Q3 2024 PubMatic Inc Earnings Call
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. 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 and are available at investors.pubmatic.com, including our most recent Form 10-K and any subsequent filings on Forms 10-Q or 8-K.
Our actual results may differ materially from those contemplated by the forward-looking statements.
We caution you, therefore, against relying on any of these forward-looking statements. All information discussed is as of November 12, 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.
Speaker Change: A reconciliation of these measures that are the most directly comparable gap measures is available in our press release. And now I will turn the call over to Rajeev.
Thanks, Stacie, and welcome, everyone.
Rajeev: Our third quarter results exceeded expectations on both the top and bottom line.
Rajeev: Revenue in the quarter grew 13% year over year. Clients continue to build their advertising businesses on our platform, and we are becoming more embedded into clients tech stacks and more integrated across the ecosystem.
Rajeev: Over the last few months, driven by the strength and scale of our CTV solutions, as well as the depth of our expertise, we capitalized on the surge of political advertising demand. In just a few short years, we have organically scaled our CTV business, and we now work with 70% of the top 30 streaming publishers.
Rajeev: Even as we further penetrate the head of this market, where the bulk of consumers are spending their time, we also have tremendous opportunity to expand our existing streamer relationships.
Rajeev: On average, CTV monetized impression volume was up over 100% year-over-year for the third straight quarter as we have reached a critical mass of streaming inventory to meet the surge in ad demand on our platform.
Speaker Change: For contacts, please call 1-877-BLACKLINE-BLACKLINE or call 1-877-PROTECTING-USER-EXPRESSIONS to report any questions or comments.
And the department of ontology, and teacher assistants.
Speaker Change: We developed a better approach for streamers utilizing generative AI technology.
Speaker Change: Our solution classifies each ad on granular criteria such as political party, federal, state, or local candidate or issue, sentiment, and more.
Speaker Change: As a result, more than 250 incremental publishers and streamers that have historically blocked political ads chose to open their inventory to Pubmatic for political campaigns that meet their user experience criteria.
Further, political blacks are able to leverage …
Speaker Change: Theג€™ Fun of PMB Technology was born with applications of the protective provocation-assisted death rates, Margaret Bush systems and the National Anti-Narcissistic Guide geven those approved solutions that combat guns information.
Speaker Change: along numerous dimensions built on sell-side technology. With a simple opt-in, streamers can unlock more value from their inventory while making it easier for buyers to access premium content and targeted audiences.
Speaker Change: For example, ad buyers specifically looking to reach sports fans can leverage our off-the-shelf and easy-to-buy live sports inventory.
Speaker Change: Direct TV Advertising and Roku are already leveraging Pymatic's CTV Marketplace with positive feedback from both publishers and buyers. As this CTV Marketplace grows, we believe it will create stickiness for our CTV business.
Speaker Change: We continue to on-board new streams, growing our streaming customer count by 13% year-over-year to over 280. For example, we recently signed a deal with a third-party service chain called Fast and Charter, that offers streaming devices and services to tens of millions of customers per hour.
Speaker Change: This partnership with Pneumatic will bring demand from our SPO relationships across their content portfolio, including XUMO ScreenBox, XUMO TV, and its fast app, XUMO Play.
Speaker Change: Also aiding our growth are agencies and advertisers that increasingly consolidate buying on Pubmatic. Half of our activity is from SPO as buyers move more ad spend to our platform due to our growing technology, workflow, and data capabilities.
Speaker Change: Major agency holding companies have moved and are in the process of moving direct buys on behalf of their clients to our platform to capitalize on their supply path optimization relationships with us, including through ActiVe.
Speaker Change: Earlier this year, Dentsu launched Mercury for Media, which is a centralized data, media activation, and creative execution platform that is being rolled out across its agencies.
Speaker Change: We are thrilled to partner with Dentsu on this transformative initiative as Pumatic Technology is being integrated at the center of Mercury for Media.
Speaker Change: Pubmatics Connect will increase audience reach and cost efficiency, particularly within CTV and streaming. Activate will provide end-to-end cookie-less digital media activation and measurement at scale.
Speaker Change: Our platform sits at the intersection of data, commerce media, SPO, omni-channel inventory, and global scale. Our innovative technology and differentiated approach are what enable us to scale with our clients and partners as they build integrated digital ad businesses.
It's also why clients and partners choose PubMedic.
Speaker Change: PubMatic's SSP is one of the only omnichannel platforms with a scaled SDK footprint, which seamlessly integrates directly into publishers' apps.
Speaker Change: This key differentiator was just one of the reasons that one of the largest global mobile mediation platforms expanded their partnership with us.
Speaker Change: We are now a certified bidder and exchange partner, making it easier for app developers to integrate our solution with the click of a button, streamlining access to Pugmatic's valuable advertising demand that app publishers have historically struggled to access at scale.
Speaker Change: The partnership expansion brings more than 80,000 global app developers into our sales funnel, creating a significant growth opportunity for us.
Speaker Change: Our mobile app business grew over 20% year over year for the fourth consecutive quarter. Our strong foothold in this market positions us well for continued growth. Per Magnus forecast, 58 billion in mobile app ad spend is expected to flow through the open internet this year.
Speaker Change: The value of our comprehensive integrated platform offers multiple new revenue streams and TAM expansion opportunities like commerce media. As retailers and transactional commerce companies lean into advertising as a major revenue and profit driver, they're realizing their need for SSP technology.
Speaker Change: For example, Pimatic's integrated platform allows Western Union to scale its advertising initiatives more effectively.
Speaker Change: Originally integrated to support Hansite monetization, we have recently expanded our partnership as they launched their Western Union Media Network earlier this year.
Speaker Change: Using Convert, Western Union will leverage our off-site media solutions, applying insights from their 115 million annual consumer money transfer transactions in the U.S. across PubMatic's premium inventory.
Speaker Change: This gives them the power to manage their monetization strategy via a single, unified tech stack, streamline operations, and enhance efficiency.
Speaker Change: At the same time, the publishers integrated into our SSP benefit from unique ad budgets only available on the PMATIC platform when Western Union data is applied.
Speaker Change: The added value customers receive through solutions like Convert also creates incremental revenue opportunities, such as data and SSP fees for Pubmatic.
Speaker Change: Another vector for our long-term growth includes social media companies entering the open internet arena as they expand their ad businesses outside of their own walled gardens. To do this, they need solutions to help them monetize their audiences, curate their inventory, and access open internet ad budgets.
Speaker Change: Signaling a strategic focus, many of these companies have hired programmatic leaders with industry expertise and are partnering with Pubmatic to help them build and scale.
Speaker Change: We are particularly excited to launch Advertising with X, formerly known as Twitter, which serves more than 335 million users.
Speaker Change: Historically, X had only accessed social media advertisements. They selected Pubmatic as an SSP partner, opening up their traditionally closed ecosystem to tap into the $26 billion in open internet native display and video ads spent.
Speaker Change: Pugmatic is able to build differentiated solutions across these customer segments because of the strength of our integrated platform and our consistent track record of organic innovation. Over the last two years, we've been successfully adopting generative AI technology across our software development, testing and release process.
Speaker Change: We estimate a 10-15% increase in engineering productivity so far this year, with more gains to come.
Speaker Change: For even more exciting examples, we are also leveraging new AI capabilities and customer-based solutions to drive higher performance.
Speaker Change: Thank you for being with us for our first day after the task force, where internal teams take two days to ideate and then take the rest of the work. In April's positions since 2014, this was our last task force of the day. We're going to start our work with 40 days of preparation for our planning teams.
Speaker Change: We're part of the Submissions Incorporated A.I. Submission Program. To get the information and cooperation we're describing, I'd like you to contact Steve Clements at Submissions Technology.
Speaker Change: Next, we have the panel to prepare a presentation covering two sambar classes, the first of which will be for Mal quéchape, which will be used to listen to their recitative performances. After twoouts amputations, the lecturer will make it up to the students for watching their exact own performance throughout this year.
Speaker Change: We have a number of additional applications for the program. We look forward to working with you in the future.
Speaker Change: Thank you for attending our session in New York. Our conversations were centered around the needs for health and health advocacy in the global world, transparency, efficiency, effectiveness, and privacy. We'll continue to innovate and invest in to keep our communities and private sector health and privacy ecosystem.
Phytoncide technology becoming a critical component
Speaker Change: The growing importance of cell-site technology has led Forrester to address the SSP category for the first time in more than a decade.
Speaker Change: I couldn't be more proud of our team's vision and their accomplishments. FOMATIC was recognized as an SSP leader in the Forrester wave, achieving the highest possible scores in the criteria of programmatic auctions, publisher protections, commerce media, and innovation.
Speaker Change: Our platform provides a foundation for innovation and expansion for many of our clients across the ecosystem, including publishers, app developers, agencies, and commerce media platforms.
Speaker Change: Plus, the strength of our leading SSP is driving new entrants to the open internet sector to select Pubmatic as their tech partner.
Speaker Change: These trends have resulted in significant growth in key secular areas of the business and I'm excited by the large opportunity in front of us as content creators and buyers alike choose Pubmatic to scale their ad businesses.
Steve Clements: I'll now turn the call over to Steve for the financials.
Steve Clements: Thank you, Ajit, and welcome, everyone. Revenue grew 13% over Q3 last year, above expectations, driven by strong growth in CTV. In addition, we successfully monetized more inventory against the strong political ad buying cycle.
Steve Clements: Even more exciting, our business grew 17% year-over-year, excluding political advertising and the large DSP buyer that I called out earlier this year.
Steve Clements: Highlighting our differentiated infrastructure approach, gross profit increased at an even faster pace.
Steve Clements: Due to the combination of cost management, productivity improvements, and an increasing proportion of high-value impressions like CTV, gross profit was up 23% year-over-year.
Other important call outs in the quarter.
Steve Clements: We increase monetized impressions across all formats and channels with the fastest growth coming from omni-channel video impressions at nearly 50% growth year over year.
Steve Clements: With the growing mix of video, our overall platform CPM also increased.
Steve Clements: It also demonstrates the strength of our durable model and our ability to deliver profitable growth.
Steve Clements: We delivered a adjusted EBIT of $18.5 million, or a 26% margin, ahead of expectations.
Breaking down T3 by format and channel.
Steve Clements: We saw continued secular growth above market rates for omni-channel video revenue, which grew 25% over Q3 last year, in acceleration from last quarter's 19% growth.
Steve Clements: The share of omnichannel video revenue to total revenue hit an all-time high of 36% in the quarter.
Notably, CTV Monti's impressions more than doubled over last year.
Steve Clements: Our mobile app business continued to perform strongly and grew over 20% year-over-year for the fourth quarter in a row.
Steve Clements: Our display revenues across both mobile and desktop channels grew 9% year-over-year.
Steve Clements: We saw strong organic growth as our existing publisher revenues on a trailing 12-month basis continued to grow with net dollar base retention at 112%.
SPO represented approximately 50% of total activity on our platform.
Steve Clements: Underscoring the long-term strategic value and stickiness of these relationships, the trailing 12-month net spend retention rate from STO partners with at least three years of spending was 113%.
Across the globe, all regions grew in the third quarter.
Steve Clements: Looking at growth in ad spend, the top 10 ad verticals, inclusive of political, increased by 20% year-over-year.
Steve Clements: Among the four verticals that I commented on last quarter, we saw some recovering travel and arts and entertainment, while technology and automotive remained soft.
Steve Clements: Shifting to our operating priorities, we continue to make significant progress.
Steve Clements: As a reminder, our priorities are focused on delivering multi-year revenue growth and incremental margin expansion.
Steve Clements: We have added over 100 team members in sales and technology since Q3 of last year.
Steve Clements: As a result of our innovation and focused sales efforts, we have reached critical mass in our CTD business and are seeing strong CTD growth as buyers and publishers are making us a preferred partner.
Steve Clements: We are also investing in supply path optimization to address the large greenfield opportunities from independent agencies and direct brands.
Steve Clements: We have filled the majority of the buyer-focused sales positions we had planned to hire this year.
Steve Clements: As these team members ramp up, we expect increased productivity that will position us well for continued growth in 2025.
Steve Clements: And our investment in people and technology to drive emerging revenues is paying off.
Steve Clements: As I mentioned, emerging revenue streams contribute 3 percentage points of growth in Q3 and is on track to be 4-5% of total revenue in Q4.
Steve Clements: We are at the early stages in the adoption cycle of these products, and looking ahead, we anticipate that these innovative solutions will continue adding meaningful incremental revenue and profit growth in 2025 and beyond.
Steve Clements: Second, we continue to prioritize efficiency and operational excellence by optimizing our infrastructure and making prudent investments in CapEx.
Steve Clements: As a result, we've increased capacity on our platform while improving margins and unlocking dollars to fund new products.
Steve Clements: We added 20% increment of gross impression capacity on our platform year over year.
Steve Clements: At the same time, software optimization initiatives led to lower unit costs.
Steve Clements: The cost of revenue per million impressions was down 18% on a trailing 12-month basis.
Steve Clements: This productivity contributed to the 23% gross profit increase year-over-year, which was an acceleration over Q2's growth of 10%.
Steve Clements: For example, we increased the pace of repurchases in Q3 to 29 million and bought back 1.8 million shares or 3.3% of fully diluted shares outstanding.
Moving down to P&L.
Steve Clements: Q3 gap net loss was $0.9 million or loss of $0.02 per diluted share.
Adjusted EBITDA was $18.5 million or 26% margin.
Moving to cash and our capital allocation.
Steve Clements: We have a healthy balance sheet and generated positive cash flow, which supports our long-term capital allocation strategy.
Steve Clements: We believe our strong capital structure and effective capital allocation plan will help us deliver long-term shareholder value.
Steve Clements: We ended the quarter with $140.4 million in cash and market securities and zero debt.
Steve Clements: Since the inception of our repurchase program in February 2023 through the end of Q3, we have bought back 7.6 million Class A common shares for $124.1 million.
Steve Clements: As of the end of the third quarter, we had $50.9 million remaining in our repurchase program authorized through December 31, 2025.
Steve Clements: In Q3, we generated $19.1 million in net cash provided by operating activities.
Steve Clements: Free cash flow in the quarter was $2.9 million and was impacted by the two items I called out last quarter. One, the timing of our CapEx investments, which peaked in Q3. And two, the increase in DSOs resulting from a change in our receivables of BICs associated with the option changes made by one of our large DSPs.
Steve Clements: Review this DSO change as a short-term phenomenon that will work its way through our working capital by mid next year.
Steve Clements: In October, omni-channel video revenues grew in the double-digit percentages and political advertising continued its strong momentum.
Steve Clements: As we had expected, spending from the large CSP we called out earlier this year was steady, though as a reminder, at a reduced level year over year.
Steve Clements: In terms of Q4 holiday spending, trends were muted leading up to the election.
Steve Clements: Taking all these factors into account, we expect revenue in the fourth quarter to be in the range of 86 to 90 million.
Steve Clements: On an apples-for-apples basis, excluding political advertising and the DSP buyer, the implied Q4 year-over-year revenue growth rate is over 15%. As a reminder, we will lap the DSP impact at mid-year 2025.
Steve Clements: For the full year, we have raised our revenue guidance to be between $292 million and $296 million, or 10% year-to-year growth at the midpoint, including the negative impact from the DSP buyer.
Steve Clements: In terms of costs, we expect Q4 gap costs to increase sequentially in the low single digit percentages.
Steve Clements: With our revenue guidance and targeted investments associated with our operating plan, we expect Q4 adjusted EBITDA to be between 34 and 37 million, approximately 40% margin at the midpoint.
Steve Clements: For the full year, we expect adjusted EBITDA to be between 89 and 92 million, or approximately 31% margin at the midpoint.
Steve Clements: In summary, we are pleased with our Q3 results and the growth we're seeing across the business, especially in CTV.
Steve Clements: Our investments in the secular growth areas of video and mobile are showing excellent results and we are building the pipeline for further incremental growth in the future with our emerging revenue products.
Steve Clements: Heading into 2025, the combination of our strong financial health, momentum in the fastest growing areas of programmatic advertising, and our differentiated scale technology platform give me confidence that we are well positioned to deliver significant value to our customers and shareholders.
Speaker Change: With that, I'll turn the call over to Stacie for questions.
Speaker Change: 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 nine. In the interest of time, we ask that you please limit your question to one and one follow-up.
Stacie: Our first question today comes from Shweta Kajaria at Wolfe. Please go ahead, Shweta.
Shweta Kajaria: Thanks, Stacie. Let me try two, please. One is on what you've seen in terms of demand trends quarter-to-date from advertisers as well as just consumer spend. If you have that visibility, that would be great, but specifically advertiser spend. And then the second one is next year. So, Steve, as you think about next year with headcount, OPEX, how are you positioning
Shweta Kajaria: the company in terms of your goals for next year, especially in light of maybe there was some change around 1% of headcount fairly recently. Thanks a lot.
Speaker Change: Sure, nice to reconnect, Shweta. So first, with respect to recent trends, you know, as I shared in the prepared comments, we started off the quarter very well. AMI Channel Video continued its double-digit growth as it has all year long.
And we saw, you know, continued very strong political
Speaker Change: and you know as others have commented on the political spending has been significant across the ecosystem and that
I did seem to mute holiday spending.
Speaker Change: But as a reminder, you know, we are going into the peak holiday spending, you know, mid-November onwards. So, from our perspective, you know, all the fundamentals are very positive. I shared the statistic that if you just look at the business that excludes the DSP change, excludes political,
Speaker Change: Compared to last year, in the third quarter, that grew 17%.
Speaker Change: and the implied guidance that I shared is over 15%. So our core business is very healthy. You know, we're cautiously optimistic about the fourth quarter, but big picture, you know, we're doing all the right things in terms of investing in the right areas behind all the long-term secular growth drivers.
Speaker Change: Now, with respect to 2025, I'd say from, you know, our long-term perspective, we've always focused on efficiency and productivity. We're not going to get anywhere before 2025, and we want to make sure we get to it. We want the opportunity to have efficiency.
Speaker Change: I appreciate the support that they have. I know I'll never get this job. I understand that. But I'm not going to ask anybody else. I'm going to do it again. I'm going to do it again. I get it.
Thank you.
Our next question comes from Matt Flonson.
at RBC. Please go ahead, Matt.
Speaker Change: Yeah, thank you guys so much for taking my question. Maybe building off Shweta's question, and you mentioned 100 team members in sales and technology. Could you expand a little bit about kind of the go-to-market motion with these new products in the emerging revenue stream, and kind of how you're able to
Let people know the value proposition for them.
Speaker Change: Sure, yeah, why don't I take that one. Hey Matt, how are you? So, I think a big part of what we've been doing over the last couple of years and it's continuing.
Speaker Change: is to get deeper and closer on the buy side of the ecosystem. So it's with agencies and advertisers, primarily given our SPO value proposition. And we mentioned earlier in the call that
Speaker Change: We're now penetrated, 70% penetrated into, for instance, the top 30 streamers. We're growing the commerce media business. We announced Activate Partnership and Connect.
with them too.
So we really think that it's important that we...
engage with a growing sector of the buyer ecosystem.
Speaker Change: And while a couple of years ago, we started with the agency hold codes, there's no shortage of large advertisers that also want to engage in supply path optimization, along with independent agencies.
Speaker Change: moving to a specialist sales structure, where we will have product specialists that are going in with those relationship folks in order to expand those relationships.
Speaker Change: and to activate, you know, Group M is another good example where we've been powering the premium marketplace for a number of years and we've had a steady geographic expansion. We started in Europe, then into the US and now most recently into Latin America.
Speaker Change: That's super helpful. And maybe just a question on the DSP change. We talked a bit last quarter about the need to do some algorithm optimization post the change and about that taking some time. Could you just kind of give us an update? I know it's still early on just what you're seeing from your reaction to the reaction, I guess.
Sure. Yeah, go ahead, Steve.
Steve Clements: Yeah, happy to. So one of the things that I commented on, Rajiv, as well, that, you know, it was a process that we're going to work through and we had confidence that we're going to be able to do that. And the good news is that the spend from this buyer
Steve Clements: has stabilized and so it was an adjustment at mid-year and you know since then it's been you know steady steady going so I'd say that as we called up it's a a change in the level of spent but not the change in terms of you know how we're operating with that DSP
Steve Clements: and we feel very enthusiastic about the ability to grow that over time. But we are going through an adjustment period, as noted, you know, last quarter and this quarter, and we will, for the first half of 2025.