PubMatic(PUBM) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for PubMatic, Inc as of and for the periods ended September 30, 2023 Condensed Consolidated Balance Sheets Total assets decreased to $613.0 million as of September 30, 2023, primarily due to a reduction in accounts receivable and fixed assets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $97,730 | $92,382 | | Accounts receivable, net | $291,385 | $314,299 | | Total current assets | $474,372 | $503,478 | | Total Assets | $612,986 | $642,175 | | Liabilities & Equity | | | | Accounts payable | $273,169 | $277,414 | | Total current liabilities | $303,867 | $302,026 | | Total Liabilities | $324,412 | $329,987 | | Total Stockholders' Equity | $288,574 | $312,188 | Condensed Consolidated Statements of Operations The company swung to a net loss of $9.8 million for the first nine months of 2023, impacted by a significant bad debt provision Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $63,677 | $64,500 | $182,414 | $182,084 | | Gross Profit | $37,586 | $42,909 | $107,393 | $123,527 | | Operating Income (Loss) | $(571) | $9,622 | $(18,377) | $23,997 | | Net Income (Loss) | $1,774 | $3,326 | $(9,821) | $15,924 | | Diluted EPS | $0.03 | $0.06 | $(0.19) | $0.28 | - The results for the nine months ended September 30, 2023, include a $5.7 million bad debt provision from a Demand Side Platform (DSP) buyer that filed for Chapter 11 bankruptcy[13] Condensed Consolidated Statements of Cash Flows Operating cash flow decreased while financing cash outflow increased significantly due to $41.5 million in share repurchases Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $52,447 | $67,854 | | Net cash used in investing activities | $(7,708) | $(101,556) | | Net cash provided by (used in) financing activities | $(39,391) | $3,374 | | Net increase (decrease) in cash | $5,348 | $(30,328) | - Financing activities in the first nine months of 2023 were primarily impacted by $41.5 million used for treasury stock repurchases[23] Notes to Condensed Consolidated Financial Statements The notes detail a significant bad debt expense, the share repurchase program, revenue concentration, and geographic revenue breakdown - The provision for expected credit losses increased by $14.5 million in the nine months ended September 30, 2023, due to a DSP buyer filing for Chapter 11 bankruptcy; after expected recoveries, this resulted in a $5.7 million bad debt expense[34] - In February 2023, the board authorized a share repurchase program of up to $75 million; as of September 30, 2023, $35.9 million remains available for repurchases[60] - As of September 30, 2023, two buyers represented a significant concentration of accounts receivable, accounting for 32% and 18% respectively[32] Revenue by Geographic Area (Nine Months Ended Sep 30, in thousands) | Region | 2023 | 2022 | | :--- | :--- | :--- | | United States | $108,608 | $111,826 | | EMEA | $57,345 | $48,210 | | APAC | $13,117 | $19,352 | | Rest of the world | $3,344 | $2,696 | | Total | $182,414 | $182,084 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes flat revenue to macroeconomic challenges, noting a decreased retention rate, lower gross margin, and a decline in Adjusted EBITDA - The net dollar-based retention rate for the trailing twelve months ended September 30, 2023, was 97%, a decrease from 120% for the same period in 2022, primarily due to a decline in run rate from one publisher[87][100] - Gross margin for the nine months ended September 30, 2023, decreased to 59% from 68% in the prior-year period, primarily due to infrastructure investments for capacity expansion and engineering projects[131] - General and administrative expenses for the nine months ended September 30, 2023, increased by $9.6 million, primarily due to a $5.7 million provision for bad debt and a $4.9 million increase in personnel costs[140] Financial Highlights (in thousands) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $63,677 | $64,500 | $182,414 | $182,084 | | Net Income (Loss) | $1,774 | $3,326 | $(9,821) | $15,924 | | Adjusted EBITDA | $18,240 | $25,137 | $36,403 | $65,192 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company identifies interest rate, currency exchange, and inflation as primary market risks, with currency fluctuations posing the most direct impact - The company's portfolio of cash, cash equivalents ($97.7M), and marketable securities ($73.6M) is considered relatively insensitive to interest rate changes due to short maturities[167] - A hypothetical 10% change in the USD to Indian Rupee exchange rate could change the operating loss by $1.4 million for the nine months ended Sep 30, 2023[168] - A hypothetical 10% change in the USD to British Pound exchange rate could change the operating loss by $1.3 million for the nine months ended Sep 30, 2023[168] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective with no material changes to internal controls during the quarter - The principal executive officer and principal financial officer concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[170] - No changes occurred in internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected or are likely to materially affect internal controls[171] PART II - OTHER INFORMATION Legal Proceedings The company is not currently party to any legal proceedings expected to have a material adverse effect on its business - As of the report date, the company is not a party to any legal proceedings that are expected to have a material adverse effect on its business[176] Risk Factors Key risks include dependency on advertising demand, customer concentration, industry competition, and impacts from the deprecation of third-party cookies - The business is highly dependent on overall advertising demand, which can be adversely affected by macroeconomic factors like inflation, rising interest rates, and economic downturns[181] - A limited number of large DSPs, particularly The Trade Desk and Google DV360, account for a significant portion of ad impressions purchased on the platform[184] - The rejection or restriction of third-party cookies, mobile device identifiers, and other tracking technologies could significantly diminish the value of the company's solutions[196][197][198] - Evolving data privacy laws like GDPR in Europe and CCPA/CPRA in California could increase compliance costs, limit data use, and expose the company to significant fines and liability[242][246][250] - In June 2023, a DSP buyer filed for Chapter 11 bankruptcy, leading to a $5.7 million bad debt expense, highlighting payment-related risks from buyers[217] - The dual-class stock structure gives holders of Class B common stock, including directors and officers, approximately 64% of the voting power, allowing them to control corporate matters[299] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased over 1 million shares in Q3 2023, with $35.9 million remaining under its current repurchase authorization Share Repurchases in Q3 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2023 | 193,395 | $18.53 | | August 2023 | 585,367 | $13.78 | | September 2023 | 283,000 | $14.04 | | Total Q3 | 1,061,762 | - | - The share repurchase program, announced on February 28, 2023, authorizes up to $75 million in repurchases through December 31, 2024[307] Other Information The Chief Innovation Officer adopted a Rule 10b5-1 trading plan for the potential sale of up to 174,110 shares - On September 1, 2023, Chief Innovation Officer Amar Goel adopted a Rule 10b5-1 trading plan for the sale of up to 174,110 shares, expiring July 9, 2024[311]