency.

Flexible in a real time environment and so as a case in point arguably what occurred when the pandemic really struck in Q2 2020 was a microcosm of the kinds of tail winds that we're facing today.

And what we saw as a company is that despite the impact to the top line, we still delivered almost a 20% EBITDA margin. It's a function of multiple factors strategy and execution and also just to be very nimble in the marketplace and as everybody knows from that point.

Our business really ramped up and grew very nicely and finished the year two.

2020 year up over 30%, So big picture, we keep a close eye on trends, but we feel that we are really doing our shareholders a surface by consistently investing in innovation and preparing to take advantage of these considerable growth opportunity ahead of us.

Right Yeah, a quick follow up for Rajeev. Just you mentioned connected TV buybacks can you just give us a little more context.

What's the next leg of the journey is for you in CTV.

Anything that Youre seeing thats interesting that give us a little more color as it relates to what's happening with their success in that market sure. Yeah. Absolutely. We are really excited about the growth there and I think we're seeing opportunities in a couple of different areas.

First of all I'll talk about the buy side.

In my prepared remarks, I highlighted the group them premium marketplace now that's a lot about online video and CTV. So we're seeing great traction on the buy side. That's just one example of a major buyers shifting more spend towards our platform.

That in turn brings more publishers to our platform.

Whether they are existing publishers that now we're expanding into CTV with or new publishers and I think one of the things that you'll see with us given we're focused on efficiency and <unk>.

<unk> methods of transacting, CTV and be very efficient and scalable and doing that is we will attract a wide variety of different.

CTV media owners until we highlighted in the prepared remarks neat device manufacturers that is a great category not really a category that existed even a couple of years ago.

Because obviously broadcasters are model is also great.

For the more niche oriented.

TV apps they may not be 100, 200 million users. They may be 10, 20 $30 million, but they could be very focused on specialized types of content.

You'll also see us grow very rapidly.

In all markets around the world given the nature of our global platform. So there is I think a wide variety of different ways for us to engage with sellers and buyers from our CTV perspective, leveraging the strength of our infrastructure the transparency it brings.

And so I expect to see that publisher number continue to grow and I also expect to see the retention rates in terms of the volume of dollars that we're transacting for each hub to also grow.

Great. Thank you.

Thanks, Brian .

Our next question comes from Justin Patterson.

Keybanc.

Alright, Thank you and good afternoon, Rajeev, Europe's generally been setting the tone on regulation of anti trust.

The initial market back looming about a year out what threats and opportunities do you see some that for pop biotic and then Steve how should we think about the pace of unit cost reductions going forward, you've clearly had a lot of success with that in the past few years. So curious how much further you can go thank you.

Hey, Justin So I think generally the focus on privacy regulation and we can also maybe include in there some are.

The anti.

Antitrust anti competition regulation and investigations is a.

As a tailwind for us.

I think from a privacy perspective.

What's happening is the rules are becoming clearer.

Around how consumers desires for privacy should be respected.

In digital advertising and its something that we have long advocated for and long stood for.

And I see now the opportunity really to provide to advertisers I think what they've always wanted which is the great high quality content that the open internet is well known for great premium content brands, but also now with heavily.

Incentive.

Data flows where the publisher side, where the consumer is able to say exactly what data.

They are willing to share or not willing to share and to be able to do that at scale and as that is happening.

The Nexus.

Data activation and targeting is moving to the sell side of the ecosystem and that's because the consumer and the publisher sit on the sell side of the ecosystem.

So we think with our let's say our publisher sell side focus we're in a great position to be able to capitalize on that trend.

See we see exactly that playing out in our entire portfolio are fairly broad portfolio at this point.

Of addressable solutions.

Yes, Justin to to get to your question regarding our ability to drive down our unit cost. We are very confident that we're going to be able to keep doing that on a fairly steady basis.

I anticipate doing it roughly about 10% to 15%.

Reductions on a per annum basis, and the reason why we have this competencies as a reminder, we control all layers of our tech stack.

Meaning the software layer, the network layer and the hardware layer and so.

So we are always in a position to optimize depending on the opportunities and this really has the benefit of course in terms of reducing our unit cost, but it really is a trick up a terrific outcome for our.

Customers because that leads to faster innovation greater control and dramatically better outcomes for all of our ecosystem partners.

So when we think about it in terms of what we are able to accomplish we're going to consistently invest and because we have the confidence and proven ability to reduce those unit cost that puts us in a very strong leverage position in terms of ratings competitive moat that allows us to start that cycle, all over again and keep reinvesting in the business.

Thank you.

Our next question comes from Matt <unk>.

Paul.

Yeah, Thanks, Dave and thank you guys for taking my question I guess following up on Justin's question can we just get an update on identity hub in audience Oncor, specifically around customer conversations you know as we inch closer to 2023 are you starting to see that pick up.

A lot.

Another catalyst for supply path optimization.

<unk> kind of focusing on the differentiation and then Steve just as a quick follow up to an earlier comment you mentioned some specific verticals still maybe being more impacted could you just go into a little bit on that obviously, it's good to hear that retail and travel are performing better now.

Hey, Matt so with respect to identity have an audience encore, we continue to see.

Great traction and uptake with our customers around those products. So we have more and more publishers adopting identity on a monthly basis, I think it's becoming easier for publishers to deploy it.

And it's also becoming more and more valuable as we add more identity providers into that solution buyers are also very excited about it because it means that when they want to bring their identity solution to market. We can provide incident levels of scale given the installed base of identity home.

Audience Encore is also gaining rapid amounts of traction and I guess, just as a reminder, audience encore allows any data owner. So it could be a buyer could be data partner it could be a publisher.

To make their data available on our platform and attach it to the other publishers inventory or media.

And audience Oncor, we continue to innovate heavily behind this product at.

It is gaining more and more traction we shared some case studies in the fact sheet with Mike you lied ramp and others around that product.

I do believe both of these products.

Should lead us to more wins in terms of supply path optimization, I think buyers see an increasing level of differentiation from us on the audience addressable side.

And they see that we're innovating heavily on their behalf and they also see an advantage that we have in terms of our infrastructure.

And just as an example, I was meeting with the <unk>.

Leader of.

Top five top six agency just a couple of weeks ago and they asked about how can we help them in terms of compliance.

Privacy around compliance with privacy regulations around the world.

And the fact that we own our own infrastructure means that we can control very granularly what happens in any given country.

And that is in contrast to those that operate in public cloud, where they may not even know where the server instance, that's processing data, let's say.

So I think our advantages are only going to continue to grow and that should lead to more stickiness splits on the publisher side and on buyers via supply path optimization.

With respect to your question on Advair close just as a reminder to everyone. One of the strengths of our business is that we have a very diversified advertiser base.

We have more than 20 AD verticals and in the first quarter. Our top 10, <unk> grew over 40% year over year, and we had some real stellar performance in travel.

And a couple of other verticals like shopping.

And the reason why we are.

So confident in terms of the approach to the business is that that growth was able to offset some slower growth, but still all top 10 AD verticals grew double digits year over year. So it's not a function of sort of lagging growth to just where the growth is coming from at any point in time and Thats really important call up.

For example.

The newest vertical grew almost double year over year in the first quarter and historically, that's a small part its outside the top 10.

Real estate was outside the top 10.

Struggled in the first quarter. So the big picture point is what has allowed us to more than growing.

Twice the rate of the market is this very robust omnichannel platform that it's really a portfolio based upon advertisers verticals and our.

Global spread.

So that really I think is the key takeaway.

Why we are successful.

And that is sort of the thing that gives us confidence as we look ahead to the second half.

Thank you.

And our next question comes from Amgen.

Yes.

Yes, thanks for taking my question.

You noted about the hiring trends.

Might be a little bit.

Lower than you had expected in <unk> I guess is that a result of increased competition for talent and I know you're concentrating a lot of your hiring on India is there any differences in the markets for talent between the domestic market in India. Thank you.

Hi, Andrew so.

Probably set the stage that first and foremost that we've been very successful in hiring people over the last couple of years as I said, a few minutes ago.

<unk>, our global head count by 50% by the end of last year and the first quarter of this year over last year overall globally, 25%. So it's not that we're not able to hire people, but we have set a very high bar for what we want to accomplish because of the importance that we see in consistent innovation and expanding the.

Market markets, where we operate with existing customers and new customers.

I wouldn't say, it's a function of.

A particular challenge on a relative basis, we are obviously hiring many people across the globe.

We are specifically very focused on adding incremental team members in India.

As the heart of our innovation Center.

And so over time, there is sort of this challenge of competition, but we see less of that in some markets and of course.

There is going to be always puts and takes on a particular.

Role or function in terms of the difficulty of hiring that individual but we've been very pleased what we've been able to accomplish in terms of growth of our team.

And I think in the first quarter. It was probably a function of a lot of macro challenges and.

There was some hesitation for people maybe to leave the jobs that they were currently sitting in so we don't anticipate being a major headwind its really just to call out in terms of we'll call it the timing of hiring.

Yes, Andrew I'll, just briefly add my own view is that hiring will get easier over the course of the year really for two reasons. One is we're already seeing signs of pullbacks that many companies.

You had the.

The Uber memo that came out last night.

I think Robin Hood laid off 9% so.

Things are changing right as the environment changes.

And then second we have a unique business and that we have long term sustainable revenue growth and profitability.

And so as I talked to some candidates that profitability is a very attractive element here at somatic because it signals the level of ongoing investments in growth.

And stability that not not every employee can offer.

Great. Thank you.

Our next question comes from Andrew Barron.

Yes.

Hi, good afternoon, guys and thanks for taking my questions.

I'd like to start with regional media can you just help us understand the differentiation per pub, Maxim <unk> offering versus others that are in the space I think it's important just given the size of the opportunity and then secondly, given the fact that product development has been organic you are profitable you just hit on that point Rajeev and shares it really just come in can you just up.

<unk> on your on your thoughts around the potential of the buyback and just capital allocation more broadly. Thanks. So much yeah sure why don't I take the first one and then I'll turn it over to Steve on the buyback question.

So with respect to retail media.

So just for a little bit of context.

View it as roughly 140 $150 billion opportunity a couple of years out.

Very large market and I would say it's in very early stages.

Of development, obviously have companies like Amazon that are out in front of many others, but by and large I think most other companies are fairly new to the opportunity.

We also don't think it's a winner take all so theres a number of different ways to attack. It I think from our perspective, we view it as a very natural extension of our platform.

Given that we are Omnichannel, we're global we own the infrastructure and then we have a deep portfolio of addressable solutions and what retail media is really looking to capitalize on is that.

The publisher or the E retailer in this case.

They have logging consumers right. So they know exactly what the consumer is looking for is shopping for us buying or maybe is not buying and they have that at scale and they're looking to capitalize on the advertising opportunity that that generates and that can be both ads shown onsite E retailers, let's say or it can be.

Data that those interactions generate that can be monetized onside of off site.

So we have I think a lot of great opportunity there consumers interact typically with ecommerce companies through multiple channels. So it can be mobile it can be tablets can be computer and of course, the offline we have an omnichannel platform.

A number of retailers are global and certainly the advertisers and agencies are global we have a global platform.

We understand the retail advertising opportunity and there is a dynamic there between.

Focusing on e-commerce transactions versus advertising my first startup within the E Commerce space. So I understand that challenge well and then as I mentioned, we have a pretty robust set of solutions in terms of addressable <unk> that allows retailers to take advantage of.

<unk>.

Of the data that they have about consumers. So we think we have a lot of great opportunity here.

As we look forward and.

Steve has called out E. Commerce retailing is already on the buy side is a top five advertiser vertical for us which means we also have great relationships on the buy side of the ecosystem.

In terms of the.

The process of things.

<unk> through a share buyback.

From our perspective in light of our ability to grow our revenues at 20 plus percent over the last seven quarters now and deliver EBIT margins in the high <unk>, we feel that currently the best use of our cash is to reinvest in our business.

But it's obviously a topic of conversation and we will continue to investigate and examine it.

But remember just in the last two years, we've doubled our revenues.

And increased our profits and generated cash we ended Q1 with $175 million in cash and no debt. So we continue to see really terrific returns on invested in our company innovation and of course, the backdrop is the huge Tam that is growing and we're right at the heart.

Part of the <unk>.

All of the areas that are growing mobile omnichannel video.

We grew as noted in our comments over 40% for that category and that was on top of over 70, 80%. The prior year. So we feel really good about continuing to invest in the business and.

It's showing in the numbers.

For the first quarter at 25%, that's well ahead of the anticipated market rate well ahead of our peers and so we think we're going to keep investing doing what we do well.

Focus on operational excellence and of course delivering for our customers.

Thank you Scott.

Our next question comes from Jason <unk> Oppenheimer.

Thanks <unk>.

Most of that just maybe what was the political impact in 2020, and I think you said you expect several million dollars this year, which I would imagine would be a little smaller maybe than we would expect so just what was in 2020 and expand upon why do you think it's only several million dollars. This year. Thanks.

Sure well as a well diversified business, we don't we're not over index in any one particular area, but back at the last election cycle Q4, 'twenty, we had about three to 4 million of net revenue from political stope.

Basically in line with that expectation of course, as our CTV business grows there might be some upside there, but im not currently anticipating that so big picture is we built a business that is diversified it can navigate sort of the vagaries of the global economy and all the other.

Macro conditions out there so politically.

A valuable part of it but by no means is sort of the only thing thats.

We're going to get us to our 25% revenue target for this year.

And our next question comes from Kenneth Fong plenty loud.

Good afternoon Gary.

Yes, we can sorry about that.

I wanted to ask a question about the take rate.

This growth.

But you probably can guess.

When they talk to the best of both companies.

So your peers about the take rates something that people would walk us up. So I was wondering if you could give us maybe with the <unk>.

External commentary.

A new optimizing for it.

Okay.

Accretive to them.

It creates a nod.

Let's say, let's take rates a headwind for the revenue on that.

So any kind of commentary you could give us.

There would be appreciated.

Sure I'd be happy to.

So good to see your facility.

So as you point out we don't disclose take rate.

From our perspective, we focus on driving activities on our platform and then of course, delivering net revenue dollars to the P&L and we have a portfolio business meeting.

We are operating in every major AD market in the world.

Roughly 60% Americas 25 ish percent EMEA, the rest in APAC and each of those have different.

Revenue share rates that we're able to achieve so we manage it on a global basis.

From a geo perspective, we also manage it from a.

Format perspective of course higher CPM formats, like CTV, you get a lower revenue share rate, but overall, our leasing rates take rates have been very stable over the last couple of years and I've said publicly that.

What I anticipate happening over time is that our take rate will decline about one percentage point, maybe a little bit more on a per annum basis related to these mix shifts, but the important point to note is that the mix shift is towards high value formats online video CTV as Rajeev you called out we're working with <unk>.

<unk> deploy sort of a global solution.

In that very high value format, and so because we have such confidence in our ability to deliver profits were always.

Looking at opportunities and if we have to be competitive to drive the business, we'll do that in our results demonstrate our consistent ability to achieve not just topline growth, but also bottom line now.

With respect to the number I can tell you it's well below what is out there for example for Google or trade.

Trade desk, and we've gotten to this point, where we can really achieve.

Steve the benefits for our publishers deliver business incremental business to them and incremental revenues and profits to our business by managing this carefully but also having the.

The foundation.

To be able to deliver incremental profitability because of the cost advantage not just on infrastructure, but also on innovation as a reminder, 80% of our engineering head count is based in India, and that's a huge leverage will asset that we have been.

Building on for.

16 years.

This is very helpful. Thank you.

Okay.

We now have a question that has come into their lifetime.

That's question forgive me here could you talk more about the ongoing pollo bowls.

On how famed blackboard that could be part of that model.

Yes, we absolutely are seeing consolidation on the sell side and I would say that we are a firm leader of that.

We see I see a great opportunity to consolidate the market, which really feeds into our goal for 20% market share.

Previously talked about.

There's multiple drivers of that consolidation, but.

But what I see is that we have a unique platform. That's global it's omnichannel transparency and we have a significant competitive advantage with our infrastructure.

And on top of that platform as Steve has called out we have a strong track record of innovation and profitability clearly that allows us to get stickier with our customers each year now our leadership in an execution and supply path optimization is a great example of this our audience address ability set of solutions are open wrap solution.

Also a great example, on the publisher side.

And we get rewarded when we do that with our usage based model and so are our organization is trained.

To really find new opportunities with every existing customer.

And continue to get deeper and stickier.

So I think we're in a great position to consolidate the market and we're moving further and further down that path.

Well, thank you Rahul.

There are no further additional questions.

Turn it back over to <unk> for closing remarks.

Well. Thank you everyone for joining us today, we delivered another very strong quarter of revenue growth and profitability.

We have a proven flywheel that allows us to invest in a wide variety of growth levers for the future and we have demonstrated over many years that we are able to innovate and lead the market I couldn't be more excited about how we're positioned and the opportunities in front of us. Thank you.

This concludes our call today.

We're working on that are coming with a great rest of the afternoon.