PubMatic : Q4 2021 Prepared Remarks

S A FE HARBOR

Thank you, operator, and good afternoon, everyone.

Thank you for joining us on PubMatic's earnings call for the fourth quarter and year ended December 31, 2021. Joining me on the call are Rajeev Goel, co-founder and CEO; and Steve Pantelick, CFO.

Today's prepared remarks have been recorded after which Rajeev and Steve will host live Q&A.

A copy of our press release can be found on our website at investors.pubmatic.com.

Before we start, I would like to remind participants that during this call, management will make forward looking statements, including without limitation, statements regarding our future performance, growth strategy and financial outlook.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other 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, including our most recent Form 10-K and any subsequent filings on Forms 10- Q or 8-K, which are on file with the Securities and Exchange Commission and are available at investors.pubmatic.com.

Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. All information discussed today is as of February 28, 2022 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. 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.

And now, I will turn the call over to Rajeev.

C E O R E M A R K S

Thank you, Stacie, and welcome, everyone. It's an exciting time at PubMatic as we continue to deliver an incredible combination of durable, high growth revenue and profitability. While we have grown significantly in the past year, I'm most excited about the number and magnitude of growth opportunities in front of us.

We delivered record fourth quarter organic revenue of $75.6 million, up 34%. We also delivered a strong Adjusted EBITDA margin of 51%, placing our performance over double the Rule of 40 benchmark for the fifth consecutive quarter. These results illustrate the value of our unique infrastructure-driven approach coupled with a usage-based software model that leads to an ability to grow our market share while delivering an incredible combination of growth and profitability.

For the full year, we delivered 53% organic revenue growth, a significant increase over 31% in 2020. We delivered 25% GAAP net income margin, or $56.6M, with adjusted EBITDA margin of 42%. Our profit margin demonstrates the leverage in our model and provides us with a strong foundation for continued investment and market share gains. We ended the year with a record $88.7 million generated in cash from operations.

GAINING SHARE VIA THE PUBMATIC FLYWHEE L

These results reflect PubMatic's significant share gains in a rapidly growing market.

In 2021, the digital advertising market grew 31%, almost double the pre-pandemic growth level, with double-digit spend increases expected again in 2022. Latest projections show that growth in digital advertising is not a pull-forward, but rather reflects permanent consumer behavior changes, in part due to the pandemic. For example, banking is predicted to move more online evidenced by the closure of a record 2,900 branches in the US last year. And grocery ecommerce is projected to grow over 17% annually over the next four years as consumers flock to online grocery shopping. These changes have increased our addressable market opportunity considerably.

PubMatic is committed to delivering the digital advertising supply chain of the future where both publishers and buyers can maximize value. As an independent technology company, focused on the best interests of publishers, we provide a platform that connects disparate parts of the ecosystem with robust audience addressability solutions and cross-screen targeting that power the open internet. And our infrastructure-driven approach is delivering superior outcomes and cost efficiencies that both our customers and we benefit from.

The more value our platform delivers, the more our customers use our technology. This generates more high-margin revenue for us, which we continuously re-invest in innovation and growth.

The competitive advantages we derive from our infrastructure, combined with our usage-based software model, are driving PubMatic's outsized growth rate well ahead of the market. At the time of our IPO we estimated our market share to be 2-3%. Updated industry data now estimates our market share to be 3-4% as of December 31, 2021. A shift in 1 percentage point over the course of a year is quite significant given the large and growing total addressable market and reflects the increasing value we are delivering to our customers. Over the long term, our objective is to grow our market share to 20% plus.

Our key growth drivers - supply path optimization, omnichannel formats and channels, audience addressability and global expansion - are driving increased usage of our platform and long-term growth opportunities.

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SUPPLY PATH OPTIMIZATION

We pioneered Supply Path Optimization several years ago. Buyers are continuously looking for ways to optimize ad spend through robust targeting, direct technology integrations and workflows, and premium ad inventory across channels and formats. The investments we make in these areas create a long-term strategic partnership that aligns buyers' success with our success. The outcome is increased utilization of our platform with more predictable, sticky revenues. At the end of 2021, we grew the number of SPO partners by 44% over the prior year. In fact, over a quarter of activity on our platform is now via SPO agreements, up from approximately 10% at the beginning of 2020.

OMNICHANNEL

Our omnichannel approach enables us to match buyer needs to publisher inventory at scale, regardless of device or content type in-use by the consumer. This has proven particularly resilient during the pandemic and as Covid becomes endemic.

Further, high growth channels such as CTV/OTT have expanded our addressable market opportunity and contributed to market share gains. Although just launched in Q3 of 2020, we're seeing tremendous growth in our CTV business, with over 6X growth over Q4 2020. We continue to invest aggressively in scaling a transparent, programmatic marketplace for CTV/OTT while also expanding our capabilities in online video, mobile app, and mobile web.

AUDIENCE ADDRESSABILITY

A long-term strategic area that we continue to invest in is audience addressability. We have facilitated a growing and robust partner ecosystem on our platform that includes first party data owners, identity solution providers, and contextual data providers to deliver best in class solutions that increase addressability in privacy-safe ways.

Identity Hub is a software solution that allows publishers to seamlessly manage, integrate and configure a multitude of identity solutions, simplifying their workflows and allowing them to connect their valuable audiences with advertiser demand in a privacy-compliant way to drive increased ad revenue. Identity Hub is now broadly deployed across our publisher base. We recently partnered with LiveRamp to measure the impact of Identity Hub and LiveRamp's Authenticated Traffic Solution and found that publishers were able to more than double CPMs and triple fill rates in cookieless browsers like Safari and Firefox.

Audience Encore allows any first party data owner, whether it's a publisher, advertiser, agency, or data provider, to monetize and scale their audience data across our billions of daily ad impressions and generate an incremental high value revenue stream. We recently announced an extended partnership with Samba TV in Australia to bring first-party connected TV data to media buyers across our platform. The partnership helped media agency IPG Matterkind find and engage relevant audiences for a global streaming client's programmatic ad campaign.

We also recently enhanced our platform for contextual targeting, with greater access to and usage of contextual data across CTV, video, mobile app and web. As the use of contextual targeting increases, we are well positioned to support publishers' and buyers' needs to package and monetize contextually targeted impressions both in the open market and private marketplace deals.

We are starting to see momentum build as third-party cookies are deprecated, and we believe the growth in these areas will accelerate. Existing customers are already starting to expand use of our platform through our audience addressability solutions, and we're also seeing these solutions attract new customers to PubMatic.

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It's worth noting that Google's recent announcement of the deprecation of Android Advertising ID in two years is expected to have minimal, if any, impact to our business. We know from prior experience that ad dollars shift to channels where buyers find success and high ROI. Because we're an omnichannel platform, we are able to fulfill ad buyers' needs with other channels such as CTV or mobile web. We saw this same dynamic on our platform when Apple eliminated IDFA with no impact. Second, we expect that our addressability solutions, such as first party data, contextual targeting, and our ongoing work with Google on Topics and Privacy Sandbox, will continue to make Android advertising ROI-positive for certain buyers.

NEW GEOGRAPHIES

We also continue to expand our platform into new geographies. Last year, we entered South Korea and opened offices in Madrid, Paris and Shanghai. Within China, we are focused on the non-Chinese audiences and inventory from Chinese app developers. Based on our experience and success internationally, we believe our international investments will develop into significant long term growth opportunities.

RETAIL MEDIA

Further expanding our addressable market is the large opportunity for retail media solutions, which represents over $140B in global media retail ad spend by 2024, which is comprised of on-site and offsite advertising. We already work with several dozen e-commerce companies as publishers, such as eBay and GAP Advertising, to monetize impressions across their properties. Additionally, e-commerce ad spending is a top five buyer vertical for us. As retailers increasingly prioritize media as a growth driver for their businesses, we see significant opportunity for PubMatic and we intend to invest behind this opportunity. Retail media plays to many of our strengths. As an SSP, we are close to the publisher, or e-retailer, and consumer. We have an omnichannel and global platform complete with a portfolio of addressability solutions including identity, first party data, and contextual solutions. And we have strong buyer relationships from SPO. Our focus is on helping retailers monetize their own media, extend their data offsite to monetize impressions from non- retail publishers, and to optimize ROI for buyers.

INVESTMENTS IN THE FUTURE

As a provider of specialized cloud infrastructure for digital advertising, innovation and efficiency are key differentiators that enable us to deliver customer value and expand platform usage.

This year, we intend to make substantial new investments based on where we see long term growth potential. These areas include our machine learning and data processing consistent with the evolving nature of addressability towards first party data, identity, and contextual targeting; tools for buyers to expand their Supply Path Optimization implementation on our platform; private marketplace and programmatic guaranteed capabilities for connected TV and online video transactions; and retail media capabilities. These are long term investments that we believe will payoff in increased customer value and market share gains over the next several years. At the same time, we intend to improve efficiency across the company, driving additional infrastructure cost reductions and automation which will allow us to ship software faster and increase the pace of innovation.

Given our decade-plus track record of profitable innovation, we plan to accelerate the growth of our engineering team in order to take advantage of the enormous number of growth opportunities in front of us. Our hiring plans call for doubling our engineering team over the next 12-18 months and we anticipate a record number of software releases as we expand the breadth and depth of our platform.

And lastly, we are expanding our Sales and Customer Success teams around the globe on both the publisher-focused and buyer-focused teams.

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CONCLUDING REMARKS

In summary, our omnichannel and global platform drove significant share gains in a rapidly growing market. We were able to drive increased customer value through a combination of our infrastructure-driven approach to digital advertising, our usage-based software model, and aggressive investment in innovation. I'm incredibly proud of the entire team at PubMatic as we over-achieved virtually every goal we set for ourselves in 2021 and we enter 2022 in a strong position with many growth opportunities in front of us.

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

C F O R E M A R K S

Thank you, Rajeev, and welcome everyone.

The fourth quarter capped a superb year for PubMatic.

In our first full year as a public company, we achieved a powerful combination of standout financial results and organic market share gains while investing significantly in the future of our business. As a result of our omnichannel platform, global scale, well-establishedusage-based model, and outstanding team, we have built a highly productive and resilient company. These factors set us up well for strong results in 2022 and beyond.

In 2021, we delivered $227 million dollars in revenue, or year over year growth of 53%, almost double market growth.

Looking at our fourth quarter, revenue was a record $76 million, an increase of 34% year over year. This achievement is particularly impressive considering last year Q4's growth of 64%. Excluding Q4 2020 political spend, Q4 2021 revenue was up 40%.

For the sixth straight year we delivered positive GAAP Net Income, which was $57 million, a company record. Adjusted EBITDA was $96 million, or 42% margin, also both company records.

In Q4, our revenue growth combined with the significant leverage embedded in our platform helped us achieve net income of $28 million, or 37% net margin. Adjusted EBITDA was outstanding at $39 million, or 51% margin, an increase of 44% over last year's Q4.

REVENUE

Q4 revenue was strong across every region, format and channel. EMEA in particular grew strongly with 55% year-over- year growth. Overall, we have built a truly global business with the Americas at 63% of full year 2021 revenue, EMEA at 28% and APAC at 9%.

Ad spend on our platform is well diversified across more than 20 verticals. While we saw some headwinds related to Omicron in December which dampened peak ad spending related to in-person activities such as Food & Drink, strength across other verticals more than compensated. For example, Shopping grew 78%, and Technology grew 65%. The top 10 ad verticals, in aggregate, grew over 50% year over year.

As was the case throughout 2021, we saw minimal impact from the elimination of Apple's IDFA as advertisers shifted ad dollars to other high ROI formats and channels on our platform. It's also worth noting with respect to Google's recent

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