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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to________
Commission File Number: 001-39748
PUBMATIC, INC.
(Exact name of registrant as specified in its charter)
Delaware20-5863224
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
Not applicableNot applicable
(Address of principal executive offices)(Zip Code)
Not applicable
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, $0.0001 par value per sharePUBMThe Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of May 5, 2023, the registrant had 42,687,521 shares of Class A common stock outstanding and 9,250,062 shares of Class B common stock outstanding.


Table of Contents



TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


Table of Contents



PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values and share data)
(Unaudited)
March 31,
2023
December 31,
2022
ASSETS
Current Assets
Cash and cash equivalents$79,260 $92,382 
Marketable securities93,932 82,013 
Accounts receivable, net 253,007 314,299 
Prepaid expenses and other current assets14,150 14,784 
Total Current Assets440,349 503,478 
Property, equipment and software, net68,553 71,156 
Operating lease right-of-use assets24,841 26,206 
Acquisition-related intangible assets, net7,049 8,299 
Goodwill29,577 29,577 
Deferred tax assets4,946 1,047 
Other assets, non-current2,152 2,412 
TOTAL ASSETS$577,467 $642,175 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable$222,579 $277,414 
Accrued liabilities19,314 18,936 
Operating lease liabilities, current5,708 5,676 
Total Current Liabilities247,601 302,026 
Operating lease liabilities, non-current19,785 20,915 
Other liabilities, non-current3,725 7,046 
TOTAL LIABILITIES271,111 329,987 
Commitments and contingencies (Note 9)
Stockholders' Equity
Preferred stock, $0.0001 par value per share, 10,000,000 shares authorized as of March 31, 2023 and December 31, 2022; No shares issued and outstanding as of March 31, 2023 and December 31, 2022
  
Common stock, par value $0.0001 per share; 1,000,000,000 Class A shares authorized as of March 31, 2023 and December 31, 2022; 43,657,744 shares issued and 43,070,914 shares outstanding as of March 31, 2023; 43,452,302 shares issued and outstanding as of December 31, 2022; 1,000,000,000 Class B shares authorized as of March 31, 2023 and December 31, 2022; 12,392,302 shares issued and 9,251,865 shares outstanding as of March 31, 2023; 12,393,322 shares issued and 9,252,885 shares outstanding as of December 31, 2022
6 6 
Treasury stock, at cost; 3,727,267 and 3,140,437 shares as of March 31, 2023 and December 31, 2022, respectively
(19,384)(11,486)
Additional paid-in capital203,597 195,677 
Accumulated other comprehensive income (loss)8 (9)
Retained earnings122,129 128,000 
TOTAL STOCKHOLDERS’ EQUITY306,356 312,188 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$577,467 $642,175 
The accompanying notes are an integral part of these condensed consolidated financial statements.
1

Table of Contents




PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended March 31,
20232022
Revenue$55,407 $54,552 
Cost of revenue23,863 17,992 
Gross profit31,544 36,560 
Operating expenses:
Technology and development6,517 4,773 
Sales and marketing23,127 16,456 
General and administrative12,572 10,750 
Total operating expenses42,216 31,979 
Operating income (loss)(10,672)4,581 
Interest income1,891 122 
Other income (expense), net(465)1,479 
Income (loss) before income taxes(9,246)6,182 
Provision (benefit) for income taxes(3,375)1,403 
Net income (loss)$(5,871)$4,779 
Net income (loss) per share attributable to common stockholders:
Basic$(0.11)$0.09 
Diluted$(0.11)$0.08 
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
Basic52,740,352 51,910,572 
Diluted52,740,352 56,888,179 

The accompanying notes are an integral part of these condensed consolidated financial statements.
2

Table of Contents

PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended March 31,
20232022
Net income (loss)$(5,871)$4,779 
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities, net of tax17 (203)
Comprehensive income (loss)$(5,854)$4,576 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

Table of Contents

PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Common StockTreasury
Stock
Additional
Paid-In Capital
Accumulated Other
Comprehensive Income (Loss)
Retained
Earnings
Total
Stockholders’ Equity
SharesAmount
Balance — December 31, 202252,705,187 $6 $(11,486)$195,677 $(9)$128,000 $312,188 
Stock-based compensation— — — 7,606 — — 7,606 
Exercise of stock options108,597 — — 314 — — 314 
Repurchase of shares(586,830)— (7,898)— — — (7,898)
Issuance of common stock related to RSU vesting95,825 — — — — — — 
Other comprehensive income— — — — 17 — 17 
Net loss— — — — — (5,871)(5,871)
Balance — March 31, 202352,322,779 $6 $(19,384)$203,597 $8 $122,129 $306,356 
Common StockTreasury
Stock
Additional
Paid-In Capital
Accumulated Other
Comprehensive Loss
Retained
Earnings
Total
Stockholders’ Equity
SharesAmount
Balance — December 31, 202151,854,749 $6 $(11,486)$169,401 $(36)$99,295 $257,180 
Stock-based compensation— — — 5,469 — — 5,469 
Exercise of stock options130,958 — — 481 — — 481 
Issuance of common stock related to RSU vesting25,033 — — — — — — 
Other comprehensive loss— — — — (203)— (203)
Net income— — — — — 4,779 4,779 
Balance — March 31, 202252,010,740 $6 $(11,486)$175,351 $(239)$104,074 $267,706 



The accompanying notes are an integral part of these condensed consolidated financial statements.
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PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
20232022
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)$(5,871)$4,779 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization11,432 7,183 
Unrealized gain on equity investment (1,373)
Stock-based compensation7,059 5,136 
Deferred income taxes(4,327)(1,645)
Accretion of discount on marketable securities(1,057)23 
Non-cash operating lease expense1,532 1,272 
Other(3)54 
Changes in operating assets and liabilities:
Accounts receivable61,292 68,557 
Prepaid expenses and other assets894 2,054 
Accounts payable(55,387)(58,588)
Accrued liabilities(833)(6,822)
Operating lease liabilities(1,265)(1,177)
Other liabilities, non-current (712)(139)
Net cash provided by operating activities12,754 19,314 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(1,417)(148)
Capitalized software development costs(6,001)(4,235)
Purchases of marketable securities(40,343)(39,422)
Proceeds from maturities of marketable securities29,500 16,000 
Net cash used in investing activities(18,261)(27,805)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options314 481 
Principal payments on finance lease obligations(31)(28)
Payments to acquire treasury stock(7,898) 
Net cash provided by (used in) financing activities(7,615)453 
NET DECREASE IN CASH AND CASH EQUIVALENTS(13,122)(8,038)
CASH AND CASH EQUIVALENTS - Beginning of period92,382 82,505 
CASH AND CASH EQUIVALENTS - End of period$79,260 $74,467 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid$349 $323 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Stock-based compensation capitalized as internal-use software costs$547 $333 
Property and equipment included in accounts payable and accrued liabilities$1,311 $334 
Capitalized software costs included in accounts payable and accrued liabilities$820 $516 
Operating lease right-of-use assets obtained in exchange for new lease obligations$167 $4,632 
Business combination purchase consideration - indemnification claims holdback$2,148 $ 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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PUBMATIC, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Organization and Description of Business
PubMatic, Inc. (together with its subsidiaries, the “Company” or “PubMatic”) was founded in 2006. The Company has offices in California, New York, Europe, Asia, and Australia. The Company provides a specialized cloud infrastructure platform that enables real-time programmatic advertising transactions. The purpose-built technology and infrastructure provides superior outcomes for both publishers and advertisers leveraging an efficient design, machine learning, and data processing capabilities, with customer alignment and global omnichannel reach.
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
Fiscal Year
The Company’s fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30, September 30, and December 31. References to fiscal year 2023, for example, refer to the fiscal year ending December 31, 2023.
Unaudited Interim Condensed Consolidated Financial Information
The unaudited condensed consolidated financial statements include the accounts of PubMatic, Inc. and its wholly owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2023 or for any other interim period or for any other future year. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on February 28, 2023 (the “Annual Report”).
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. The accompanying condensed consolidated financial statements include the accounts of PubMatic, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts reported in our condensed consolidated financial statements and notes thereto have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses.
The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates and assumptions. Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after March 31, 2023, may result in actual outcomes that differ from those contemplated by the Company’s assumptions and estimates.
Concentration of Revenue and Accounts Receivable
The Company defines its revenue concentration based on revenue recognized from individual publishers. For the three months ended March 31, 2023 and 2022, one publisher represented 11% and 14%, respectively, of the Company’s revenue. As of March 31, 2023, two buyers accounted for 32% and 20%, respectively, of accounts receivable. As of December 31, 2022, three buyers accounted for 33%, 15%, and 11%, respectively, of accounts receivable.
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Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. Under previous GAAP, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The Company adopted ASU 2021-08 as of January 1, 2023. The adoption of ASU 2021-08 did not have a material impact on the Company’s condensed consolidated financial statements.
Note 3 – Fair Value Measurements
The following tables set forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy (in thousands):
March 31, 2023
Level 1Level 2Level 3Total
Financial Assets
Money market funds$48,961 $ $ $48,961 
Certificates of deposit 8,257  8,257 
Cash equivalents48,961 8,257  57,218 
Commercial paper 59,745  59,745 
Agency debt securities 14,570  14,570 
U.S. Treasury and government debt securities 19,617  19,617 
Marketable securities 93,932  93,932 
Total Financial Assets$48,961 $102,189 $ $151,150 
December 31, 2022
Level 1Level 2Level 3Total
Financial Assets
Money market funds$48,884 $ $ $48,884 
Certificates of deposit 4,169  4,169 
Cash equivalents48,884 4,169  53,053 
Commercial paper 63,483  63,483 
Agency debt securities 5,778  5,778 
U.S. Treasury and government debt securities 12,752  12,752 
Marketable securities 82,013  82,013 
Total Financial Assets$48,884 $86,182 $ $135,066 
The Company’s financial assets consist of Level 1 and 2 assets. The Company had no Level 3 assets or liabilities for the periods presented. The Company classifies its cash equivalents and marketable securities within Level 1 or Level 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. The Company’s fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of the Company’s marketable securities were derived from non-binding market consensus prices that are corroborated by observable market data and quoted market prices for similar instruments.
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Note 4 – Balance Sheet Components
Marketable Securities
The following tables summarize the Company’s marketable securities by significant investment categories (in thousands):
March 31, 2023
Amortized CostUnrealized GainUnrealized LossFair Value
Commercial paper$59,745 $ $ $59,745 
Agency debt securities14,556 14  14,570 
U.S. Treasury and government debt securities19,623 5 (11)19,617 
Total$93,924 $19 $(11)$93,932 
December 31, 2022
Amortized CostUnrealized GainUnrealized LossFair Value
Commercial paper$63,483 $ $ $63,483 
Agency debt securities5,762 17  5,779 
U.S. Treasury and government debt securities12,777 2 (28)12,751 
Total$82,022 $19 $(28)$82,013 
The remaining contractual maturity of all marketable securities was within one year as of March 31, 2023 and December 31, 2022. Realized gains and losses were immaterial for the three months ended March 31, 2023 and 2022. As of March 31, 2023 and 2022, there were no securities that were in an unrealized loss position for more than twelve months.
Property, Equipment and Software, Net
Property, equipment and software, net consisted of the following (in thousands):
March 31,
2023
December 31,
2022
Internal-use software$46,393 $40,794 
Network hardware, computer equipment and software130,963 129,212 
Leasehold improvements4,143 4,026 
Furniture and fixtures2,123 2,087 
Property, equipment and software, gross183,622 176,119 
Less: accumulated depreciation and amortization(115,069)(104,963)
Total property, equipment and software, net$68,553 $71,156 
Depreciation and amortization expense related to property, equipment, and software (excluding amortization of internal-use software) was $7.3 million and $5.0 million for the three months ended March 31, 2023 and 2022, respectively.
The Company capitalized $5.4 million and $3.3 million in software development costs during the three months ended March 31, 2023 and 2022, respectively. Amortization expense of internal-use software was $2.8 million and $2.2 million during the three months ended March 31, 2023 and 2022, respectively. These costs are included within cost of revenue in the condensed consolidated statements of operations.
The Company did not recognize any impairment charges on its long-lived assets during the three months ended March 31, 2023 and 2022, respectively.
Accounts Payable
Accounts payable consisted of the following (in thousands):
March 31,
2023
December 31,
2022
Payable to publishers$216,264 $266,506 
Trade payables6,315 10,908 
Total accounts payable$222,579 $277,414 
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Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
March 31,
2023
December 31,
2022
Accrued compensation$9,899 $14,587 
Accrued and other current liabilities9,415 4,349 
Total accrued liabilities$19,314 $18,936 
Note 5 – Senior Secured Credit Facilities Agreement
On October 17, 2022, the Company entered into a Senior Secured Credit Facilities Credit Agreement (the “Credit Agreement”) with the several lenders parties thereto (the “Lenders”), and Silicon Valley Bank (“SVB”), as administrative agent, lead arranger, issuing lender, and swingline lender. The Credit Agreement matures on October 17, 2027.
The Credit Agreement provides a revolving credit facility in an aggregate principal amount of $110.0 million (“the Revolving Credit Facility”), including a $25.0 million letter of credit sub-facility and a $25.0 million swingline sub-facility. The Company’s obligations under the Revolving Credit Facility and the letter of credit sub-facility (described in Note 9) with SVB are secured by substantially all of its assets excluding its intellectual property. The Company may, subject to certain customary conditions, on one or more occasions increase commitments under the Revolving Credit Facility in an amount not to exceed $90.0 million in the aggregate (the “Incremental Facility”). Each Lender will have discretion to determine whether it will participate in any Incremental Facility.
Borrowings under the Revolving Credit Facility will accrue interest at rates equal, at the Company’s election, to (i) the applicable secured overnight financing rate (“SOFR”), plus the applicable margin for such loans, or (ii) the alternate base rate (“ABR”), which is defined as the highest of (a) the prime rate in effect from time to time, (b) the federal funds effective rate in effect from time to time plus 0.50%, and (c) the adjusted term SOFR for a one (1) month tenor in effect from time to time plus 1.0%, plus the applicable margin for such loans. The applicable margin for borrowings bearing interest on the SOFR ranges from 2.00% to 2.75%, and the applicable margin for borrowings bearing interest based on the ABR ranges from 1.00% to 1.75%. As of March 31, 2023, the applicable interest rate under the revolving credit facility was 7.00%. The Company will pay a quarterly commitment fee during the term of the Credit Agreement for the non-use of available funds ranging from 0.25% to 0.35%. In addition, the Credit Agreement provides a mechanism to determine a successor reference rate to the applicable reference rate if, among other things, the applicable reference rate becomes unavailable or is generally replaced as a benchmark interest rate.
The Credit Agreement contains customary representations and warranties as well as customary affirmative and negative covenants. Negative covenants include, among others, limitations on incurrence of indebtedness, liens, disposition of property and investments by the Company and its subsidiaries. In addition, the Credit Agreement requires the Company to maintain certain interest coverage, leverage and senior leverage ratios. To date, the Company is in compliance with the affirmative and negative covenants.
The Credit Agreement contains customary events of default. Upon the occurrence and during the continuance of an event of default, the Lenders may declare the outstanding advances and all other obligations under the Credit Agreement immediately due and payable.
The Company may use amounts borrowed under the Credit Agreement for general corporate purposes or working capital financing. The Company may borrow additional amounts under the Credit Agreement from time to time as opportunities and needs arise.
Following the SVB closure by the California Department of Financial Protection and Innovation on March 10, 2023, and its subsequent receivership by the Federal Deposit Insurance Corporation (“FDIC”), the FDIC announced that all of SVB’s deposits and substantially all of its assets had been transferred to a newly created, full-service FDIC-operated bridge bank, Silicon Valley Bridge Bank N.A. (“SVBB”). On March 27, 2023, First Citizens Bank & Trust Company (“First Citizens”) acquired substantially all of the loans and certain other assets of the former SVB, and assumed all customer deposits and certain other liabilities of the former SVB. As such First Citizen assumed SVB’s obligations under the Credit Agreement.
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Note 6 – Leases
Operating lease cost is recognized on a straight-line basis over the lease term. Finance lease cost is recognized as a combination of the amortization expense for the right-of-use assets and interest expense for the outstanding lease liabilities, and results in a front-loaded expense pattern over the lease term. Short-term and variable lease costs are not material to the Company’s condensed consolidated financial statements.
The components of lease cost were as follows (in thousands):
Three Months Ended March 31,
20232022
Operating lease cost$1,834 $1,393 
Finance lease cost - amortization of right-of-use assets43 43 
Finance lease cost - interest on lease liabilities4 5 
Total lease cost$1,881 $1,441 
As of March 31, 2023, a weighted average discount rate of 3.25% and 2.24% has been applied to the remaining operating and finance lease payments, respectively, to calculate the lease liabilities included within the condensed consolidated balance sheets. The weighted average remaining lease term of operating and finance leases is 4.4 and 5.0 years, respectively, as of March 31, 2023.
As of March 31, 2023, the maturities of lease liabilities under operating and finance leases were as follows (in thousands):
Operating LeasesFinance LeasesTotal
Remainder of 2023$5,013 $105 $5,118 
20246,589 145 6,734 
20255,146 149 5,295 
20265,359 153 5,512 
20274,259 158 4,417 
Thereafter990 41 1,031 
Total minimum lease payments27,356 751 28,107 
Less: imputed interest(1,863)(41)(1,904)
Total present value of lease liabilities$25,493 $710 $26,203 
Note 7 – Business Combination
On September 16, 2022, the Company acquired all outstanding stock of ConsultMates, Inc. (dba “Martin”), a media measurement and reporting platform, for $30.8 million. The acquisition is in response to growing demand from the Company’s buy-side customers for enhanced tools to take advantage of the Company’s global omnichannel inventory, including market-leading addressability solutions and innovative technology to enable supply path optimization. The assets acquired and liabilities assumed were recorded at fair value. The purchase price excludes $14.2 million of post-acquisition cash compensation arrangements for certain key acquired employees to be paid ratably over three years following the closing of the acquisition (subject to forfeiture upon termination). The purchase price was attributed to $7.9 million of developed technology intangible assets, $1.0 million of customer relationship intangible assets, $23.3 million of goodwill, $1.1 million of deferred tax liabilities, and $0.3 million of net liabilities assumed. The fair values of assets acquired and liabilities assumed may change over the measurement period as additional information is received. The measurement period will end no later than one year from the acquisition date. The goodwill recognized was primarily attributable to the assembled workforce and the expected synergies from integrating Martin’s technology into the Company’s platform. Goodwill is not expected to be deductible for tax purposes. The financial results of Martin are included in the Company’s condensed consolidated financial statements from the date of acquisition. Separate operating results and pro forma results of operations for Martin have not been presented as the effect of this acquisition was not material to the Company’s financial results.
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Note 8 - Acquisition-related Intangible Assets, Net
Acquisition-related Intangible Assets, Net
Acquisition-related intangible assets, net consisted of the following (in thousands):
March 31, 2023
Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Developed technology$7,900 $851 $7,049 
Customer relationships1,000 1,000  
Total acquisition-related intangible assets$8,900 $1,851 $7,049 
December 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Developed technology$7,900 $456 $7,444 
Customer relationships1,000 145 855 
Total acquisition-related intangible assets$8,900 $601 $8,299 
The weighted average remaining useful life of developed technology was 4.5 years as of March 31, 2023. Amortization expense related to acquisition-related intangibles was $1.3 million for the three months ended March 31, 2023.
As of March 31, 2023, estimated future amortization expense for acquisition-related intangible assets was as follows (in thousands):
Remainder of 2023$1,185 
20241,580 
20251,580 
20261,580 
20271,124 
     Total estimated future amortization expense for acquisition-related intangible assets$7,049 
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Note 9 – Commitments and Contingencies
Purchase Obligations
The Company’s purchase obligations primarily relate to minimum contractual payments due to data center providers. During the three months ended March 31, 2023, there were no material changes to the Company’s non-cancelable purchase obligations disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Letters of Credit
As of March 31, 2023 and December 31, 2022, the Company had two irrevocable letters of credit outstanding related to non-cancelable facilities leases in the amounts of $3.5 million and $0.5 million, with annual automatic renewal and final expiration dates in July 2028 and April 2025, respectively.
Legal Matters
From time to time, the Company is or may be involved in various claims and other legal matters arising in the normal course of business. The Company records an accrual for a liability relating to claims and other legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any such accruals are reviewed at least quarterly and adjusted for the impacts of negotiations, rulings, settlements, and other information or events pertaining to a particular matter, or on the advice of legal counsel. To date, the Company has not incurred a material loss, or a material loss in excess of a recorded accrual, with respect to any claims and other legal matters arising in the normal course of business. However, the outcomes of claims and other legal matters are inherently unpredictable and subject to significant uncertainties. If the Company subsequently concludes that there is a reasonable possibility that a loss exceeding amounts already recognized may be incurred, and the amount of such additional loss would be material, the Company will either disclose the estimated additional loss or state that such an estimate cannot be made.
Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves future claims that may be made against the Company but have not yet been made. To date, the Company has not paid any material claims or been required to defend any actions related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. In addition, the Company has indemnification agreements with certain of its directors and executive officers that require it, among other things, to indemnify them against certain liabilities that may arise due to their status or service as directors or officers of the Company. The terms of such obligations may vary.
Note 10 – Stockholders’ Equity and Equity Incentive Plans
Share Repurchases
In February 2023, the Company’s board of directors authorized the Company to repurchase up to $75 million of its Class A common stock (“2023 Repurchase Program”). As of March 31, 2023, $67.1 million remains available for repurchases. Shares are repurchased in a manner deemed in the best interest of the Company and its stockholders, dependent upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices and other considerations.
In accordance with the authorization of the Company’s board of directors, during the three months ended March 31, 2023, we repurchased 586,830 aggregate shares of Class A common stock for $7.9 million.
Repurchases are executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, in accordance with Rule 10b-18 and/or Rule 10b5-1 of the Exchange Act. The 2023 Repurchase Program is scheduled to terminate on December 31, 2024.
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Equity Incentive Plans
The Company maintains the 2020 Equity Incentive Plan (“2020 Plan”), pursuant to which the Company may grant stock options, restricted stock awards, stock appreciation rights, restricted stock units (“RSUs”), deferred stock units (“DSUs”) performance awards, and stock bonus awards. As of March 31, 2023, the Company has reserved 6,597,753 shares of Class A common stock for the issuance of awards under the 2020 Plan. These available shares will increase automatically on January 1 for each of the first ten calendar years during the term of the 2020 Plan by the number of shares equal to the lesser of five percent (5%) of the aggregate number of outstanding shares of all classes of the Company’s common stock outstanding as of the immediately preceding December 31, or a number as may be determined by the Company’s board of directors or compensation committee. No new awards were issued under the Company’s prior 2006 Plan or 2017 Plan (“Prior Plans”) after the effective date of the 2020 Plan. To the extent outstanding awards under the 2006 Plan and the 2017 Plan are forfeited, expire unexercised, or would otherwise have been returned to the share reserve under the Prior Plans, the shares of Class B common stock subject to such awards instead will be available for future issuance as Class A common stock under the 2020 Plan.
Stock Options
The following table summarizes stock option activity and related information under the Company’s equity incentive plans:
Stock Options
Number of Shares Underlying Outstanding OptionsWeighted-Average Exercise PriceWeighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value (in thousands)
Outstanding — December 31, 20226,476,239 $7.38 6.10$55,516 
Options granted1,313,004 15.40 
Options exercised(108,597)2.88 
Options canceled(2,570)6.14 
Options expired(15,538)$33.92 
Outstanding — March 31, 20237,662,538 $8.76 6.24$59,796 
Vested and exercisable — March 31, 20235,245,258 $5.27 5.23$53,940 
As of March 31, 2023, unrecognized stock-based compensation of $23.0 million related to unvested stock options will be recognized on a straight-line basis over a weighted average period of 2.76 years.
Restricted Stock Units
The following table summarizes RSU activity and related information under the Company’s 2020 Plan:
RSUs
Number of SharesWeighted-Average Grant Date Fair Value per Share
Unvested — December 31, 20221,581,982 $26.49 
Granted2,049,867 $16.07 
Vested(95,825)$29.92 
Canceled/Forfeited(26,512)$21.60 
Unvested — March 31, 20233,509,512 $20.35 
As of March 31, 2023, unrecognized stock-based compensation of $65.3 million related to unvested RSUs will be recognized on a straight-line basis over a weighted average period of 3.26 years.
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2020 Employee Stock Purchase Plan
In November 2020, the Company’s board of directors adopted, and its stockholders approved, the 2020 Employee Stock Purchase Plan (“ESPP”), which became effective in connection with the Company’s IPO. A total of 500,000 shares of the Company’s Class A common stock were initially reserved for issuance under the ESPP.
The aggregate number of shares reserved for issuance under the ESPP will increase automatically on January 1st of each of the first ten calendar years during the term of the ESPP by the number of shares equal to the lesser of (a) 1% of the total outstanding shares of all classes of the Company’s common stock as of the immediately preceding December 31, and (b) such number of shares of common stock as determined by the Company’s board of directors. The aggregate number of shares issued over the term of the ESPP may not exceed 7,500,000 shares of Class A common stock. As of March 31, 2023, the Company had reserved 529,888 shares of its Class A common stock for issuance under the ESPP.
Under the ESPP, Class A common stock will be purchased for the accounts of employees participating in the ESPP on each purchase date at a price per share equal to 85% of the lesser of: (a) the fair market value on the offering date or (b) the fair market value on the purchase date. The ESPP provides for, at maximum, 27 month offering periods and each offering period may consist of one or more six-month purchase periods, whereby the latest offering period commenced on June 1, 2022, and the offering periods thereafter consist of two six-month purchase periods ending May 31, 2023. As of March 31, 2023, $0.7 million has been withheld on behalf of employees for a future purchase under the ESPP due to the timing of payroll deductions and is included in accrued liabilities. For the three months ended March 31, 2023, there were no shares of our Class A common stock purchased under the ESPP.
As of March 31, 2023, unrecognized stock-based compensation expense related to the ESPP was $0.1 million, which is expected to be recognized over a weighted-average period of 0.17 years.
Stock-Based Compensation
Total stock-based compensation expense recognized in the condensed consolidated statements of operations was as follows (in thousands):
Three Months Ended March 31,
20232022
Cost of revenue$316 $278 
Technology and development1,008 877 
Sales and marketing2,709 1,907 
General and administrative3,026 2,074 
Total stock-based compensation expense7,059 5,136 
Tax benefit from stock-based compensation(1,318)(831)
Total stock-based compensation expense, net of tax effect$5,741 $4,305 
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Note 11 – Net Income (Loss) Per Share Attributable to Common Stockholders
The Company has two classes of common stock, Class A and Class B. Basic and diluted earnings per share (“EPS”) attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights.
The following table sets forth the computation of the Company’s basic and diluted net income (loss) per share (in thousands, except share and per share data):
Three Months Ended March 31,
20232022
Numerator:
Net income (loss) attributable to common stockholders – basic$(5,871)$4,779 
Denominator:
Weighted average common shares outstanding – basic52,740,352 51,910,572 
Net income (loss) per share attributable to common stockholders – basic:$(0.11)$0.09 
Numerator:
Net income (loss) attributable to common stockholders – diluted$(5,871)$4,779 
Denominator:
Weighted average shares outstanding – basic52,740,352 51,910,572 
Options to purchase common stock 4,926,804 
Restricted stock 4,348 
Employee stock purchase plan shares 46,455 
Weighted average shares outstanding – diluted52,740,352 56,888,179 
Net income (loss) per share attributable to common stockholders – diluted$(0.11)$0.08 
The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income (loss) per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive:
Three Months Ended March 31,
20232022
Options to purchase common stock
1,892,052913,742
Unvested restricted stock units2,451,338653,061
ESPP91,66121,566
Total common stock equivalents excluded from net income per share attributable to common stockholders – diluted
4,435,0511,588,369
Note 12 – Income Taxes
The Company computes its provision (benefit) for income taxes by applying the estimated annual effective tax rate to pretax income and adjusts the provision for discrete tax items recorded in the period.
The Company recorded an income tax benefit of $3.4 million and provision for income taxes of $1.4 million for the three months ended March 31, 2023 and 2022, respectively. Accordingly, the Company has recorded the tax benefit for the U.S. losses incurred during the three months ended March 31, 2023.
The effective income tax rate was 37% and 23% for the three months ended March 31, 2023 and 2022, respectively. The income tax benefit for the three months ended March 31, 2023 is related to an increase in nondeductible stock-based compensation, Section 162(m) limitation on the tax deductibility of officers compensation, state taxes and global intangible low-taxed income (GILTI) inclusion offset by deductions for equity awards, tax benefit from foreign-derived intangible income (FDII), foreign tax credits, federal and state research credits, and other effects created by the capitalization and amortization of research and development expenses for tax purposes.
Realization of the Company’s deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, the Company considers its historical, as well as future projected, taxable income along with other objectively verifiable evidence. Objectively verifiable evidence includes the Company’s realization of tax attributes, assessment of tax credits, and utilization of net operating loss carryforwards during the year.
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Note 13 – Segment Information
The following table presents total revenue by geographic area based on the publisher’s billing address (in thousands):
Three Months Ended March 31,
20232022
United States$32,640 $32,768 
EMEA17,844 14,641 
APAC3,978 6,121 
Rest of the world945 1,022 
Total$55,407 $54,552 
The following table presents long-lived assets, net, which consist primarily of property and equipment and operating lease right-of-use assets, by geographic area (in thousands):
March 31,
2023
December 31,
2022
United States$77,715 $80,021 
Rest of the world15,679 17,341 
Total$93,394 $97,362 
Note 14 – 401(k) Plan
The Company has a 401(k) Savings Plan (the “401(k) Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating employees may elect to contribute up to 100% of their eligible compensation, subject to certain limitations. The 401(k) Plan provides for a discretionary employer matching contribution. The Company made $0.4 million in matching contributions to the 401(k) Plan for the each of the three months ended March 31, 2023 and 2022.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally are identified by the words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” and similar expressions. Examples of forward-looking statements include, but are not limited to, statements we make regarding our ability to maintain our growth and profitability, our ability to attract and retain publishers, and our expectations concerning the advertising industry.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”).
Overview
We are an independent technology company seeking to maximize customer value by delivering digital advertising’s supply chain of the future. Our sell-side platform empowers the world’s leading digital content creators across the open internet to control access to their inventory and increase monetization by enabling marketers to drive ROI and reach addressable audiences across ad formats and devices. Since 2006, our infrastructure-driven approach has allowed for the efficient processing and utilization of data in real time. By delivering scalable and flexible programmatic innovation, we improve outcomes for our customers while championing a vibrant and transparent digital advertising supply chain.
Our specialized cloud infrastructure platform provides superior monetization for publishers by increasing the value of an impression and providing incremental demand through our deep and growing relationships with buyers. We are aligned with our publisher and app developer partners by being independent. We do not own media and therefore do not have a vested interest in driving ad revenue to specific media properties. Our global platform is omnichannel, supporting a wide array of ad formats and digital device types, including mobile app, mobile web, desktop, display, video, over-the-top (“OTT”), connected television (“CTV”), and rich media.
In March 2023, our platform efficiently processed approximately 516 billion ad impressions daily, each in a fraction of a second. As of March 31, 2023, we served approximately 1,700 publishers and app developers representing over 97,000 individual domains and apps worldwide on our platform across a diverse group of content verticals such as news, e-commerce, gaming, media, weather, fashion, technology, and more, including many of the leading digital companies such as Yahoo, formerly Verizon Media Group, and News Corp. We have demonstrated that we can retain and grow revenues from our publisher customers, as evidenced by our net dollar-based retention rate of 105% for the trailing twelve months ended March 31, 2023 and 140% for the trailing twelve months ended March 31, 2022.
We generate revenue from publishers primarily through revenue share agreements, generally one-year contracts that renew automatically for successive one-year periods, unless terminated prior to renewal. We primarily work with publishers and app developers who allow us direct access to their ad inventory, as well as select channel partners that meet our quality and scale thresholds. We refer to our publishers, app developers, and channel partners collectively as our publishers.
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We enter into written service agreements with our DSP buyers that allow them to use our platform to buy ad inventory, but we earn revenue from our publishers. Our platform service agreements with DSPs generally have one-year terms that renew automatically for successive one-year periods, unless terminated prior to renewal. We also negotiate Supply Path Optimization (“SPO”) agreements with agencies and advertisers that encourage these buyers to spend a higher share of their advertising budgets on our platform. SPO agreements typically have a one-year term and renewal terms are generally discussed one quarter prior to a new term. The effect of these SPO agreements is to increase the volume of ad spend on our platform without corresponding increases in technology costs.
In the first quarter of 2023, mobile (including mobile video) and video (including OTT/CTV) combined comprised approximately 71% of our revenue. We anticipate mobile to continue increasing as a percentage of our total impressions and revenue in the future. We further expect video to constitute an increasingly important component of our business.
Macroeconomic Factors and COVID-19
Ongoing interest rate increases, foreign currency fluctuation, persistent inflation in the U.S. and other markets globally and recent turmoil in the global banking and finance system may increase the risk of economic volatility and dislocation in the capital or credit markets in the U.S. or globally. To date, we have not observed material impacts in our business or outlook, but we intend to continue to monitor macroeconomic conditions closely and may determine to take certain financial or operational actions in response to such conditions to the extent our business begins to be adversely impacted.
In addition, the COVID-19 pandemic and its variants resulted, and may continue to result, in a global slowdown of economic activity across a broad variety of goods and services, including those provided by certain of the advertisers on our platform. This situation could also potentially limit our ad buyers’ budgets or disrupt sales channels and advertising and marketing activities generally. As new variants of COVID-19 emerge and global governments take a variety of approaches to limiting its spread, these disruptive effects may continue for an unknown period of time, with varied effects across markets. The impact of the pandemic on our future growth and our results of operations is unknown and we are unable to accurately predict the future impact. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on a variety of factors, including the duration and spread of the virus, including new variants, and its impact on our publishers, ad buyers, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted.
See “Risk Factors” for further discussion of the risks related to the COVID-19 pandemic, inflation, rising interest rates, and foreign currency fluctuations on our business.
Business Highlights
The table below summarizes the financial highlights of our business performance:
Three Months Ended March 31,
20232022
(in thousands)
Revenue$55,407 $54,552 
Operating income (loss)
$(10,672)$4,581 
Net income (loss)
$(5,871)$4,779 
Adjusted EBITDA(1)
$8,388 $17,006 
Net cash provided by operating activities$12,754 $19,314 
_______________
(1)For a definition of Adjusted EBITDA, an explanation of our management’s use of this measure, and a reconciliation of Adjusted EBITDA to net income, see “Non-GAAP Financial Measure.”
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Key Factors Affecting Our Performance
We believe our growth and financial performance are dependent on many factors, including those described below.
Growing access to valuable ad impressions
Our recent growth has been driven by a variety of factors including increased access to mobile web (display and video) and mobile app (display and video) impressions and desktop video impressions. Our performance is affected by our ability to maintain and grow our access to valuable ad impressions from current publishers as well as through new relationships with publishers. The number of ad impressions processed on our platform was approximately 46.5 trillion and 32.6 trillion for the three months ended March 31, 2023 and 2022, respectively.
Monetizing ad impressions for publishers and buyers
We focus on monetizing digital impressions by coordinating daily over a hundred billion real-time auctions and nearly a trillion bids globally, using our specialized cloud software, machine learning algorithms, and scaled transaction infrastructure. Valuable ad impressions are transparent and data rich, viewable by humans, and verifiable. Each ad impression we auction consists of over 510 independent data parameters, which can yield valuable insights if recorded and analyzed properly. This processing of voluminous data for each ad impression must occur in less than half a second as consumers expect a seamless digital ad experience. By deploying our specialized software and hardware and continuously optimizing our machine learning algorithms, we are able to derive superior outcomes by increasing advertiser return on investment (“ROI”) and publisher revenue, while increasing the cost efficiency of our platform and our customers’ businesses. We continually assess impressions from new and existing publishers through a rigorous validation process. We add or remove impressions from our platform based on an assessment of the projected value of the impressions, which is influenced by the type of publisher and its related consumers, as well as the potential volume of monetizable impressions and ad format types, such as digital video. We continuously create and iterate algorithms that leverage vast datasets flowing through our infrastructure to improve the liquidity in our marketplace. Our ability to drive successful outcomes in the real-time auction process on behalf of our publishers and buyers will affect our operating results.
Identifying valuable ad impressions that we can profitably monetize at scale
We continuously review our available inventory from existing publishers across every format (mobile, desktop, digital video, OTT, CTV, and rich media). The factors we consider to determine which impressions we process include transparency, viewability, and whether or not the impression is human sourced. By consistently applying these criteria, we believe that the ad impressions we process will be valuable and marketable to advertisers. In addition, using a combination of proprietary analysis driven by machine learning algorithms that are continuously updated along with specialized third-party tools, we aim to exclude low value impressions from our platform and, in some cases, may suspend certain publishers, or particular publisher sites and apps, from using our platform if they do not meet our standards. Our confidence in our ability to achieve our quality goals is backed by a fraud-free guarantee to all of our buyers which we introduced in 2017. We believe that this rigorous commitment to quality helps us maintain our reputation as a leader in the programmatic advertising ecosystem. Our financial performance depends in part on how efficiently and effectively we can conduct these activities at scale.
Increasing revenue from publishers and advertising spend from buyers
We leverage our extensive platform capabilities and the subject matter expertise of our team members to grow revenue from our publishers and increase advertising spending from our buyers. Our sales and marketing team includes customer success pods to enhance customer knowledge and implementation of best practices. Once we onboard a new customer, we seek to expand our relationship with existing publishers by establishing multiple header bidding integrations by leveraging our omnichannel capabilities to maximize our access to publishers’ ad formats and devices, and expanding into the various properties that a publisher may own around the world. We may also up-sell additional products to publisher customers including our header bidding management, identity, and audience solutions. We automate workflow processes whenever feasible to drive predictable and value-added outcomes for our customers and increase productivity of our organization.
Net dollar-based retention rate is an important indicator of publisher satisfaction and usage of our platform, as well as potential revenue for future periods. We calculate our net dollar-based retention rate at the end of each quarter for a cumulative twelve months. We calculate our net dollar-based retention rate by starting with the revenue from publishers in the prior trailing twelve-month period (“Prior Period Revenue”). We then calculate the revenue from these same publishers in the current trailing twelve-month period (“Current Period Revenue”). Current Period Revenue includes any upsells and is net of contraction or attrition, but excludes revenue from new publishers. Our net dollar-based retention rate equals the Current Period Revenue divided by Prior Period Revenue. Our net dollar-based retention rate was 105% for the trailing twelve months ended March 31, 2023 and 140% for the trailing twelve months ended March 31, 2022.
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We work with DSPs to help them reduce their costs and improve advertiser ROI, which in turn makes us the specialized cloud infrastructure platform of choice for many of our buying partners. As buyers increasingly consolidate their spending with fewer larger technology platforms, we seek to bring an increased proportion of their digital ad spending to our platform through direct deals. We have entered into SPO agreements directly with buyers, advertisers and agencies through various arrangements ranging from custom data and workflow integrations, product features, and volume-based business terms. The effect of these SPO agreements is to increase the volume of ad spend on our platform without corresponding increases in technology costs.
Managing industry dynamics
We operate in the rapidly evolving digital advertising industry. Due to the scale and complexity of the digital advertising ecosystem, direct sales via manual, person-to-person processes are insufficient for delivering a real-time, personalized ad experience, creating the need for programmatic advertising. In turn, advances in programmatic technologies have enabled publishers to auction their ad inventory to more buyers, simultaneously, and in real time through a process referred to as header bidding. Header bidding has also provided advertisers with transparent access to ad impressions. As advertisers keep pace with ongoing changes in the way that consumers view and interact with digital media there will be further innovation and we anticipate that header bidding will be extended into new areas such as OTT/CTV. We believe our focus on publishers and buyers has allowed us to understand their needs and our ongoing innovation has enabled us to quickly adapt to changes in the industry, develop new solutions and do so cost effectively. Our performance depends on our ability to keep pace with industry changes such as header bidding and the evolving needs of our publishers and buyers while continuing our cost efficiency.
Expanding and managing investments
We make software and hardware infrastructure investment decisions to meet expected increases in ad impressions on both a global and regional data center level throughout the calendar year based on the projected quantity, ad format type, and associated data requirements. In parallel, we seek to continuously improve our infrastructure utilization. Our ability to identify and monetize high value impressions allows us to operate more efficiently because the cost of processing low-value impressions and high-value impressions are approximately the same. We believe that increasing utilization of our platform leads to improved outcomes for our customers and more efficient and effective operations for us. To achieve improved utilization, we leverage the data on our platform through extensive application of artificial intelligence technologies, including machine learning and natural language processing. The magnitude and timing of our investments in our software and hardware may lead to fluctuations in our operating results.
Expanding internationally
We plan to continue expanding our international presence and making additional investments in sales and marketing and infrastructure to support our long-term growth and to position ourselves for expected increases in the penetration of programmatic advertising globally. We expect programmatic advertising to grow at different rates in different geographic markets. Our publishers outside of the United States typically have smaller amounts of programmatic inventory, and as a result, our sales and marketing expenses associated with non-U.S. publishers are generally proportionally higher. We are constantly evaluating new markets with a strategy to use our existing infrastructure and adjacent sales offices, or by expanding our infrastructure footprint and placing personnel directly in those markets. Our ability to efficiently expand into new markets will affect our operating results.
Managing seasonality
The global advertising industry experiences seasonal trends that affect the vast majority of participants in the digital advertising ecosystem. Most notably, advertisers have historically spent relatively more in the fourth quarter of the calendar year to coincide with the holiday shopping season, and relatively less in the first quarter. We expect seasonality trends to continue, and our ability to manage our resources in anticipation of these trends will affect our operating results.
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Non-GAAP Financial Measure
In addition to our results determined in accordance with U.S. generally accepted accounting principles (“GAAP”), including, in particular, operating income (loss), net cash provided by operating activities, and net income (loss), we believe that Adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We define Adjusted EBITDA as net income (loss) adjusted for stock-based compensation expense, depreciation and amortization, unrealized gain, loss or impairment of equity investment, interest income, acquisition-related and other expenses, and provision (benefit) for income taxes.
The following table presents a reconciliation of Adjusted EBITDA to net income (loss) for each of the periods indicated:
Three Months Ended March 31,
20232022