PubMatic, Inc. Q4 2025 earnings call

Good afternoon, everyone, and welcome to PubMatic's earnings call for the fourth quarter and full year 2025. This is Stacy Clements, and I'll be your operator today. Joining me on the call are Rajeev Goel, co-founder and CEO, and Steve Pantelick, CFO. Before we get started, I have a few housekeeping items. Today's prepared remarks have been recorded, after which Rajeev and Steve will host live Q&A. If you plan to ask a question, please ensure you've set your Zoom to display your full name and firm and use the raise hand function located at the bottom of your screen. A copy of our press release can be found on our website at investors.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. 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 forms 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 today is as of February 26, 2026, and we do not intend and undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law.

Today's discussion will include references to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, cash flow from operations, and free cash flow. These non-GAAP measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release. Now I will turn the call over to Rajeev.

Thank you, Stacy. Welcome everyone. We delivered an exceptionally strong fourth quarter with revenue and adjusted EBITDA ahead of guidance, healthy margins, and strong cash flow. Our results highlight continued growth in our underlying business, our leadership position in AI solutions, and the durability of our business model. For the full year, CTV grew over 50% year-over-year, excluding political, and Activate activity grew over 3x. Emerging revenues, which include Activate, Commerce Media, and new AI solutions, nearly doubled over 2024 and now represent nearly 10% of total revenues. Over the past year, we made decisive moves to reposition PubMatic for renewed profitable growth. Those actions are bearing fruit and have directly contributed to our performance over the last two quarters. They have strengthened our competitive moat and have positioned us to deliver accelerated double-digit percentage growth for the second half of 2026.

These moves represent the first critical steps of our five-year roadmap designed to re-accelerate growth, expand margins, and compound long-term shareholder value. This roadmap marks an important turning point for PubMatic and coincides with a pivotal transformation in the industry driven by AI. In fact, AI, in the form of agentic advertising, has emerged as a new and incremental tailwind to our business. Advertising is entering a new phase, one defined by AI-driven autonomous systems operating in real time. We sit at the center of a highly competitive millisecond-level auction environment where value is determined by measurable outcomes such as yield, performance, and efficiency. PubMatic is enabling AI adoption across the open internet. Our proprietary data, scaled infrastructure, and thousands of deep integrations across buyers and publishers form a real-time execution layer that cannot be replicated by vibe-coded software.

Our leadership in agentic advertising gives us confidence we can shape this next evolution of digital advertising. We are investing and executing aggressively to capture that opportunity. In October, we co-founded the Ad Contextual Protocol alongside Yahoo, LG Ad Solutions, Raptive, and others, setting industry standards for safe and interoperable agent-to-agent interaction. In December, we partnered with Butler/Till and Geloso Beverage Group to launch the industry's first fully autonomous end-to-end agentic campaign, proving that PubMatic's agents can execute media plans and optimize outcomes on behalf of advertisers. The campaign delivered more than 5x cost efficiencies, enabling significantly more advertiser spend to shift directly into working media. Following this success, the agency quickly launched a second campaign. In addition to delivering top-tier agentic performance, our AI-powered platform handles more complexity with significantly less manual effort.

We are cutting campaign setup time by 87% and speeding up issue resolution time by 70%. This means faster activations, higher productivity, and better outcomes for our customers. In January, agent-to-agent transactions became a scalable reality. At the Consumer Electronics Show, we unveiled Agentic OS alongside our launch partners, including WPP Media, Foxtel Media, and multiple independent agencies and tech partners. As Skyler McGill, head of video and programmatic at independent agency Wpromote put it, "We're witnessing the biggest transformation in programmatic since real-time bidding." Our work with PubMatic puts us at the forefront of defining how human strategy and autonomous systems converge to unlock new capabilities in personalization and scale. Now building on this momentum, we recently delivered one of the industry's first agentic CTV advertising campaigns with Abovo Maxlead in Europe, integrating directly with the largest independent media agency in the Netherlands.

Adoption of Agentic OS continues to be swift. We have already run over 250 agentic deals across our platform, many of which represent new and incremental advertisers to PubMatic. Our Agentic AI Accelerator Program enables customers and partners to launch live agentic campaigns within weeks and quickly scale usage. Remarkably, almost 100 brands, agencies, and streamers have applied to join, making it the fastest early-stage adoption of any product we've launched. This strong uptake underscores two important and distinctive points. First is the magnitude of the secular growth opportunity as digital advertising adopts Agentic AI. By 2028, I expect 25% of all digital advertising to be executed autonomously via Agentic AI, and by 2030, I expect that to jump to 50%. As an early AI leader, this unlocks transformative growth for PubMatic long before our peers.

With our scale already building in agentic AI, this leading advantage is widening with each transaction enhancing our model's ability to drive improved performance, fueling long-term revenue growth and incremental margin expansion. Second, the opportunity is much bigger than simply technology revolution. Agentic AI will upend and collapse the industry's value chain, bringing advertisers and publishers much closer together. This will create a step function change in advertising efficiency and effectiveness, which will significantly expand the open internet advertising market in aggregate with new advertisers and increased budgets. In short, AI is an incremental tailwind for PubMatic, we are uniquely positioned to take advantage of this opportunity with nearly 2,000 premium publisher integrations representing over 100,000 sites and apps, 250+ data partners on Connect, our direct buying platform, Activate, and our fully owned AI-enabled infrastructure.

While the past 20 years were about real-time bidding, the next decade will be about AI-led intelligence that connects the entire customer journey. The depth of our publisher inventory, combined with our tech stack, gives PubMatic a clear competitive advantage in this transition. We own our own infrastructure, sit at the intersection of media and the consumer, and innovate rapidly without dependence on third parties. These strengths power our 3-layer architecture of advertising intelligence. At the infrastructure layer, our NVIDIA partnership enables next-gen AI models to run in our private cloud with hardware and software solutions optimized for digital advertising. Owning our infrastructure also means that as compute requirements grow, our efficiency and margins expand with scale. At the application layer, AI is embedded into core workflows and publisher solutions that unlock new revenue opportunities.

Nearly 10% of publishers on our platform are now deriving revenue from our AI solutions and generating incremental revenue for PubMatic. At the transaction layer, Activate and Agentic OS are transforming how advertisers and publishers connect, delivering higher performance and efficiency. Together, these layers form a flywheel for growth. Each innovation drives usage and strengthens our long-term competitive moat. They also allow us to innovate around growing opportunities within open internet advertising. We recently partnered with Context, a monetization layer for generative AI content experiences. Our integration enables publishers to monetize conversational AI experiences programmatically while maintaining control over their content, data, and user experience. Our direct integrations and AI-first infrastructure position us well to support and scale as these and other emerging ad formats evolve. Even as agentic advertising accelerates, we remain sharply focused on the five strategic priorities we set mid-last year.

These priorities are fueling underlying growth across our platform and will underpin double-digit revenue expansion in the second half of 2026. First, we continue to diversify our buyer mix, integrating with 50 new DSP partners last year. The mid-market advertisers represented by these DSPs are the fastest-growing segment of the market as demand for performance-oriented solutions accelerates. This growth is reflected by the strength of the open internet, which offers professionally created content and a growing logged-in user base across CTV and mobile app. This logged-in scale is critical for measurement, conversion, and ROI, making the open internet increasingly compelling for performance advertisers. Second, we grew our buyer-focused go-to-market team by nearly 20% year-over-year and strengthened that team with new leadership to support deeper market penetration and account expansion.

These investments are translating into stronger direct relationships with brands and agencies, with Activate consistently delivering top-tier performance that drives repeat spend and broader adoption. For example, in an IPG Kinesso-led campaign, Activate outperformed on every key metric, generating 72% more clicks, 11% more impressions purchased, and nearly 20% lower CPMs for a leading global oil company, upending their traditional approach to programmatic buying. Similarly, MiQ, a global programmatic partner, significantly boosted brand visibility. Using Activate, MiQ powered a CTV campaign that required transparent show-level reporting capabilities unavailable in its legacy buying platform. These outcomes demonstrate how Activate collapses the value chain in the open internet, improving efficiency and ROI. What's more, with Agentic OS, Activate will increasingly serve as a gateway to AI-enabled advertising for a broad range of advertisers. Third, CTV remains one of our most exciting growth channels.

We recently added a new marquee global streamer to our platform and now partner with 28 of the top 30 global streamers, including Roku, Samsung TV Plus, DirecTV, Fox Sports, Tubi, VIZIO, and more. This leadership continues to attract top global brands to our platform. Sony Network Communications recently chose PubMatic to seamlessly reach both linear and CTV audiences programmatically via our platform. The campaign highlights how PubMatic helps brands unlock new incremental customers while driving stronger monetization for CTV publishers. Longer term, this campaign illustrates how PubMatic's programmatic solutions can drive execution across linear formats. Similarly, our mobile app business continued to scale with major mediation solutions. Most recently, we announced that PubMatic's OpenWrap SDK is now integrated with one of the largest global mobile ad networks, Google AdMob and Google Ad Manager for mobile app. This integration gives buyers a direct connection to high-quality brand safe inventory.

As we enter 2026, mobile remains a strong secular growth area for us with more partnership announcements in the near future. Fourth, emerging revenues will continue to be a significant growth driver in 2026 as adoption increases across several new products, in particular, new AI-powered solutions. Strategically, these solutions strengthen our revenue model in two ways. They increase platform usage as automation drives more transactions and higher performance. They introduce incremental revenue streams. For example, earlier this month, we announced AI Insights, which gives publishers actionable sales intelligence so they can maximize yield. Using these insights, leading CTV and online video publishers are unlocking 20%+ higher CPMs.

Thank you, Rajeev. Welcome everyone. Q4 was a pivotal turning point for us as we significantly exceeded expectations on both revenue and adjusted EBITDA. Adjusting for political revenues and revenues derived from the legacy DSP referenced mid-last year, the remainder of our business, which represented 83% of revenue in Q4, grew 18% year-over-year. This strong double-digit growth was driven from secular growth areas: CTV, mobile app, and emerging revenues, as well as solid performance in display. These results materially expanded our Q4 adjusted EBITDA margin to 35%, underscoring the efficiency and operating leverage of our business as incremental revenue dropped to profit. Our strong Q4 capped a year in which we established ourselves as an AI leader among our peers, successfully realigned our business to address dynamic changes in our industry, positioned the company for sustained profitable growth.

Here are some of the notable achievements we delivered in 2025. We generated revenue and increased usage on our platform from newly launched AI solutions. These existing products, along with new products being launched in the coming months, provide an incremental tailwind for us in 2026. We ended the year with nearly 50% of our revenues coming from high engagement, first-party, data-rich environments of CTV, mobile app, and emerging revenues. We added 50 new DSP partnerships and reshaped the mix of our largest DSPs towards fast-growing commerce and high-value ad verticals like pharma. We increased productivity through the effective use of AI across every business function, enabling us to increase investment in revenue growth initiatives while reducing overall headcount. We accelerated our free cash flow by 32% compared to 2024, we've made significant progress executing on our multi-year innovation roadmap...

investing in key growth areas with operational discipline, supported by a strong financial profile. I'm incredibly proud of what the team has accomplished and the momentum we're carrying into 2026. Our multi-year journey transforming our business, focused on high value, high engagement, and data-driven revenue streams, is on track. Beginning with CTV, our 2025 results represented the fourth year in a row of significant organic revenue growth. Over this period, CTV's compound annual growth rate has been over 50%. We now monetized inventory from 28 of the top 30 global streamers and over 450 CTV publishers. It is a global business with approximately 60% of our customers in the Americas and 40% in the rest of the world. In Q4, we saw robust incremental monetized impression growth from both newly signed partnerships and existing publishers.

The four-year compound annual growth rate for our mobile app business has been 15%, and in Q4, delivered over 25% year-over-year revenue growth. This performance reflects the ramp-up of strategic partnerships, ongoing product innovation, and continued expansion of our global app publisher base. Emerging revenue streams in the fourth quarter grew over 75% year-over-year and represented roughly 12% of total revenues, driven by increased adoption across several new products. Just three years ago, emerging revenues represented less than 1% of revenues, demonstrating our ability to scale innovation and diversify our revenue base into high-value, profitable areas. We've achieved double-digit percentage growth across our curation, data, commerce, and Activate offerings. Notably, our new AI-powered solutions are already starting to scale.

In just a few months, nearly 10% of publishers on our platform are now deriving revenue from our AI solutions and generating incremental revenue for PubMatic. We anticipate our AI solutions will provide an incremental and growing tailwind for us in 2026 and beyond. Display revenues in the fourth quarter returned to year-over-year growth in the mid-single-digit percentage. Excluding the legacy DSP referenced earlier, display revenues grew over 20% in the fourth quarter, significantly outpacing the market rate of growth. Turning to ad spend, we benefit from a diversified portfolio of ad verticals. In Q4, we saw strong year-over-year double-digit percentage growth in the shopping, health and fitness, and technology and computing verticals. We saw some softness in the business and food and drink verticals, which declined year-over-year in the single-digit %. Overall, our top 10 ad verticals in aggregate grew nearly 10%.

As Rajeev shared, we continue to expand our business beyond the largest legacy DSPs, focusing on both product innovation and targeted sales execution. These efforts gained momentum in Q4, with ad spend from our mid-market DSP partners up 30% year-over-year, accelerating from 25% growth in Q3. With the addition of 50 new DSP partners to our platform, we are well-positioned to further diversify our buyer mix. Regionally, our APAC and EMEA businesses grew rapidly at over 25% and 15% respectively, offsetting a -18% decline in the Americas, which was primarily due to spend declines from political advertising and the large DSP buyer. Throughout 2025, disciplined cost management and AI-enabled automation supported both growth and profitability. We significantly expanded infrastructure capacity, processing 337 trillion impressions, up 28% over 2024, while keeping cost of revenue, revenues relatively flat.

On a trailing 12-month basis, unit cost declined 20% year-over-year, demonstrating the efficiency and scalability of our owned infrastructure and the leveraged model that we built. We also harnessed AI and automation across our back-office functions to derive measurable and sustainable efficiency gains. For example, in legal, the application of AI-enabled contracting tools has reduced average contract cycle times by roughly 15%, while also supporting a higher overall contract volume. In accounting, we achieved over 35% efficiency gains in our procure-to-pay process, enhancing speed and control in our financial operations. In FP&A, we've significantly reduced manual data aggregation efforts by nearly one-third while maintaining analytical rigor via AI-assisted data processing and reporting. Collectively, these initiatives showcase how AI-driven automation is unlocking real productivity, cost efficiency, and operational leverage across PubMatic. Illustrating this point, in the fourth quarter, total operating expenses were flat year-over-year.

At the same time, we increased investments in revenue-driving initiatives, most notably our buyer-focused sales team, which increased by nearly 20% year-over-year. Q4 adjusted EBITDA was $27.8 million or 35% margin, which included a foreign exchange impact of approximately $500,000 due to the weakening U.S. dollar over the quarter. Q4 GAAP net income was $6.7 million or $0.14 per diluted share. Moving to cash and our capital allocation. Our balance sheet remains a core strategic advantage. We generated $81 million in net operating cash flows in 2025, up 10% over 2024. We delivered free cash flow of $46 million, a 32% increase over last year. In addition to our disciplined approach in managing our working capital, cash flow benefited from lower cash taxes following the new federal tax legislation.

To underscore our long-term ability to generate cash, since the beginning of 2021 through Q4, we have generated over $410 million in net cash from operations and more than $220 million in free cash flow. We ended the quarter with $145.5 million in cash and zero debt. Our capital allocation strategy remains disciplined and balanced, focused on long-term shareholder value creation. We continue to invest in innovation and infrastructure to drive incremental organic growth while maintaining the flexibility to pursue strategic M&A opportunities. We've also made a long-term commitment to return capital to shareholders by our share repurchase program. Since the inception of our repurchase program in February 2023 through the end of Q4, we have bought back 12.4 million Class A common stock for $181.1 million.

We have $93.9 million remaining in our repurchase program authorized through the end of 2026. Moving on to our outlook. In terms of the latest trends, our January revenues came in line with our expectations and ad spending was healthy. Factoring in the changes from the legacy DSP we called out mid-2025, we expect Q1 revenue to be in the range of $58 million–$60 million. Spend from this DSP continues to be stable and aligned with normal seasonal patterns. We expect to lap this impact by the end of Q2. Excluding this DSP, the midpoint of our outlook implies year-over-year growth in the high single-digit percentage. Q1 adjusted EBITDA is expected to be in the range of minus one half to +$1 million, which includes a negative foreign exchange impact due to the continued weakness of the U.S. dollar.

As a reminder, we have a fixed cost model and margins scale as we gain leverage over the course of the year. Looking beyond Q1, we expect to return to double-digit revenue growth in the second half of this year, with a corresponding expansion of our margins from revenue growth supported by disciplined investment and increased efficiencies from AI. Full-year cost of revenue is expected to marginally increase in the low single digits, primarily due to industry-wide utility cost pass-throughs from data center providers beginning in Q1. We anticipate partially offsetting these costs by continued efficiency efforts already underway. Full-year operating expenses are expected to grow in the mid-single-digit percentages and include the cost to pursue our litigation against Google. Sequentially, quarterly operating expenses are anticipated to marginally increase in the low single-digit percentages.

We will continue to invest in high-return AI revenue initiatives while pursuing cost savings unlocked by AI productivity efforts across all functional areas. Full-year CapEx is projected to be approximately $15 million–$19 million. It reflects a shift away from investments for increased ad impression capacity and instead towards expanding support for AI workloads where we're seeing strong performance gains and revenue from our AI solutions. In closing, Q4 represented an important structural inflection point for PubMatic. As our cyclical growth engines in CTV, mobile app, and emerging revenue scale, our model generates operating leverage. In Q4, we delivered 35% adjusted EBITDA margins and strong free cash flow, reinforcing the durability of our owned infrastructure and fixed cost base. We move through 2026, three dynamics give us confidence. First, revenue growth is broadening.