Q4 2023 PubMatic Inc Earnings Call

Hello, everyone and welcome to a pub Maddox fourth quarter and full year 2023 earnings call. My name is Kelsey and I will be your zoom operator for today. We thank you all for your attendance today and as a reminder, today's webinar is being recorded.

Operator: Thank you all for your attendance today. And as a reminder, today's webinar is being recorded. And now I will turn things over to Stacie Clements with the Blue Shirt Group. Stacie, over to you.

Now I will turn things over to Stacie Clements with the Blue shirt group, Steve over to you.

Stacie Clements: Good afternoon, everyone, and welcome to PubMatic's earnings call for the fourth quarter and full year ended December 31st, 2023. This is Stacie Clements with the Brewster Group. I'll be your operator today. Joining me on the call are Rajiv Goel, co-founder and CEO, and Steve Pantelis, CFO. Before we get started, I have a few housekeeping items.

Good afternoon, everyone and welcome to earnings call for the fourth quarter and full year ended December 31 2023.

On the blood sugar at all and I'll be your operator today.

Joining me on the call are Rajeev go out co founder and CEO and Steve Patrick Yeah.

Before we get started I have a few housekeeping items today's prepared remarks have been recorded after with Jim and Steve will have live Q&A.

Stacie Clements: Today's prepared remarks have been recorded. After that, Rajiv and Steve will host a live Q&A. If you plan to ask a question, please ensure that you've set your Zoom name to display your full name and firm. If you would like to ask a question, please use the raise hand function located at the bottom of your screen.

If you plan to ask a question. Please ensure that you've set your zoning to display your full name and firm if he would like to ask a question. Please use the raytheon function located at the bottom of your screen.

Stacie Clements: A copy of our press release can be found on the website at investors.pubmatic.com. I would like to remind participants that during this call, management will make forward-looking statements, including, without limitation, statements regarding our future performance, market opportunity, growth strategy, and financial outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and future conditions. However, these forward-looking statements are subject to inherent risks, uncertainties, and changes in circumstances that are difficult to predict. You can find more information about these risks, uncertainties, and other factors in our reports filed from time to time with the Securities and Exchange Commission, including our most recent Form 10-K and any subsequent filings on Forms 10-Q or 8-K, which are on file with the SEC and are available at investors.pubmatic.com. Our actual results may differ materially from those contemplated by these forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements.

A copy of our press release can be found on the website at investors <unk> Dot 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.

Or we're looking statements are based on our current expectations and assumptions regarding our business the economy and future conditions.

Forward looking statements are subject to inherent risks uncertainties and changes in circumstances that are difficult to predict.

You can find more information about these risks uncertainties and other factors in our reports filed from time to time with the Securities and Exchange Commission, including our most recent Form 10-K and any subsequent filings on Form 10-Q, or 8-K, which are on file with the securities and Exchange Commission and are available at investors <unk> com.

Our actual results may differ materially from those contemplated by the forward looking statements. We caution you therefore against relying on any of these forward looking statements. All information discussed today is as of February 26, 2024, and we do not intend and undertake no obligation to update any forward looking statement, whether as a result of new information.

Stacie Clements: All information discussed today is as of February 26, 2024, and we do not intend and undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law. In addition, today's discussion will include references to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, and free cash flow. These non-GAAP measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP.

Shen of future developments or otherwise, except as maybe required by law.

In addition, today's discussion will include references to certain non-GAAP financial measures, including adjusted EBITDA non-GAAP net income and free cash flow use 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.

Rajiv Goel: A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release. Now, I will turn the call over to Ruthie. Thank you, Stacie, and welcome, everyone. We delivered a terrific fourth quarter with results that significantly exceeded our expectations on both the top and bottom lines. Revenue growth accelerated to 14% in Q4 last year, which shows strong profit and cash generation. This inflection point in our growth was fueled by the innovation investments we made over the past few years, and particularly in 2023. I'm extremely proud of our entire team for their hard work, dedication, and outstanding execution.

A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release and now I will turn the call over to Rajiv.

Thank you Stacie and welcome everyone.

We delivered a terrific fourth quarter with results that significantly exceeded our expectations on both the top and bottom line.

Revenue growth accelerated to 14% over Q4 last year, which drove strong profit and cash generation.

This inflection point in our growth was fueled by innovation investments, we've made over the past few years and particularly in 2023.

I'm extremely proud of our entire team for their hard work dedication and outstanding execution.

Rajiv Goel: We saw year-over-year growth in the quarter for both omni-channel video and display, and I'm particularly excited about the contribution and growth of emerging revenue streams, which now represent a low single-digit share of total revenue and, I anticipate, will expand significantly over the course of this year. Our results more than offset a sizable headwind from Yahoo as they shuttered their SSP business earlier in 2023 and continued to transition their technology for owned and operated inventory. Excluding Yahoo, year-over-year revenue growth in the fourth quarter accelerated to 19%.

We saw year over year growth in the quarter for both Omnichannel video and display and I'm, particularly excited about the contribution and growth of emerging revenue streams, which now represent a low single digit share of total revenue and I anticipate will expand significantly over the course of this year.

Our results more than offset a sizable headwind from Yahoo, as they shuttered their SSP business earlier in 2023 and continue to transition their technology for owned and operated inventory exclude.

Excluding the year over year revenue growth in the fourth quarter accelerated to 19%.

Rajiv Goel: Recall we had a similar revenue headwind from Yahoo in Q3, making Q4 the second consecutive quarter of accelerating revenue growth when excluding Yahoo. This highlights the strength of our platform, the value we deliver to publishers and buyers, and the increasing importance of sell-side technology across the ecosystem. The investments we've made over the last few years are gaining momentum and are becoming meaningful growth drivers. They've allowed us to expand our customer relationships and deepen technology integrations on the back of a growing product portfolio. We have built a flexible, integrated platform that meets the needs of buyers, sellers, retailers, and data providers across the digital advertising supply chain while delivering superior efficiency. As a result, we believe we are at the early stages of a period of significant multi-year revenue growth and market share expansion. On top of that, there are several major tailwinds that we expect to benefit from.

We had a similar revenue headwind from Yahoo in Q3, making Q for the second consecutive quarter of accelerating revenue growth when excluding Yahoo.

Highlights the strength of our platform the value, we deliver to publishers and buyers and the increasing importance of sell side technology across the ecosystem.

Investments we've made over the last few years are gaining momentum and are becoming meaningful growth drivers they've allowed us to expand our customer relationships and deepen technology integrations on the back of a growing product portfolio.

We have built a flexible integrated platform that meets the needs of buyers sellers retailers and data providers across the digital advertising supply chain, while delivering superior efficiency.

As a result, we believe we are at the early stages of a pretty significant multi year revenue growth and market share expansion.

Top of that there are several major tailwind that we expect to benefit from <unk>.

Rajiv Goel: Shifts in ad budgets to CTV and commerce media, continued industry consolidation, as well as external forecasts pointing to a stable and constructive ad spend environment. With a focus on increasing shareholder value, we intend to drive market share gains, expand margins, and generate strong cash flows. Underpinning this are a number of efficiency initiatives we implemented this past year across the business. In addition, we anticipate a 15 to 20% increase in engineering productivity in 2024, driven by the use of generative AI at multiple points in the software development and release process.

Shifting AD budgets to CTV and Commerce media continued industry consolidation as well as external forecasts pointing to a stable and constructive ad spend environment.

With a focus on increasing shareholder value, we intend to drive market share gains expand margins and generate strong cash flow.

Underpinning this are a number of efficiency initiatives, we implemented this past year across the business.

In addition, we anticipate a 15% to 20% increase in engineering productivity in 2024, driven by the use of generative AI and multiple points in the software development and release process.

Rajiv Goel: These efficiencies, along with our expected revenue growth and strong financial profile, give us the ability to reinvest back into the business in sales and engineering for market share gains, while simultaneously expanding our share repurchase program. We've significantly ramped Connect, our audience addressability platform, for a variety of privacy-compliant post-cookie solutions. Over the last few months, we have seen a marked increase in activity on post-cookie solutions as buyers and publishers prepare for the end of third-party cookies. Just in Q4 alone, the number of revenue-generating Connect customers increased by 20 percent from Q3 to over 100. We're also seeing more publishers adopt alternative signals, with over 80% of impressions on our platform now having these signals available to buyers. Even more compelling, alternative identifiers provide more relevant, higher ROI ads to consumers.

These efficiencies along with our expected revenue growth and strong financial profile give us the ability to reinvest back into the business in sales and engineering for market share gains while simultaneously expanding our share repurchase program.

Okay.

We have significantly ramped connect our audience addressed ability platform for a variety of privacy compliant post cookie solutions.

Over the last few months, we've seen a marked increase in activity on post cookie solutions as buyers and publishers prepare for the end of third party cookies. Just in Q4 alone the number of revenue generating connect customers increased by 20% from Q3 to over 100.

We're also seeing more publishers adopt alternative signals with over 80% of impressions on our platform now having these signals available to buyers even more compelling alternative identifiers provide more relevant higher ROI ads to consumers.

Rajiv Goel: Our analysis across more than 600 billion ad impressions processed daily by PubMatic concluded that when alternative IDs are present, publisher revenue increased by 16%. There is a tremendous opportunity in front of us for the open internet to take share from Mold Gardens. As the open Internet scales up alternative signals, which drive increased advertiser performance, combined with its inherent advantages of professionally created content relative to the walled gardens of user-generated content, the open Internet will be structurally more attractive to advertisers. For instance, we are collaborating closely with Group N on a market-leading, privacy-compliant, first-party data solution developed by Resolve, a choreographed company specializing in distributed computing and federated learning applications for the ag-tech industry.

Our analysis across more than 600 billion AD impressions process daily by <unk> concluded when alternative ideas are present publisher revenue increased by 16%.

There is a tremendous opportunity in front of us for the open internet to take share from walled gardens as the open internet scales up alternative signals, which drive increased advertiser performance combined with its inherent advantages of professionally created content relative to the walled gardens user generated content. The open internet will be structurally more attractive to advertisers.

For instance, we are collaborating closely with group and on our market, leading privacy compliant first party data solution developed by resolved Choreograph company specializing in distributed computing and Federated learning applications for the tech industry.

Rajiv Goel: This partnership empowers advertisers to enhance their ad campaign's targeting capabilities without transferring any personal data outside of their native environment. PubMatic works alongside publishers to provide consumer cohorts based on customized, next-generation large-language models for each of PubM's clients. Ad transactions are then facilitated on the PubMatic platform against these cohorts to deliver highly relevant ads and improve advertiser ROI. We're also working closely with Google, the UK Competition Markets Authority, and the Interactive Advertising Bureau's Tech Lab on the Privacy Sandbox Initiative. As part of the Google Markets Testing Grants program, we are now facilitating end-to-end transactions with Privacy Sandbox APIs between multiple publishers and demand-side platforms.

This partnership empowers advertisers to enhance their AD campaigns targeting capabilities with downstream spring any personal data outside of their native environments.

<unk> works alongside publishers to provide consumer cohorts based on customized next generation large language models for each of <unk> clients.

Transactions are then facilitated on the <unk> platform against these cohorts to deliver highly relevant ads and improve advertiser ROI.

We're also working closely with Google The U K competition markets Authority and interactive advertising Bureau, as Tech lab on the privacy sandbox initiatives.

As part of the Google markets testing grants program. We are now facilitating end to end transactions with privacy sandbox Apis between multiple publishers and demand side platforms.

Rajiv Goel: Given our success and the increased market activity in advanced addressability solutions, we plan to grow our engineering team's focus on this area as well as our connect to go to market team by several dozen people in 2024. The deprecation of third-party cookies is driving more buyers to lean into sell-side technology partnerships. As a result of this and other trends, supply path optimization continues to be a major growth driver for us as we add new SPO relationships and expand existing ones. We have been investing in SPO technology and partnerships for five years and ended 2023 with a high watermark of over 45% of total activity coming from SPO. This is nearly double where we were just a few years ago. We see a significant greenfield opportunity ahead, even beyond our initial goal of 50% of total activity. A recent study by the Association of National Advertisers identified that only one-third of advertisers have engaged in SPO and that the average advertiser is working with 15 to 20 SSPs.

Given our success and the increased market activity in advanced address ability solutions, we plan to grow our engineering team focused on this area as well as our connect go to market team by several dozen people in 2024.

The deprecation of third party cookies is driving more buyers to lean into sell side technology partnerships. As a result of this and other trends supply path optimization continues to be a major growth driver for us as we add new SQL relationships and expand existing ones.

We have been investing in spo technology and partnerships for five years and ended 2023 with the high watermark of over 45% of total activity coming from Spo.

This is nearly double where we were just a few years ago.

We see a significant greenfield opportunity ahead, even beyond our initial goal of 50% of total activity.

A recent study by the association of National advertisers identify that only one third of advertisers have engaged in spo and that the average advertisers working with 15% to 20 Ssp's.

Rajiv Goel: The study also actively advocates for advertisers, in addition to large agencies, to engage in SPO, consolidating activity with preferred technology providers to drive increased efficiency, transparency, and operational simplicity. SPO is also gaining momentum among independent agencies, unlocking additional opportunities for growth. We recently launched a partnership with WPromote, an independent marketing agency managing clients like Intuit, QuickBooks, Peacock, Spanx, and TransUnion.

The study also actively advocates for advertisers in addition to large agencies to engage in spo consolidating activity with preferred technology providers to drive increased efficiency transparency and operational simplicity.

<unk> is also gaining momentum among independent agencies unlocking additional opportunities for growth.

We recently launched a partnership with Dolby promote and independent marketing agency managing plants like Intuit, Quickbooks, Peacock Spanx and Trans Union.

Through our Spo partnership we will provide supply chain efficiencies that enable them to solve complex challenges for their brand clients with the performance we did approach to media.

Rajiv Goel: Through our SPO partnership, we will provide supply chain efficiencies that enable them to solve complex challenges for their brand clients with a performance-rooted approach to media. WPromote's head of programmatic and video, Skylar McGill, noted, Through our preferred partnership with PubMatic, WPromote's clients will be able to more efficiently and transparently access curated CTV and video inventory to drive business outcomes and create unique competitive advantages. Our SP opportunity is further boosted by Activate, which is continuing to scale in both pipeline and revenue. We have an active pipeline of over 75 advertisers, agencies, and campaigns. This pipeline is up by over 25% compared to the previous quarter. Earlier this month, we officially launched Activate in Japan, partnering with nearly a dozen leading CTV publishers in the region, including Asahi Television Broadcasting Corporation, Fuji Television, Nippon Television Network, and Tokyo Broadcasting System Television.

Dolby promotes head of programmatic and video Skyler Mcgill noted through our preferred partnership with thematic Dolby promotes clients will be able to more efficiently and transparently access curated CTV and video inventory to drive business outcomes and create unique competitive advantages.

Our SP opportunity is further boosted by activation, which is continuing to scale in both pipeline and revenue.

Have an active pipeline of over 75 advertisers agencies and campaigns. This pipeline is up by over 25% compared to the previous quarter.

Earlier this month, we officially launched activate in Japan, partnering with nearly a dozen leading CTV publishers in the region, including Asahi Television Broadcasting Corporation, Fuji television Nippon television network, and Tokyo Broadcasting system TV.

Premium streaming companies around the world are embracing activate as buyers seek more efficient programmatic access to their inventory to drive measurable business outcomes.

For example, a prominent luxury retailer in the U S wanted to drive brand awareness across channels with a focus on video and CTV during the holiday shopping season.

Rajiv Goel: Premium streaming companies around the world are embracing Activate as buyers seek more efficient, programmatic access to their inventory to drive measurable business outcomes. For example, a prominent luxury retailer in the U.S. wanted to drive awareness across channels with a focus on video and CTV during the holiday shopping season. With Activate, their agency was able to reach their niche target audience across PubMatic's premium omni-channel video inventory, driving efficiencies across cost, operations, and scale, ultimately achieving or exceeding each campaign KPI. As we continue to drive strong ROI for clients, I'm excited to tap into the nearly $65 billion expansion of our total addressable market that Activate represents. Together, SPO and Activate delivered strong, profitable revenue growth in 2023. I continue to see tremendous opportunity ahead of us as buyers engage more closely and strategically with self-serve technology providers like PubMatic.

With activate their agency was able to reach their niche target audience across <unk> premium omnichannel video inventory driving efficiencies across cost operations and scale, ultimately achieving or exceeding each campaign API.

As we continue to drive strong ROI for clients I am excited to tap into the nearly $65 billion expansion of our total addressable market that activate represents.

Together spo and activate delivered strong profitable revenue growth in 2023.

I continue to see tremendous opportunity ahead of us as buyers engage more closely and strategically with sell side technology providers like <unk>.

We plan to expand our buyer focused sales and customer success teams by 50% in 2024 in order to capture this opportunity and accelerate growth.

Okay.

Our growth trends with buyers also mirrored the momentum, we're seeing with publishers, particularly around high value CTV and online video formats Omnichannel video revenue growth accelerated in the fourth quarter.

Rajiv Goel: We plan to expand our buyer-focused sales and customer success teams by 50% in 2024 in order to capture this opportunity and accelerate growth. Our growth trends with buyers also mirror the momentum we are seeing with publishers, particularly around high-value CTV and online video formats. Omni-channel video revenue growth accelerated in the fourth quarter.

We have 271 premium CTV publishers monetizing on the platform up 27% over 2022, and we continue to have a robust pipeline of opportunity as we head into 2024.

Most recently, we added sling TV and vivo as they seek access to the unique and differentiated demand we offer through our spo and activate relationships.

Rajiv Goel: We have 271 premium CTV publishers monetizing on the platform, up 27% over 2022, and we continue to have a robust pipeline of opportunity as we head into 2024. Most recently, we added Sling TV and Vivo as they seek access to the unique and differentiated demand we offer through our SPO and Activate relationships. Equally important, our strong SPO relationships are driving increased premium content to our platform, creating a network effect. For example, driven by buyer interest, we recently signed a deal with Dish Media to provide customers with access to premium programming on Sling TV, including their broad range of live sports content.

Equally important our strong SPL relationships are driving increased premium content to our platform, creating a network effect.

For example, driven by buyer interest, we recently signed a deal with dish media to provide buyers with access to premium programming on sling TV, including their broad range of live sports content.

With major global sporting events like the Paris Summer Olympic Games, and Copa America, and the U S. This year, we're excited to provide advertisers transparent signal enhanced access to this valuable CTV inventory.

We believe an interoperable approach is the only sustainable way to manage the anticipated growth in programmatic CTV advertising, particularly as newer entrants contribute to a rapid increase in CTV inventory and corresponding increases in AD dollars across the ecosystem.

Rajiv Goel: With major global sporting events like the Paris Summer Olympic Games and Copa America in the U.S. this year, we are excited to provide advertisers transparent, signal-enhanced access to this valuable CTV inventory. We believe an interoperable approach is the only sustainable way to manage the anticipated growth in programmatic CTV advertising, particularly as newer entrants contribute to a rapid increase in CTV inventory and corresponding increases in ad dollars across the ecosystem In 2023, we deepen engagement with CTV ad server providers like Freewheel. And most recently, we expanded our relationship with a top three DSP partner by integrating their CTV demand onto our platform. The anticipated surge in buyer demand will bring increased ad dollars and monetization opportunities for streaming content providers on PubMatic. Our strong SPO relationships have also been instrumental in growing the size of our one-to-one private marketplace business, whereby publishers choose our platform to transact deals they sell directly to ad buyers. As publishers get familiar with the ease of use and benefits of our platform, they're increasingly using our software to run their one-to-one deals.

In 2023, we deepened engagement with CTV AD server providers like Freewheel and most recently, we expanded our relationship with the top III DSP partner by integrating their CTV demand onto our platform.

The anticipated surge in buyer demand will bring increased AD dollars and monetization opportunities for streaming content providers on somatic.

Our strongest feel relationships have also been instrumental in growing the size of our 1% to one private marketplace business, whereby publishers choose our platform to transact deals they sell directly to AD buyers.

As publishers get familiar with the ease of use and benefits of our platform. They are increasingly using our software to run their one to one deals overall revenue from one to one deals grew more than 50% year over year in 2023.

Our strong Q4 results were built upon a foundation of sustained innovation that has been core to <unk> DNA since our inception.

And no year was this more evident than in 2023.

Last year, we increased software releases by 60% year over year, including delivering two of our biggest product launches ever with activate in edinburg.

Not only did these launches market innovation milestone for our company, but also reinforced our position as one of the leading independent technology providers across the digital advertising ecosystem.

Rajiv Goel: Overall, revenue from one-to-one deals grew more than 50% year-over-year in 2023. Our strong Q4 results were built upon a foundation of sustained innovation that has been core to PubMatic's DNA since our inception, and in no year was this more evident than in 2023.

We have spent the past few years scaling our product development to extend the value of our core SSP platform beyond AD monetization services.

A wrapper software to large publishers with open rack solutions.

Solutions like activate for buyers those cooking targeting with connect and commerce media with convert each adding new revenue streams. In addition to the core SSP revenue, we generate on AD impressions flowing through our platform.

Rajiv Goel: Last year, we increased software releases by 60% year over year, including delivering two of our biggest product launches ever with Activate and Convert. Not only did these launches mark an innovation milestone for our company, but they also reinforced our position as one of the leading independent technology providers across the digital advertising ecosystem. We have spent the past few years scaling our product development to extend the value of our core SSP platform beyond ad monetization services. We offer wrapper software to large publishers with OpenRAP. Solutions like Activate for Buyers, Post-Cookie Targeting with Connect, and Commerce Media with Convert.

These solutions increased customer stickiness with more touch points and software integrations.

The enrich the data flowing through our platform, making us more valuable to our clients and they provide us with clear points of differentiation.

Collectively these solutions have unlocked emerging revenue streams for our business and now drive meaningful revenue generation and growth on top of our core SSP revenue.

Rajiv Goel: Each adding new revenue streams in addition to the core SSP revenue we generate on ad impressions flowing through our platform. These solutions increase customer stickiness with more touchpoints and software integration. They enrich the data flowing through our platform, making us more invaluable to our clients, and they provide us with clear points of differentiation.

We expect these solutions to contribute mid single digit percentages of revenue in 2024 more than doubling year over year.

The changing dynamics of the industry in the evolving digital advertising supply chain are also ushering in a new era for the open Internet historically performance advertising has been the domain of walled gardens.

Now driven by the increase in first party and identity data further fueled by the rise of Commerce media as well as buyers ongoing focus on efficiency, we see a long term opportunity to drive ROI and outcomes based advertising on the open internet.

Rajiv Goel: Collectively, these solutions have unlocked emerging revenue streams for our business and now drive meaningful revenue generation and growth on top of our core SSP revenue. We expect these solutions to contribute mid-single-digit percentages of revenue in 2024, more than doubling year-over-year. The changing dynamics of the industry and the evolving digital advertising supply chain are also ushering in a new era for the open Internet. Historically, performance advertising has been the domain of Waldgaard.

We see <unk> as a platform best positioned to take advantage of this new opportunity.

The closed loop reporting and valuable commerce data available through convert coupled with the efficiency and end to end control that activate provides an enhanced cell site data now available via connect we have the foundational building blocks in place to deliver performance advertising solutions that rival the walled gardens.

Steve Pantelis: Now, driven by the increase in first-party and identity data, further fueled by the rise of commerce media, as well as buyers' ongoing focus on efficiency, we see a long-term opportunity to drive ROI and outcomes-based advertising on the open internet, we see PubMatic as the platform best positioned to take advantage of this new opportunity, with the closed-loop reporting and valuable commerce data available through Convert, coupled with the efficiency and end-to-end control that Activate provides, and the enhanced self-sight data now available via Connect, we have the foundational building blocks in place to deliver performance advertising solutions that rival the walled garden. While it's still early, we will increase our investment in product development and machine learning engineers to build new performance-based solutions.

While it's still early we will increase our investment in product development and machine learning engineers to build new performance based solutions.

Yeah.

As I predicted last quarter Q4 was a clear inflection point up for revenue growth our strong performance highlights the value of our integrated platform and our customer centric approach to growth as.

As buyers continue to consolidate spend on our platform and take advantage of the growing solution sweeten the offer.

However, publisher's benefit from stronger monetization and greater utilization of our technology across our software products.

I see tremendous opportunity ahead of us in 2024 and beyond to grow our market share and deliver shareholder value.

We plan to expand our head count by over 150 people. This year to take advantage of the revenue broke growth opportunities ahead of us. These.

These investments will pay off partially in 2024 and more fully in 2025 with our focus on efficiency and a robust business model, we anticipate expanding margins in 2024.

Steve Pantelis: As I predicted last quarter, Q4 was a clear inflection point for revenue growth. Our strong performance highlights the value of our integrated platform and our customer-centric approach to growth. As buyers continue to consolidate spend on our platform and take advantage of the growing solution suite we offer, our publishers benefit from stronger monetization and greater utilization of our technology across our software products. I see tremendous opportunity ahead of us in 2024 and beyond to grow our market share and deliver shareholder value. We plan to expand our headcount by over 150 people this year to take advantage of the revenue growth opportunities ahead of us. These investments will pay off partially in 2024 and more fully in 2025. With our focus on efficiency and a robust business model, we anticipate expanding margins in 2024. I will now hand it over to Steve for the financial details. Thank you, Rajiv, and welcome, everyone.

I will now hand, it over to Steve for the financial details.

Thank you Rajiv and welcome everyone.

We ended the year with outstanding results across our business with fourth quarter revenue accelerating to 14% year over year and 33% sequentially versus Q3.

There were several factors that drove this growth inflection point.

We increased the total number of impressions monetize across all formats and channels by an impressive 29% over Q4 last year.

Both Omnichannel video and display revenues increased year over year.

We achieved robust growth in every geographic region.

In our emerging revenue streams like activate and open rack added approximately three percentage points of growth in the quarter compared to Q4 2022.

These results are particularly notable given the revenue headwinds in our business from Yahoo, and we commented on last quarter.

Our revenue growth, excluding yahoos owned and operated inventory in the fourth quarter grew 19% over Q4 last year and grew 8% for the full year versus 2022.

Steve Pantelis: We ended the year with outstanding results across our business, with fourth-quarter revenue accelerating to 14% year-to-year and 33% sequentially versus Q3. There were several factors that drove this growth inflection point. We increased the total number of impressions monetized across all formats and channels by an impressive 29% over Q4 last year. Both omni-channel video and display revenues increased year over year. We achieved robust growth in every geographic region.

Along with our revenue acceleration, we've continued our long track record of profitability.

With adjusted EBITDA margin of 46% and we generated the highest quarterly and full year free cash flow in our company's history.

Nearly $20 million for Q4, and $52 8 million for the full year.

Steve Pantelis: And our emerging revenue streams like Activate and OpenREP added approximately three percentage points of growth in the quarter compared to Q4 2022. These results are particularly notable given the revenue headwinds in our business from Yahoo that we commented on last quarter. Our revenue growth excluding Yahoo's owned and operated inventory in the fourth quarter grew 19% over Q4 last year and grew 8% for the full year versus 2022. Along with our revenue acceleration, we've continued our long track record of profitability, with an adjusted EBITDA margin of 46%, and we generated the highest quarterly and full year free cash flow in the company's history at nearly $20 million for Q4 and $52.8 million for the full year These notable results once again highlight our robust business model, our operational excellence, and our ability to grow a core business while simultaneously investing in our technology and products for revenue growth acceleration. Breaking Q4 down by format and channel, which includes Yahoo, unless otherwise called out.

These notable results once again highlights our robust business model.

Our operational excellence and our ability to grow our core business, while simultaneously investing in our technology and products for revenue growth acceleration.

Breaking Q4 down by format channel, which includes Yahoo, unless otherwise called out.

<unk> video revenue grew sequentially, 31% from Q3.

And 7% year over year.

These results were powered by a 30% plus increase in monetize impressions, which offset year over year CPM declines.

As a reminder, on a year over year basis video Cpm's declined in early 2023, but were relatively stable from August onwards.

Display returned to growth for the first time this year delivering strong year over year growth at 9%.

Mobile display led the way at over 20% year over year growth.

Excluding Yahoo, total mobile and desktop display revenue grew 27% in the fourth quarter.

Steve Pantelis: Omnichannel video revenue grew sequentially 31% through Q3, and 7% year-over-year. These results were powered by a 30%-plus increase in monetized impressions, which offset year-over-year CPM declines. As a reminder, on a year-over-year basis, video CPMs declined in early 2023 but were relatively stable from August onward. Display returned to growth for the first time this year, delivering strong year-over-year growth at 9%. Mobile display led the way at over 20% year-over-year growth; excluding Yahoo!, total mobile and desktop display revenue grew 27% in the fourth quarter. On a regional basis, every region grew double-digit percentages in Q4.

On a regional basis every region grew double digit percentages in Q4.

Looking at AD spend by category, we saw notable recovery in the shopping vertical which returned to year over year growth for the first time in 2023.

The business technology at personal finance categories in aggregate grew over 30%.

Overall, the top tenant out verticals combined increased by 26% over Q4 last year.

Our excellent fourth quarter results were driven by ongoing innovation over many years.

Steve Pantelis: Looking at ad spend by category, we saw a notable recovery in the shopping vertical, which returned to year-over-year growth for the first time in 2023. The business, technology, and personal finance categories, in aggregate, grew over 30 percent. Overall, the top 10 ad verticals combined increased by 26% over Q4 last year. Our excellent fourth-quarter results were driven by ongoing innovation over many years and our focus on the operating priorities that I outlined a year ago. Collectively, we expect this rigor will accelerate revenues in 2024 while delivering expanded strong margins and healthy cash flows. To recap, our first priority was to deepen our relationships with our publishers and buyers to be well-positioned when the ad spend environment stabilized. We did this through technological innovation on the PubMatic platform and partnership development.

And our focus on the operating priorities that I outlined a year ago.

Collectively we expect this rigor will accelerate revenues in 2024, while delivering an expanded strong margins and healthy cash flows.

To recap our first priority was to deepen our relationships with our publishers and buyers to be well positioned when the AD spend environment stabilizes.

We did this through technology innovation on the problematic platform and partnership development.

It's worth 23, we increased the number of high value video prescience, we monetized.

Behalf of our customers by over 30%.

With a focus on capacity optimization, a targeted capex investments.

Our rate of acceleration of increased as the year progressed.

We increased activity from supply path optimization to over 45% of the total.

Up from approximately 34% at the end of 2022.

Steve Pantelis: In 2023, we increased the number of high-value video impressions we monetized on behalf of our customers by over 30%. With a focus on capacity optimization and targeted CapEx investments, our rate of acceleration increased as the year progressed. We increased activity from supply path optimization to over 45% of total, up from approximately 34% at the end of 2022. We maintain high rates of net spend retention from SPO buyers and very low churn, underscoring the stickiness of these relationships. For example, the net spend retention rate from SPO partners with at least three years of spending was 120 percent.

We maintained high rates of that spend retention from SPL buyers and very low churn.

Disappoint the stickiness of these relationships.

The net spend retention rates from SPL partners with at least three years of spending was 120%.

We added 151 publishers in 2023, which includes premium CTV inventory and transactional commerce brands.

And perhaps what are the most exciting things we accomplished in 2023 was the ramp up of our emerging revenue streams through new products.

Steve Pantelis: We added 151 publishers in 2023, which included premium CTV inventory and transactional commerce brands. And perhaps one of the most exciting things we accomplished in 2023 was the ramp-up of our emerging revenue streams through new products, incremental data connections, and sticky software integration. Our second operating priority was to drive free cash flow generation.

Incremental data connections and sticky software integrations.

Our second operating priority was to drive free cash flow generation.

Coupled with our durable model, we were disciplined capital allocation and ongoing divestments.

We delivered $52 8 million of free cash flow at 38% increase over 2022.

Over the last three years, we generated over $140 million of free cash flow, which has provided us the flexibility to continually invest.

Steve Pantelis: Coupled with our durable model, we were disciplined in capital allocation and ongoing investment, and we delivered $52.8 million of free cash flow, a 38% increase over 2022. Over the last three years, we generated over $140 million of free cash flow, which has provided us the flexibility to continually invest, accelerate growth, and differentiate our product offerings. And third, we focused on establishing a new level of efficiency in our cost structure. Our owned and operated infrastructure provides tremendous leverage in our business on the back of CapEx investment in 2021 and 2022. Our focus in 2023 was on driving increased optimization. These efforts resulted in more than 20% additional capacity on our platform while allowing us to reduce capex by more than 70% versus 2022. In addition, our efforts delivered an 8% reduction in the cost of the road compression process.

Accelerate growth.

And differentiate our product offerings.

And third we focused on establishing a new level of efficiency in our cost structure.

Our owned and operated infrastructure provides tremendous leverage in our business.

On the back of Capex investment in 2021.

122.

Our focus in 2023 was on driving a priest optimization.

These efforts resulted in more than 20% additional capacity on our platform.

While allowing us to reduce capex by more than 70% versus 2022.

In addition, our average delivered an 8% reduction in cost of revenue per impression it processed.

We also drove efficiencies across our product and engineering teams supported by generative AI and through our highly efficient product development organization in India.

Steve Pantelis: We also drove efficiencies across our product and engineering teams supported by generative AI and through a highly efficient and productive development organization in India. We launched and scaled a mid-market customer success team in India to deliver outstanding account management with greater focus and efficiency. Through the combination of improved engineering productivity and cost efficiency efforts, we have improved our cost base by over $20 million. Full-year GAAP operating expenses were $165.7 million, a 23% increase over 2022, reflecting investments across the business. Included in this total is $5.7 million of bad debt expense related to the bankruptcy of one of our buyers in Q2. Extending our long track record of standout financial performance, 2023 marked our 8th straight year of growth in net income and 11th straight year of positive adjusted EBITDA. The full year gap at any time was $8.9 million, or $0.16 per diluted share. Non-GAAP net income, which adjusts for unrealized losses in equity investments, stock-based compensation expense, and related adjustments for income taxes, was $32 million, or $0.57 per diluted share.

We launched scaled our mid market customer success team in India to deliver outstanding account management with greater focus and efficiency.

Through the combination of improved engineering productivity.

Cost efficiency efforts, we have improved our cost base by over 20 million.

Full year GAAP operating expenses were $165 7, million% to 23% increase over 2022, reflecting investments across the business.

Included in this total is $5 7 million of bad debt expense related to the bankruptcy of one of our buyers in Q2.

Extending our long track record of standout financial performance 2023 marked our eighth straight year of GAAP net income and 11th straight year of positive adjusted EBITDA.

Full year GAAP net income was $8 9 million or 16 cents per diluted share.

non-GAAP net income, which adjusts for unrealized loss on equity investments.

<unk> based compensation expense and related adjustments for income taxes was $32 million or 57 cents per diluted share.

We ended 2023 with a $175 $3 million of cash and marketable securities and zero debt.

Steve Pantelis: During the year, we used our significant free cash flow for growth investments, and we repurchased shares as planned. As of December 31st, we had repurchased 4 million shares of our Class A common stock for $59 million in cash, and we've reduced our fully diluted weighted average number of shares outstanding. We had approximately 16 million remaining from our prior authorization at the end of the year. Consistent with our long-term capital allocation strategy, supported by our healthy balance sheet and strong cash generation, we plan to continue our capital allocation strategy of first, investing for growth, and second, returning capital to shareholders. Accordingly, the Board of Directors has authorized the repurchase of up to an additional 100 million shares of the company's Class A common stock through the end of 2025, on top of the remaining funds from our prior authorization.

During the year, we reduced our significant free cash flow for growth investments and we repurchase shares as planned.

As of December 31, we had repurchased 4 million shares of our class a common stock for $59 million of cash.

And we've reduced our fully diluted weighted average shares outstanding.

We had approximately $16 million mainly from a prior authorization at the end of the year.

Consistent with our long term capital allocation strategy.

Supported by our healthy balance sheet and strong cash generation.

We plan to continue our capital allocation strategy of first investing for growth and second returning capital to shareholders.

Accordingly, the board of directors has authorized the repurchase of up to an additional $100 million of the company's class a common stock through the end of 2025.

On top of the remaining funds from our prior authorization.

Steve Pantelis: Turning to 2024, we are seeing a more constructive ad spend environment and are planning for accelerated year-over-year revenue growth and incremental margin expansion. This means investing in areas where we see the highest returns while driving further efficiencies across the business. Key incremental investment areas include innovation and go-to-market resources. We plan to add more engineers to drive our post-Cokie solutions and develop new revenue opportunities such as performance advertising. We plan to increase our buyer-focused sales and customer success team by 50% to accelerate growth in SPO and Activate, and we plan to hire more salespeople to focus on growing our emerging revenue streams coming from our enterprise-grade OpenRAP software. Post-cookie targeting with Connect and Commerce Media with Convert.

Turning to 2024, we have seen a more constructive AD spend environment and are planning for accelerated year over year revenue growth and incremental margin expansion.

This means investing in areas, where we see the highest returns while driving further efficiencies across the business.

Key incremental investment areas include innovation and go to market resource.

We plan to add more engineers to drive our post cookie solutions and develop new revenue opportunities such as performance advertising.

We plan to increase our buyer focused sales and customer success team by 50% to accelerate growth in spo inactivate.

And we plan to hire more salespeople to focus on growing our emerging revenue streams coming from our enterprise grade open wrapped software.

Post cookie targeting with connect E Commerce media with convert.

Steve Pantelis: Overall, we expect to add more than 150 net new team members this year. In addition, we expect to increase CapEx by several million dollars over 2023 levels to support the growth of our new product. And finally, we anticipate we will achieve further productivity gains through the use of AI and continued cost efficiencies by focusing on capacity and infrastructure optimization. Based on our successful long-term track record of maximizing the return of our growth investments, we are confident that our 2024 operating plan will help us accelerate our revenue growth to over 10% this year, which includes the Yahoo headwind referenced earlier. Excluding Yahoo, this growth translates to over 12% year-over-year growth. At the same time, we anticipate expanding our adjusted even margin and generating positive cash from operations in line with 2023. Turning to Q1, with a tailwind from our strong finish to the year, we are starting 2024 on solid footing.

Overall, we expect to add more than 150 net new team members this year.

In addition, we expect to increase Capex by several million dollars over 2023 levels to support the growth of our new products.

And finally, we anticipate we will achieve further productivity gains through the use of AI and continued cost efficiencies by focusing on capacity and infrastructure optimization.

Based on our successful long term track record of maximizing the return of our growth investments. We are confident that our 2024 operating plan will help us accelerate our revenue growth to over 10% this year.

Which includes the Yahoo headwind referenced earlier.

Excluding Yahoo. This growth translates to over 12% year over year growth.

At the same time, we anticipate expanding our adjusted EBIT margin and generating positive cash from operations in line with 2023.

Turning to Q1 with a tailwind from our strong finish to the year. We are starting 2024 on solid footing.

Steve Pantelis: January trends were excellent, with a double-digit percentage increase in monetized impressions on a year-over-year basis. CPMs were in line with seasonal expectations, and emerging revenue streams continue to grow. Notably, omnichannel video revenues were up double-digit percentages year-over-year, and display revenues also increased year-over-year. Based on these recent trends, we anticipate Q1 2024 revenue to be in the range of $61 to $63 million, or 12% year-over-year growth at the midpoint, and 17% growth, excluding Yahoo! In terms of cost, the gap cost of revenue in Q1 is expected to be approximately $26 million.

January trends were excellent with double digit percentage increase in monetize impressions on a year over year basis.

Cpm's were in line with seasonal expectations and emerging revenue streams continue to grow.

Notably Omnichannel video revenues were up double digit percentages year over year and display revenues also increased year over year.

Based on these recent trends, we anticipate Q1 2020 for revenue to be in the range of $61 million to $63 million or 12% year over year growth at the midpoint.

And 17% growth excluding Yahoo.

In terms of cost GAAP cost of revenue in Q1 is expected to be approximately $26 million.

Steve Pantelis: Over the coming quarters, as a function of continued proactive steps on productivity and cost-saving measures, we anticipate keeping sequential quarter-over-quarter cost increases in the low single-digit percentages. We expect Q1 GAAP OPEX to increase approximately $5 million versus Q4. This increase absorbs the Q4 run rate of expense, global annual cost of living adjustments that are effective in Q1, plus an additional cost related to our Genuine Global Sales Conference. With our focus on investments for growth, we anticipate that OPEX will increase sequentially in the low single-digit percentages from Q2 onwards. Given our revenue guidance and our cost structure, which is largely fixed in the near-term by design, we expect our Q1 adjusted EBITDA to be between $10 to $12 million, or approximately 18% margin at the midpoint.

Over the coming quarters as a function of continued proactive steps on productivity and cost saving measures, we anticipate keeping sequential quarter over quarter cost increases in the low single digit percentages.

We expect Q1, GAAP opex to increase approximately $5 million versus Q4.

This increase absorbed that Q4 run rate of expense.

Global annual cost of living adjustments that are effective in Q1.

Plus an additional costs related to our January global sales conference.

With our focus investments for growth, we anticipate that Opex will increase sequentially in the low single digit percentages Q2 onwards.

Given our revenue guidance and our cost structure, which is largely fixed in the near term by design.

We expect our Q1 adjusted EBITDA to be between $10 million to $12 million or approximately 18% margin at the midpoint.

Steve Pantelis: As a reminder, historically, our first quarter is impacted by prior year investments carried forward during a period of low seasonal ad spend. We expect profitability to improve as the year progresses, driven by our continued focus on productivity improvements, cost efficiencies, and typical seasonal increases in ad spend. For the full year, we expect adjusted even a margin to be approximately 30%. We expect CapEx to be between $16 million and $18 million for the full year.

As a reminder, historically our first quarter is impacted by prior year investments.

Carryforward during a period of low seasonal outspend.

We expect profitability to improve as the year progresses, driven by our continued focus on productivity improvements.

Cost efficiencies and typical seasonal increases in ad spend.

For the full year, we expect adjusted EBIT margin to be approximately 30%.

We expect capex to be between $16 million to $18 million for the full year.

Steve Pantelis: Over many years, we have developed a successful playbook to drive sustained innovation and operational excellence. This gives us the confidence to incrementally invest for future growth while continuing to deliver robust profitability and cash flow. As one of the largest independent sell-side technology providers, I'm very excited about our prospects in 2024 and the trajectory we are on for sustained double-digit growth this year and beyond. With that, I'll turn the call over to Stacie for questions. Thank you, Steve. As a reminder, you can ask a question by raising your hand located on the dashboard. If you're on your phone, please press star 9.

Over many years, we have developed a successful playbook to drive sustained innovation and operational excellence.

This gives us the confidence to incrementally invest for future growth, while continuing to deliver robust profitability and cash flow.

As one of the largest independent sell side technology providers I'm very excited about prospects in 2024, and the trajectory we're on for sustained double digit growth this year and beyond.

With that I will turn the call over to Stacy for questions.

Okay.

As a reminder, you can ask a question by raising your hand, and I'll get it on the dashboard. Okay on your phone please.

Nine.

Stacie Clements: In the interest of time, we ask that you please limit your question to one and one follow-up. Our first question comes from Shweta Kachdaria at Evercourt. Please go ahead, Shweta. Thanks, Stacie. Let me try two, please.

Just a tiny.

Please limit your questions to one and one follow up.

Our first question comes from Sean Dargan with perhaps by now.

Thanks Stacy.

Let me try two please so the first one rajiv on Cookie deprecation.

Rajiv Goel: So first one, Rajiv, on cookie deprecation. I guess the question is, what is your sense in terms of the readiness of publishers and advertisers if cookies were to go away in the third quarter and more so by the fourth quarter? Do you think that they are ready to transition on both sides, the large advertisers as well as the publishers? And then also on cookie, this is part of question one. Also on cookie, you talked about the 80% adoption of alternative IDs. I guess the question there is, how does it work once cookies do go away in terms of your revenue exposure that has been reliant on cookies? Is it simply that? Cookies go away, publishers have alternative IDs, so ROI goes up, and potentially CPMs could go up, and those publishers that don't have alternative IDs will likely get lower CPMs. Could you help us think through how it would impact you?

I guess the question is what is your sense in terms of the readiness of publishers and advertisers. If cookies you were to go away in third quarter and more so by fourth quarter, I think that they're ready to transition on both sides. The large advertising as well as publishers and then also on cookies. This is part of question.

One also on Cookie you talked about the 80% adoption of alternative Ibs I guess the question. There is how does it work once it opens to go away in terms of your revenue exposure.

That is that hasn't been reliant on cookies or is it simply that.

Cookies go away you have publishers have alternative I D. So ROI goes up and potentially <unk> could go up and those who publishers that don't have alternate bodies will likely get lower EPS could you help us think through Hollywood and back to you and then the second question for Steve Steve could you. Please help.

Steve Pantelis: And then the second question for Steve is, Steve, could you please help us with the cadence of the revenue acceleration through the year as all these new incremental products will start playing a role? It sounds like a mid-single digit percentage in terms of full year contribution is how you characterized it, but how should we think about it through the year? Thanks a lot. Yeah, why don't I start?

With the cadence of the revenue acceleration through the year as all these new incremental products will start playing a role it sounds like mid single digit percentage in terms of full year contribution is how you characterized it but how should we think about it through the year. Thanks a lot.

Yes, but why don't I start. Thank you trade on the Cookie piece, then I'll turn it over to Steve. So I would say there is a mixed level of readiness across the ecosystem.

Rajiv Goel: Thank you, Shwetha, for the cookie piece, and I'll turn it over to Steve. So I would say there's a mixed level of readiness across the ecosystem. We have been working for four or five years now on our Connect product, so we feel quite good about how we're positioned. Some publishers are ahead of the curve. Some publishers are behind the curve.

We have been working for four or five years now on our connect product. So we feel quite good about how we're positioned some publishers are ahead of the curve. Some publishers are behind the curve and I would say the same is true of advertisers and agencies you saw what we announced with <unk>.

Rajiv Goel: And I would say the same is true of advertisers and agencies. You saw what we announced with GroupM and Resolve around modeled cohorts today. So that's a great example of, I think, getting ahead of the curve. But I do want to emphasize that we are not dependent on how Privacy Sandbox evolves or what Google does.

And resolve around model cohorts today.

So that's a great example of I think of getting ahead of the curve.

I do want to emphasize that we are not dependent on how privacy sandbox evolves or what Google does so we have been scaling non cookie environments, such as CTV Commerce media mobile App.

Rajiv Goel: So we have been scaling non-cookied environments such as CTV, commerce media, and mobile apps. All of these areas are growing as a percentage of revenue, as well as just the raw volume of impressions. And so, we have plenty of impression opportunities to meet advertiser needs. And, as you commented, 80% of our impressions on our platform now have alternative signals available to the third-party cookie. I think there will be a transition period when that cookie deprecation timeline happens. It's impossible for everybody in the ecosystem to be fully transitioned away from the cookie while the cookie is still around.

All of these areas are growing as a percentage of revenue as well as just the raw volume of impressions and so we have plenty of impression opportunities to meet advertiser needs and as you commented. It is 80% of our impressions on our platform now have alternative signals available to that third party cookie.

There will be a transition period when that cookie deprecation timeline happens.

It's impossible to be fully for for everybody in the ecosystem to be fully transitioned away from the cookie while the cookie is still around but we've been building signal that percentage has been growing its going to continue to grow. So we feel really good about all the things we're doing around alternative.

Rajiv Goel: But we've been building signals. That percentage has been growing. It's going to continue to grow. So we feel really good about all the things we're doing around alternative IDs, contextual advertising, published first-party data, and model cohorts. And then, stepping back, what I see is that Privacy Sandbox is introducing significant complexity into the ecosystem.

<unk> contextual advertising publish a first party data and model cohorts.

And then stepping back what I see is that privacy sandbox is introducing significant complexity into the ecosystem. It's an entirely new parallel option environment and Theres a collection of API that doesn't have to be implemented in those API themselves are evolving rapidly and so what that means is that it will take substantial and sustained engineering investment.

Steve Pantelis: It's an entirely new parallel auction environment, and there is a collection of APIs that have to be implemented, and those APIs themselves are evolving rapidly. And so what that means is that it will take substantial and sustained engineering investment in order to compete effectively. And we're in a position to make that investment. It's factored into our 2024 plan. I suspect there are many companies in the ecosystem, in the ad tech ecosystem, that will not be in a position to make that investment, so this may very well be a shared gain opportunity for them. Let me turn it over to you, Steve, on the revenue piece. Great. Thanks, Shweta, for the question.

In order to compete effectively and we're in we're in a position to make that investment it's factored into our 2024 plan I suspect there are many companies in the ecosystem.

The AD tech ecosystem that will not be in a position to make that investment. So this may very well be a share gain opportunity for us.

Let me turn it over to you Steve on the revenue piece great.

Thanks for the question. So a couple of things just to highlight number one are.

Steve Pantelis: So a couple of things just to highlight. Number one, our guidance at the midpoint is about 12% year-over-year growth, so clearly a step up from where we were historically in the first half of 2023.

Our guidance at the midpoint is about 12% a year over year growth. So clearly a step up from where we were historically the first half of 'twenty. Three so overall, we feel that they started the year is very robust and positive and then to your question or comment we have.

Steve Pantelis: So overall, we feel that the start of the year is very robust and positive. And then, to your question and comment, we have added to the emerging revenue over time. So I expect that through the course of the year, we'll continue to build on the momentum we've established in the first quarter. And it'll probably match a more seasonal expectation in terms of historical averages.

Additive over time, the emerging revenue streams, so I expect that through.

Through the course of the year will continue to build on the momentum we've established in the first quarter.

It will.

Probably.

Match, a more seasonal expectation in terms of historical averages so expected growth in Q2 versus Q1.

Steve Pantelis: So expected growth in Q2 versus Q1, and then a strong fourth quarter, which will be supplemented by our emerging revenue stream. The other comment to note on emerging revenues is that they're really positive on a number of fronts for us, not the least of which is net new in many cases, but it's SAS-like revenue and more stable and less prone to, let's say, the ups and downs of the overall a So we see a lot of stability in those revenue streams and build them up over time. And our current expectation is that by the end of the year, we will have doubled the portion of our emerging revenue streams through the course of this ramp-up and investment in these areas. Thanks, Rajiv. Thanks, Steve. Our next question comes from Matt Swanson at RBC. Please go ahead, Matt.

And then strong fourth quarter, which will be supplemented by emerging revenue streams.

Other comment to note on emerging revenues is that it's really positive on a number of fronts for us not the least which is net new.

In many cases, but its a SaaS like revenue and more stable and less prone to let's say the ups and downs of the overall AD spend environment. So we see a lot of stability in those revenue streams and build up over time and our current expectation is that by the end of the year, we will have doubled.

The bar.

Emerging revenue streams.

Through the course of this ramp up in investments in these areas.

Thanks, Vince and thanks, Steve.

Our next question comes from Matt Swanson RBC.

Right.

Rajiv Goel: Yeah, thanks, Stacie. Congratulations on the quarter, guys. I think I want to stay, maybe, on the SPO side.

Yeah.

Congratulations on the quarter guys I think I want to say, maybe on the spo side and like you mentioned Europe.

Rajiv Goel: And like you mentioned, you're, you know, dangerously close to hitting those long-term targets of 50%. And I guess the two-parter on that would be one: do you have a new number that kind of sticks out in your head? It's like, what is the long-term contribution from SPO? And then also just kind of thinking about this journey we've been on, how the value proposition of SPO has changed from today versus when it started. Thank you.

Dangerously close to hitting those long term targets of 50%.

And I guess the two part are on that would be one do you have a new number that kind of sticks out in your head like what the long term contribution from S. P. O is and then also just kind of thinking this journey we've been on.

The value proposition of <unk> changed from today versus when it started.

Rajiv Goel: Sure, yeah, thank you, Matt. So with respect to SPO, you know, as you mentioned, we're very close to the targets that we had set out earlier. You know, when I think about it, I think, long term, maybe three quarters of our business could be SPO based. So let's pencil that in as kind of the next frontier, the next watermark for us to hit.

Sure Yeah. Thank you Matt.

So with respect to Spo as you mentioned right. We are very close to the targets that we had set out earlier.

I think about it I think long term, maybe three quarters of our business could be spo based.

So let's split.

You know put pencil that in as kind of the next frontier. The next watermark for us to hit.

Rajiv Goel: I think there's still a tremendous amount of opportunity. You know, as I mentioned in the prepared remarks, we are expanding the sales and customer success teams here by 50 percent in order to go after it.

I think there's still a tremendous amount of opportunity.

As I mentioned in the prepared remarks, we are expanding the sales and customer success teams.

Year by 50% in order to go after it we highlighted delving promote you know more of an independent agency, we see a lot of activity on the advertising front. So in terms of how the value proposition is evolving.

Rajiv Goel: We highlighted W Promote, you know, more of an independent agency. We see a lot of activity on the advertiser front. So in terms of how the value proposition has been evolving. It certainly has been evolving, and I think the kind of economic cycle that maybe we're still in or maybe we're most of the way through, you know, has also changed where the value proposition is headed for us. So it used to be, you know, about simplifying operations in order to focus on high-quality inventory from a media buyer's perspective.

That certainly has been evolving and I think the.

The kind of economic cycle that maybe we're still in or maybe where most of the way through.

Has also changed where the value proposition is headed for spo. So it used to be about.

Simplifying operations in order to focus on high quality inventory from a media buyers perspective and.

Rajiv Goel: And I think as we've gotten deeper into these SPO conversations and relationships, we found a whole set of different opportunities for us to focus on. So, helping make the buyer more efficient, certainly one that buyers are very focused on these days. You know, that ANA study where, you know, buyers are still working with 15 to 20 SSPs. Obviously, that's a metric that's far too high and is not going to be sustained. Buyers are looking for help with the privacy and regulatory environment. So there are, you know, more and more privacy regulations around the world, and they need to be, you know, compliant in all places where they do business. There are 20-some, you know, U.S. state regulations in place now are coming into place.

I think as we've gotten deeper into these spo conversations and relationships we found a hole.

Whole set of different opportunities for us to focus on so helping make the buyer more more efficient assembly.

But certainly one that buyers are very focused on these days now that Hani study, where buyers are still working with 15% to 20 Ssp's. Obviously, that's a metric that's far too high and is not going to be sustained.

Buyers are looking for help with the privacy and regulatory environment. So there's you know more and more privacy regulations around the world and they need to be compliant in all places where they do business Theres 20, USD regulations in place now are coming in place.

Rajiv Goel: Post-cookie targeting is another area, so this is exactly the point that we made with GroupM and Resolve. So I think it's turning into a much more multifaceted data workflow efficiency and compliance opportunity, which creates, you know, tremendous innovation opportunities for us and tremendous growth opportunities. And then, if I could ask one more, Steve, you mentioned some of this being more staff-like revenue. One of the interesting parts of DSPO is it makes your spend almost more DSP-like, right, where it's about ad budgets and less CPM-sensitive. So can you just talk about, like, as we got to 75 percent SPO activity, what that does for your visibility in terms of being able to forecast revenue? I absolutely think it grows.

Post cookie targeting is another area. So the exactly the point that we made with group M and resolved.

So I think it's turning into a much more multifaceted.

Data workflow.

Efficiency.

Compliance.

Opportunity, which creates tremendous I think innovation opportunity for us and tremendous growth opportunity for us.

And then if I could ask one more Steve you mentioned some of Thats been more SaaS like revenue one of the interesting parts of the Spo if it meets your spend like almost more DSP like right, it's about AD budgets unless VPN plants.

So can you just talk about like as like that's where we got the 75 per cent spo activity.

That does for your visibility in terms of being able to forecast revenue.

Well, yes, absolutely think it grows.

Steve Pantelis: And to Rajiv's point, I mean, we've gone on this journey with buyers, and we learn more and more every day and deepen the relationships. I shared the stickiness measure and the incremental spend that we see from our SPO relationships. So all of that contributes to what I'll call the stability of our revenues over time. But the aspect with respect to emerging revenues is that, you know, it's something that is built on, you know, our innovation capabilities, and it's on top of our platform. And so we are finding significant pockets of opportunity, these SAS business models, whether it be a database through our Connect, OpenRAF software, enterprise-grade software, where you are able to charge for that.

Rajiv point I mean, we.

Gone on this journey with buyers and learning more and more every day and deepen the relationships I've shared.

The stickiness measure in the incremental spend that we see from our steel relationships. So all of that contributes to what I'll call the stability of our revenues over time.

But the aspect with respect emerging revenues is that it.

It's something that is built on our innovation capabilities and its on top of our platform.

And so we are finding significant pockets of opportunity. These SaaS business models, whether it would be.

Database through our connect open wrap software enterprise grade software, we are able to charge for that and of course, the significant launch of activate which adds a net new revenue stream in terms of buyer fees.

Steve Pantelis: And, of course, the significant launch of Activate, which adds a net new revenue stream in terms of buyer fees. So all of these help to add incremental revenues but also a level of stability. And as that grows over time, I would expect the degree of revenue predictability will grow. Thank you, Steve.

All of these helped tubes and Ingram.

Incremental revenues, but also a level of stability and as that as that grows over time I would expect.

The degree of revenue predictability will grow.

Thank you Steve.

Your next question comes from James Moore.

That's very helpful.

Rajiv Goel: Great, thanks for the question. Can you talk a little bit more about your CTV growth strategy, and how you feel about the inventory that you currently have access to today, and do you see a world in which you could get more access to the premium CTV inventory that we're seeing entering the market? Thank you. Yeah, sure, James.

Great. Thanks for the question can you talk a little bit more just about your CTV growth strategy and how do you feel about the inventory that you currently have access today and do you see a world in which you could get more access to the premium CTV inventory that we're seeing entering the market. Thank you, yes sure James Thank you so.

Rajiv Goel: So yeah, when we think about CTV inventory, I feel really good about how well-positioned we are. Year over year, CTV publisher count went from 214 in Q4 of 22, to 271 in Q4 of 23. So that's significant growth in terms of the number of publishers, and what I see happening is that there's a lot of momentum, particularly with the biggest names, the biggest, you know, streamers and broadcasters, and it's being driven by a network effect with buyers and supply path optimization, as well as the strength of our technology platform. So buyers are increasingly consolidating their spend on our platform. Our Activate product extends that even further. And Dish and Sling, you know, are a good examples of that, where they want access to those dollars, of course.

When we think about CTV inventory I feel really good about how well positioned we are year over year CTV publisher Count grew from 214 Q4 of 'twenty two to 271 in Q4 of 23, so thats significant count or significant growth in terms of the number of publishers.

And what I see happening is that there's a lot of momentum, particularly with the biggest names the biggest streamers and broadcasters and it's being driven by a network effect with buyers and supply path optimization as well as the strength of our technology platform. So buyers are increasingly consolidating their spend on our platform our activate audit.

Extend that even further.

In addition, sling are a good example of that where then they want access to those dollars of course.

Rajiv Goel: And so as we ramp up these SPO relationships and get deeper with buyers, then that brings more publishers to our platform. And then, another, I think, really nice expansion opportunity is that as CTV publishers use our platform and see the benefits of it, they are moving more of their, you know, one-to-one private marketplace or programmatic guarantee deals to our platform. So this is a deal that a publisher would sell to a single advertiser, and they're moving those deals to our platform. We grew that segment by 50% year over year last year. And we have, I think, a low share of the market in that arena, that one-to-one deals space.

And so the as we ramp these spo relationships and get deeper with buyers and that brings more publishers to our platform and then the other I think really nice expansion opportunity is that as CTV publishers use our platform and see the benefits of it they're moving more of their one to one private marketplace programmatic guaranteed.

<unk> to our platform. So these are the this is a deal that a publisher would sell to a single advertiser.

And they're moving those deals for our platform. We grew that segment by 50% year over year last year, and we have I think a low share of the market in that in that arena that one to one deals space and so I think theres a lot of a lot of runway ahead of us and the last comment I'll just make is that the.

Rajiv Goel: And so I think there's a lot of runway ahead of us. And the last comment I'll just make is that, You know, the vast majority of CTV monetization that we have on our platform today is in the U.S. But we see tremendous opportunity in a variety of different parts around the world. Europe is growing quickly. You know, in APAC, we highlighted earlier the Activate publisher reaction in Japan.

The vast majority of CTV monetization that we have in our platform today is in the U S. But we see tremendous opportunity in a variety of different parts around the world.

Europe is growing quickly and APAC, we highlighted earlier the activate publisher.

Rajiv Goel: So I think there's a variety of different markets where we're going to continue to grow CTV at a. Great, and then Steve, maybe just one quick follow-up on the guide for 2024. Last year, you weren't able to provide guidance, but this year, it looks like you have a little bit more visibility. Is that sort of what's giving you the conviction to guide for the full year?

Reaction in Japan. So I think there is a variety of different markets, where we're going to continue to grow CTV at a rapid rate.

Great and then Steve maybe just one quick follow up on the guide for 'twenty.

2024 last year, you werent able to provide guidance, but this year it looks like you're a little bit more visibility is that is that sort of what's giving you. The conviction to guide to the full year like just what's kind of giving you that.

Steve Pantelis: Like just what's kind of giving you that increased visibility? There's actually a number of factors. First and foremost, we do see a more constructive ad environment out there. So that's number one.

<unk> visibility.

There's actually a number of factors first and foremost is we do see a more constructive environment out there.

So that's number one number two is many of the things that we've been working on for a number of years around innovation are really started to take hold in the back half of 'twenty. Three you saw the outstanding results.

Steve Pantelis: Number two is many of the things that we've been working on for a number of years around innovation really started to take hold in the back half of 23. You saw the outstanding results in the fourth quarter. If you exclude the yachts who owned and operated inventory, you know, our business grew 19% in the fourth quarter.

In the fourth quarter, if you exclude the Yahoo owned and operated inventory or.

Our business grew 19% in the fourth quarter and so when we look ahead at the opportunities we're going to build on that momentum.

Steve Pantelis: And so when we look ahead at the opportunities, we're going to build on that momentum. We have been investing in omni-channel video, and Rajiv called out some of the factors there.

We have been investing behind Omnichannel video Rajiv called out some of the factors there we are seeing terrific.

Steve Pantelis: We are seeing terrific, you know, momentum from SPO relationships, and that will continue to grow as a proportion of our total business. So that adds a tailwind to us.

Momentum from Spo relationships that will continue to grow as a proportion of our total business so that as a tailwind to us.

Steve Pantelis: And then, of course, we continue to, you know, have progress with our new emerging revenues like activate, connect, and open wrap. So all told, when we look at 24, we're seeing a minimum growth expectation of 10 plus percent. And if you strip out the Yahoo component, that's 12, over 12%.

And then of course, we continue to have.

Progress with our new emerging revenues like activate connect open route. So all told when we look at 'twenty four.

We're seeing a minimum growth expectation of 10 plus percent.

And if you strip out the Yahoo component, that's 12 over 12%. So we're feeling really good about where we are right now obviously will.

Steve Pantelis: So we're feeling really good about where we are right now. Obviously, we'll update the investor group as time goes on. But, you know, we have had a really good start to the year and many things that have already gained traction and, you know, are building. Our next question comes from Justin Patterson. Please go ahead, Justin.

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<unk> group as time goes on but we have.

Really good start to the year and many things that have already gained traction and are building.

Our next question comes from Justin Patterson.

Steve Pantelis: Great, thank you very much and good afternoon. To build on that last question, you know, I wanted to dive into the headcount investments some more. It does sound like you have some tailwind, so leaning into that, but how should we think about just, you know, the returns from this headcount investment, and it's a, the tailwind gets a bit stronger over the course of this year. Will you look to invest a little bit more, more aggressively than what's currently in plan, or drop more through to the bottom line? Thank you.

Ken.

Great. Thank you very much and good afternoon to.

To build on that last question I wanted to dive into the head count investments more with a mirror. It does sound like you have some tailwind so leaning into that.

Should we think about just.

The returns from the head count investments and it's a tailwind gets a bit stronger over the course of this year or will you look to invest a little bit more more aggressive way than what's currently on plan or were dropped more through to the bottom line. Thank you.

Steve Pantelis: Sure, I'll take the first part, and, Rajiv, you could add some comments in terms of our strategy. But, you know, just to set the stage, Justin, and you know, we obviously have proven that we are a very profitable business in the fourth quarter, with a 46% adjusted EBITDA margin. So we have a great business model, and when we take a look at the momentum that we've been building up, the traction in SPO, and our new areas of growth, we absolutely feel this is the right time to, you know, invest more significantly.

Sure I'll take the first part and know Rajeev you could have similar comments in terms of our strategy but.

Just to set the stage Justin we obviously have proven that we are a very profitable business in the fourth quarter up 46% adjusted EBIT market. So we have a great business model.

When we take a look at the momentum that we've been building up.

The traction in Spo and our new <unk>.

Areas of growth are we.

Absolutely feel this is the right time to.

Invest more significantly.

Rajiv Goel: And so it's around, of course, innovation and around sales. And so we think that, with that, you know, combined investment profile, we're gonna be able to get returns this year and beyond. And we've certainly proven historically our ability to make growth investments pay off. And so if we see, you know, there are further opportunities, there's no reason why we wouldn't potentially increase our rate of investment. But what makes our business particularly strong, robust, and unique is our ability to still deliver robust margins. You know, right now, we're aiming for about a 30% EBITDA margin, even with the incremental investment that we've called out. And so we see this as focusing on growth while also delivering a very strong bottom line. Yeah, hey, Justin, I'll just add, you know, our priorities are clearly shifting. You know, the last 18 months or so, it's been a fairly weak ad spend environment, as you know.

It's around of course innovation and around sales.

And so we think that with that combined investment profile, we're going to be able to get our returns this year and beyond and we've certainly proven historically, our ability to make growth investments pay off.

So if we see there is further opportunities. There is no reason why we wouldn't see a potentially increase.

The rate of investment, but what makes our business, particularly strong robust and unique is our ability to still deliver robust margins right now we're aiming to be about a 30% EBIT margin, even with the incremental investment that we've called out.

And so we see this as a.

Our focus on growth, while also delivering very strong bottom line results.

Yeah, Hey, Justin I'll, just add our priorities are clearly shifting the last 18 months or so it's been a fairly weak AD spend environment as you know.

Rajiv Goel: And so then our priorities were really focused on covering the large customer base, covering the largest customers in our customer base, innovating for where the growth opportunity is heading. And, you know, we've talked a lot about those products, and then third, just making our business more efficient. And I think we did a really strong job in all of those areas. And now, as we get into a more constructive environment, we're really focused on accelerating revenue growth. Right?

So then our priorities were really focused on covering the large customer base, what kind of covering the largest customers in our customer base.

Innovating for where the growth opportunity is heading to talk a lot about those products.

And then third just making our business more efficient and I think we did a really strong job and all of those areas and so now as we get into a more constructive environment. We're really focused on accelerating revenue growth right and Steve called out some of the metrics and I think youre seeing that acceleration happened pretty quickly.

Rajiv Goel: And Steve called out some of the metrics. And I think you're seeing that acceleration happen pretty quickly through Q4 and Q1 and onwards. So we will be very, I would say, opportunistic around where we see growth opportunities and just continue to invest behind them. I think we're pretty comfortable with the profitability in the business model, as Steve highlighted, you know, strong cash generation as well. And so we're going to put the bias towards accelerating revenue. Thanks, Sajid. Our next question comes from Matt Condon at JMZ. Please go ahead, Matt.

During Q4, and Q1 and onwards.

So we will be very I would say opportunistic around.

You know when we see growth opportunities and just continuing to invest behind them I think we're pretty comfortable.

Approval with the profitability and the business model is as Steve highlighted strong cash generation as well until we're going to put the.

The bias towards accelerating revenue growth.

Yes.

Thanks you.

Our next question comes from not congruent talent pool.

Matt.

Rajiv Goel: Thanks for taking my question. Just with the shutdown of Vice and BuzzFeed's selling complex, can you just comment on the health of digital publishers beyond 2024? Is this a structural change, or is this just a macro cycle? And then maybe a second one, can you just talk about advertiser adoption of ID Hub and just how you're expecting that to trend throughout 2024? Thank you.

Thanks for taking my question, just with the shutdown of advice and speed selling complex can you just opine on the house's digital publishers. We enter 2024 is this a structural change or is this just a macro cycle and then maybe a second one can you just talk about advertiser adoption of ITV hub and this is how you are expecting.

That the trend throughout 'twenty 'twenty four thank you yeah sure. Thank you Matt for the question. So yeah, let's start with the first one in terms of you know of.

Rajiv Goel: Yeah, sure. Thank you, Matt, for the question. So yeah, let's start with the first one in terms of a couple of companies you cited and the health of pubs. So as we talked about over the last year and a half, and I just mentioned in the prior question and answer, growth opportunities always shift in this industry during an economic cycle. And We've been through cycles before, so we know that to be the case.

A couple of company decided in health of pubs. So you know as we talked about over the last year and a half and I just mentioned in the prior question.

To answer the growth opportunities always shift.

In this industry through an economic cycle.

And we've been through cycles before so we know that to be the case and so the opportunities really are shifting towards areas like CTV com.

Rajiv Goel: And so the opportunities really are shifting towards areas like CTV, commerce media, and publishers where they have certain types of data assets. And I think what we see happening is, in the case of those publishers and other digital publishers, they may not be keeping up with where those growth opportunities lie and, therefore, suffering as a result. Now, we've seen this coming.

Commerce media.

Publishers, where they have certain types of data assets and.

And I think what we see happening is you know in the case of those publishers and other.

Digital publishers, they may not be keeping up with where those growth opportunities lie.

And therefore suffering as a result that we've seen this coming and so.

Rajiv Goel: And so over the last several years, we've been really focused on innovating our products in these areas and growing the share of our business, which is coming from CTV and omnichannel video. That's coming from commerce media, and that has this kind of alternative signal to the cookie attached to it so that we can be market share gainers in this process. So I think that's kind of what you see at play is that even as ad spend now starts to accelerate, there's going to be pockets. There's going to be winners and losers.

Over the last several years, we've been really focused on innovating our products in these areas growing the share of our business, that's coming from CTV and Omnichannel video that's coming from.

From Commerce media and that has this kind of alternative signal to the cookie attached to it.

So that we can be market share gain.

Gainers in this process. So I think that's kind of what you see at play is that even as AD spend now starts to accelerate theres going to be pockets theres going to be winners and losers.

Rajiv Goel: And what you see with our growth numbers is that we're well-positioned for where the high growth opportunities are. Now, turning to your second question on Identity Hub, so just a quick reminder of what Identity Hub does: it is software that publishers can deploy that allows them to easily convert data that they have on a user into a variety of different alternative ideas. So if a publisher has an email address, for instance, on a user and they have consent, then they can convert that into a UID2, into a LiveRamp ID, into, I think we're now at 29 different IDs.

And what you see with our growth numbers is that we're well positioned with where the high growth opportunities are.

Now turning to your second question around identity.

Just a quick reminder of what identity up does is.

It is software that publishers can deploy that allows them to easily convert.

Data that they have on a user into a variety of different alternative Ids. So if a publisher has an email address for instance on a user they have incense them. They can convert that into a UAV to into our library by D into I think we're now at 29 different items. So we have several hundred publishers.

Rajiv Goel: So we have several hundred publishers that have Identity Hub deployed, and we plan to add significantly, probably in the triple digits, of additional customers this year, and we expect that we may be able to exceed those numbers as we get closer to the cookie deprecation timeline. But again, it's a key part of growing the signal that we have in order to generate higher CPMs, 16% higher on average when we have IDs present. And our next question comes from Andrew Merrick at Raymond James. Please go ahead, Andrew.

<unk> have identity have deployed.

We plan to add significantly probably in the triple digits.

Of additional customers this year and we expect.

That we may be able to exceed those numbers as we get closer to the to the cookie deprecation timeline, but again, it's a key part of our.

Growing the signal that we have in order to generate a higher CPM.

16% higher on average when we have a.

Presence.

And our next question comes from from generic at Raymond James. Please go ahead.

Rajiv Goel: Hi guys, thanks for taking my questions. I was wondering if you could give maybe a little bit more color on the generative AI impact on engineering productivity. Is that adoption of external products or anything generated internally? Because I know you guys like to own and operate your own infrastructure. And you've talked about the 60% increase in software releases in 23. How impactful can these tools be for release velocity in 24?

Hi, guys. Thanks for taking my questions.

I was wondering if you could give maybe a little bit more color on the generative AI impact on engineering productivity.

That adoption of external products or anything generated internally because I know you guys like to own and operate your own infrastructure.

And you've talked about the 60% increase in software releases in 'twenty three how impactful can these tools be for release velocity in 'twenty four.

Rajiv Goel: Yeah, great. Thanks, Andrew. So, you know, there are multiple branches of AI, for example, machine learning and, you know, obviously, the much newer generative AI. So just for a little bit of context, you know, we have longstanding use and expertise in machine learning. We use that quite extensively for programmatic transactions that happen in milliseconds, things like price floors, traffic efficiency, you know, various option management algorithms. Now, with respect to generative AI, we pushed hard in 2023 to test and scale a number of new approaches to software development, to testing, and release automation using Gen AI tools. And if you can name a tool, we've probably tested it.

Great. Thanks, Andrew so.

Of course, there's multiple branches of AI for example machine learning and obviously the much new regenerative AI. So just for a little bit of context, we have longstanding Houston expertise in machine learning, we use that quite extensively for programmatic transactions that happened in milliseconds things like price floor as traffic efficiency.

<unk> auction management algorithms now with respect to generative AI, we pushed hard in 2023 to test and scale and number of new approaches to software development to testing and release automation using gen AI tools.

And if you can name a tool we've probably tested it so we're using a combination.

Rajiv Goel: So we're using a combination of a variety of third-party tools, but we've also built some things in-house ourselves. We've seen good results and have been scaling those things up, and that's what's leading us to anticipate a 15% to 20% increase in engineering productivity in 2024. And maybe I can give you two concrete examples of how we're putting Gen AI to work. So the first is that by automating a lot of the software testing process, we've been able to increase the ratio of engineers to testing personnel. So by using Gen AI tools, we're able to automate a lot of the manual testing that used to happen.

Variety of third party tools. We've also built some things in house ourselves we've seen good results and have been scaling those things up and that's what's leading us to.

Do you anticipate a 15% to 20% increase in engineering productivity in 2024, and maybe I can give two concrete examples of how we're putting Jenny I to work. So the first is that by automating a lot of the software testing process, we've been able to increase the ratio of engineers to testing.

Personnel silver.

So by using Gen AI tools, we're able to.

Army a lot of the manual testing that used to happen and so that's a structural gain now were $4 million of engineering investment. We can have more engineers that are writing new features and new capabilities and so that's part of that part of that productivity gain.

Rajiv Goel: And so that's a structural gain now where for, you know, a million dollars of engineering investment, we can have more engineers that are writing new features and new capabilities. And so that's, you know, part of that productivity. And then, you know, sticking on that testing theme, by automating a lot of that testing, we're able to release software faster by, you know, really automating the entire pipeline from development to testing to deployment. So we used to have an approach, you know, a couple of years ago where we might ship software every couple of weeks and had to go through these, you know, testing cycles and make sure that everything worked properly.

And then sticking on that testing theme by automating a lot of that testing were able to release software faster by really automating the entire pipeline from development to testing to deployment.

So we used to have an approach a couple of years ago, where we might ship every ship software every couple of weeks. It had to go through these testing cycles and make sure that everything worked properly now individual engineering teams within <unk>. They can release software at Wil, because we've been able to automate so an engineered can write code one day and within <unk>.

Rajiv Goel: Now, individual engineering teams within PubMatic can release software at will because we've been able to automate. So an engineer can write code one day, and within 24 hours, that code can be released into production. And so that has had a tremendous acceleration of our development and iteration cycles, which should lead to not only faster productivity, but I would expect accelerated revenue. And you preempted my follow-up question on examples, so I'm all set.

Four hours that code can be released in the production.

And so that has a tremendous I think acceleration of our development and iterate iteration cycles, which should lead to.

Not only faster productivity, but also would expect accelerated revenue growth.

And you preempted my follow up question on examples so I'm all set thank you great. Thanks, Andrew.

Rajiv Goel: Thank you. Great. Thanks, Andrew. Our next question comes from, Uh... Jason Helstein at Oppenheimer. Please go ahead, Jason.

Our next question comes from.

Uh huh.

Okay.

Oppenheimer we're hopeful.

Rajiv Goel: Thanks. A few questions, John, maybe interconnected. So just on alternative IDs, when publishers choose, let's say, to use UIDs or RAMP IDs, is there any additional cost to you to help them support those IDs, or, just broadly, is there a cost that has to be borne by the ecosystem that, you know, you have to share a piece of?

Thanks, Good question, Tommy maybe interconnected so just on alternative Ids.

When publishers choose let's say to use I got you idea of ramp I D.

There any additional cost to you to help them and support those Ids or just broadly like is there a cost that has to be borne by the ecosystem that you.

You have to share a piece of.

Rajiv Goel: That's question one, and then I've got to follow up. Sure. Yeah, Jason, generally, the cost is borne by the advertiser that's using that ID. So publishers don't bear a cost to, let's say, convert an email address into a UID2 or into a LiveRAMP ID. We do not, you know, bear licensing costs.

That's question, one and then I've got Paul sure, Yes, so Jason generally.

The cost is borne by the advertiser, that's using that I D.

Publishers don't bear a cost, let's say convert an email address into a UAV two or into a live ramp I D.

We do not bear licensing costs, we do have some infrastructure costs. So that's part of the Capex budget that Steve commented on earlier.

Rajiv Goel: We do have some infrastructure costs, so that's part of the CapEx budget that Steve commented on earlier. But that's more than offset by the fact that we generate higher CPMs with those impressions. And, you know, given our usage model, our revenue share, then we're able to make even more net revenue on those impressions. So the economics for us and for the publisher are very clear and very positive. And then, obviously, each advertiser is doing their own math in terms of, you know, how much of those IDs they have. Thank you.

But that's more than offset by the fact that we generate.

Higher CPM with those impressions and given our usage model. Our revenue share then we're able to make even more net revenue on those impressions. So the economics for us and for the publisher are very clear.

I'm very positive and then obviously Africa, each advertisers doing their own math in terms of how much of those ideas they want to use alright.

Steve Pantelis: And then follow up, I guess, kind of starting with the guidance for free cash flow being flat year over year despite healthy revenue growth. And then there are a number of like puts and takes in 2023 on kind of like one-time items in both revenue and costs. I mean, just how are you thinking about maybe margin expansion going forward? It seems like as the business gets bigger, it does require more capital.

Alright. Thank you and then follow up I mean, I guess kind of starting with the guidance for free cash flow being flat year over year despite healthy.

The revenue growth and then there are a number of like puts and takes in 'twenty. Two 'twenty three on kind of like one time items in both revenue and costs.

I mean, just how are you thinking about maybe margin expansion going forward. It seems like as the business gets bigger it does require more capital than you're obviously hiring more people because the business is getting.

Steve Pantelis: And you're obviously hiring more people because the business is getting, you know, more complicated, basically. But just how are you thinking about kind of maybe margins over margin expansion over the next few years? Are we kind of close to the peak?

More complicated basically but just how are you thinking about kind of maybe margins over margin expansion over the next few years are really kind of like close to like peak margins.

Steve Pantelis: Sure. Thanks, Jason, for the question. So we think that there is absolutely a lot of opportunity over the long run to expand margin. I mean, we're taking a very specific concrete opportunity right now, given where we see momentum and the digital ad environment, to invest for growth. And so we're being very thoughtful about it in terms of where we're putting the people, the team, technology, and sales. And that will pay off over the next couple of years. But if you step back and just think about the company that we built over many years, we actually have many structural drivers that really support our long-term margin expansion. First and foremost, of course, we have our own and operated infrastructure.

Sure.

Thanks, Jason for the question. So we think that there is absolutely a lot of opportunity over the long run to expand margin I mean, we're taking a very specific concrete.

Opportunity right now given where we see momentum as the digital AD environment to invest for growth and so we're being very thoughtful about it in terms of where we're putting the people the team technology sales.

And that will have returns over the next couple of years, but if you step back and just think about the company that we built over many years, we actually have many structural drivers that really support our long term margin expansion.

First and foremost of course, we have our own and operated infrastructure and so you saw the power of what we could do in 'twenty, three we were able to optimize that infrastructure and grow our capacity by 20%, while reducing our capex by 70% so.

Steve Pantelis: And so you saw the power of what we could do in 23. You know, we were able to optimize that infrastructure and grow our capacity by 20 percent while reducing our capex by 70 percent. So, very powerful leverage point that we decide when we take advantage of it and how we then deploy those returns. Number two, as a reminder, we are investing in the fastest growing and most profitable component segments of the digital ad environment, omnichannel video, mobile, and emerging revenue streams. And so these products have a very high marginal profitability.

Very powerful leverage point that we decide when we take advantage of it and how we then deploy those returns number two as a reminder, we are investing in the fastest growing most profitable components segments of the digital AD environment Omnichannel video mobile the emerging revenue.

Streams and so these products have very high marginal profitability. So we anticipate that will be a tailwind on margin.

Steve Pantelis: So we anticipate that will be a tailwind on margin. And then, of course, we talked about the structural aspects of generative AI and the long-term asset that we built in India with our development organization. That is something that is going to sustain strong economics for years to come. And then when you think about, from a strategic point of view, what we've done as a business, being a pioneer in supply path optimization, we now have over 45% of all our activity is related to SPO activity relationships. And we expect that to grow. Why is that important?

And of course, we talked about the structural aspects of generative AI and the long term asset that we built in India with our development organization that is something that is going to sustain.

Strong economics for years to come and then when you think about.

From a strategic point of view, what we've done as a business.

Being a pioneer in supply path optimization, we now have.

Over 45% of all of our activity is related to spo.

Activity.

Our relationships and we expect that to grow why is that important is that we've already incurred the clos to process. Those impressions. So when we move more people more buyers onto our platform as a result of spo the incremental costs are de minimis. So that's sort of like structurally feel really good about where we're going.

Steve Pantelis: The advantage is that we've already incurred the cost to process those impressions. So when we move more people, more buyers, onto our platform as a result of SPO, the incremental costs are de minimis. So that's sort of like structurally feeling really good about where we're going in the long run. And then, of course, all the factors of, as a company, our long-term focus is on being an operational expert. 11 straight years of adjusted EBITDA profitability speaks to sort of the structural advantages we have and just the mindset that we operate with. Thank you. And our last question comes from Max Michaelis at Lake Street. Please go ahead, Max.

In the long run and then of course, you know all the factors of you know as a company our long term focus is on operational excellence.

11 straight years of adjusted EBITDA profitability speaks to sort of the structural advantages, we have and just the mindset that we.

Operator.

Thank you.

And our last question comes from Mark Smith Lake Street.

Rajiv Goel: Hey guys, it's good to see the top 10 verticals grow 26% in the quarter. I was wondering if you could if you wanted to highlight any other verticals.

Hi, Matt.

Hey, guys good to see the top 10 verticals grow 26% in the quarter I was wondering if you could if you wanted to highlight any other verticals I know you touched on business and shopping maybe if theres any other verticals are performing well and then how some of those verticals have trended into Q.

Rajiv Goel: I know you touched on business and shopping, but maybe if there are any other verticals that performed well, and then how some of those verticals have trended into Q1, now that we're about two months into the quarter. Sure. So, the great news is that we saw double-digit growth across every top 10 vertical in the fourth quarter. And we have not seen that, you know, throughout the 23.

Two months into the quarter sure. So the great news is that we saw double digit growth across every top 10 vertical in the fourth quarter. So we have not seen that.

Throughout the 23.

Rajiv Goel: And I called out in my prepared comments that shopping was a real standout because it went from down year-over-year in the prior quarters to positive. And, of course, I commented specifically on a couple of the verticals that grew over 30%, you know, but we had, you know, across the board, did travel, food, and drink, automotive, health, and fitness. These are all double-digit growth rates, so very strong across the board. And it really speaks to the strength of our platform as an omnichannel platform with a very diverse publisher base and a diverse buying ecosystem. Turning to the first quarter, we saw many of those same trends continue in the first quarter. Obviously, you know, still in the middle of it, but very pleased to see continued momentum in shopping and the other verticals like business technology also continue to grow nicely. Alright, and then last one for me. I saw that the SPO retention rate was 120%. What should we think of as a normalized range for that? metrics. I don't see why that couldn't be a normalized metric over time based upon a couple things.

And I called out in my prepared comments that shopping was a real standout because.

Went from down year over year in the prior quarters to positive and of course I commented specifically on a couple of the verticals that grew over 30%, but we had across the board travel food and drink automotive health and fitness. These are all double digit growers, so very strong across the board and it really speaks to the strength.

Of our platform as an omnichannel platform with a very diverse publisher base and the diverse buying ecosystem.

Turning to the first quarter, we've seen many of those same trends continue in the first quarter obviously.

Still in the middle of it but.

Very pleased to see continued momentum in shopping in the other verticals like this technology also continued to grow nicely.

Alright, and then last one for me I saw the S. P. O retention rate was 120% what should we think of as a normalized range for that.

Metrics.

Don't see why that couldnt be a normalized metric over time based upon a couple of things number one.

Steve Pantelis: Number one, you know, these are deep relationships, and so we're solving problems, and creating opportunities for our SPL partners. And so they're moving more and more spend; they're looking for more opportunities across their own ecosystems and how they can take advantage of our platform and our capabilities. So we believe that sort of adds a natural tailwind.

Deep relationships and so we're solving problems, creating opportunities for our SPL partners and so they are moving more and more spend theyre looking for more opportunities across their own ecosystems of how they can take advantage of our platform and our capabilities.

So.

We believe that sort of adds a natural tailwind the other facet as dishes.

Steve Pantelis: The other facet is just always adding new opportunities like Activate and Commerce Media. So I think that the takeaway of 120% is a reflection of sort of the strength of our platform, the relationships, and I think it is a good indicator of, you know, what the future potentially presents. All right. Thanks, guys. Nice quarter. Thank you, Matt. Great, thank you.

We're always adding new opportunities like activate commerce media so.

The takeaway is.

120% is a reflection of sort of the strength of our platform and relationships and I think is a good indicator.

You know what the future potentially presents.

Alright, thanks, guys nice quarter. Thank.

Thank you Max.

Oh.

Rajiv Goel: There are no further questions in the queue, so I'm gonna turn it back over to Rajiv for closing remarks. Thank you, Stacie, and thank you all for joining us today. Q4 was an inflection point where prior strategic investments resulted in accelerated revenue growth, strong margins, and cash generation. In addition, we executed well against our top operating priorities for the year, which drove significant cost savings and efficiencies, all of which set us up well for 2020. We expect to grow our business by 10% at minimum in 2024, which is more than double our growth rate in 2023, while also expanding margins. At the same time, we'll continue to invest in key areas and unlock emerging revenue streams. This is an exciting time in ad tech, and we're very well positioned to grow our market share as the industry evolves. We look forward to seeing many of you over the next month or two. As a reminder, we will be at the JMP Conference on Monday, March 4th, and the KeyBank Conference on Tuesday, March 5th. Thanks, and have a great afternoon, everyone.

No further questions in the pool, and then kind of Parker.

Thank you very much.

Thank you Stacy and thank you all for joining US today Q4 was an inflection point, where we saw prior strategic investments fuel accelerated revenue growth strong margins and cash generation. In addition, we executed well against our top operating priorities for the year, which drove significant cost savings and efficiencies all of which set us up well for 2024.

We expect to grow our business by 10% at minimum in 2024, which is more than double our growth rate in 2023, while also expanding margins at the same time, we'll continue to invest in key areas and unlock emerging revenue streams.

This is an exciting time in AD tech and we're very well positioned to grow our market share as the industry evolves.

We look forward to seeing many of you over the next month or two as a reminder, we will be at the JMP conference on Monday March 4th and the Keybanc Conference on Tuesday March 5th Thanks, and have a great afternoon, everyone.