PubMatic(US:PUBM)2022-08-08 16:00PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) PubMatic's unaudited financial statements highlight increased assets, equity, revenue growth, and positive operating cash flow Condensed Consolidated Balance Sheets Total assets grew to $570.2 million by June 30, 2022, with liabilities decreasing and equity increasing Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $460,075 | $460,749 | | Total Assets | $570,231 | $550,215 | | Total Current Liabilities | $255,427 | $266,965 | | Total Liabilities | $286,315 | $293,035 | | Total Stockholders' Equity | $283,916 | $257,180 | Condensed Consolidated Statements of Operations Q2 2022 revenue grew 27% to $63.0 million and 26% to $117.6 million for six months, but net income declined due to increased costs and operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $63,032 | $49,658 | $117,584 | $93,266 | | Gross Profit | $44,058 | $36,570 | $80,618 | $67,878 | | Operating Income | $9,794 | $10,133 | $14,377 | $16,774 | | Net Income | $7,819 | $9,921 | $12,598 | $14,839 | | Diluted EPS | $0.14 | $0.18 | $0.22 | $0.26 | Condensed Consolidated Statements of Cash Flows Operating cash flow increased to $39.8 million for the six months ended June 30, 2022, but significant investing activities led to an overall $30.6 million decrease in cash and equivalents Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $39,782 | $33,763 | | Net cash used in investing activities | $(73,577) | $(28,187) | | Net cash provided by financing activities | $3,184 | $3,856 | | Net (Decrease) Increase in Cash | $(30,611) | $9,432 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, 12% revenue concentration, $10.5 million stock-based compensation, and 60% US revenue - One publisher represented 12% of revenue for the three months ended June 30, 2022, down from 17% in the same period in 2021. For the six months ended June 30, 2022, this publisher represented 13% of revenue, down from 18% in 202129 - As of June 30, 2022, two buyers accounted for 32% and 16% of accounts receivable, respectively29 Revenue by Geographic Area (in thousands) | Region | Q2 2022 | Q2 2021 | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | United States | $38,278 | $30,076 | $71,046 | $57,484 | | EMEA | $17,044 | $14,445 | $31,685 | $25,755 | | APAC | $6,775 | $4,142 | $12,896 | $8,337 | | Rest of the world | $935 | $995 | $1,957 | $1,690 | | Total | $63,032 | $49,658 | $117,584 | $93,266 | - Total stock-based compensation was $5.4 million for Q2 2022 and $10.5 million for the six months ended June 30, 2022, up from $3.6 million and $6.8 million in the respective prior-year periods62 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 27% Q2 2022 revenue growth driven by impressions, mobile, and video, noting a 130% retention rate, but gross margin declined to 70% due to increased operating expenses and infrastructure investments Overview and Business Highlights PubMatic's platform processed 409 billion daily ad impressions, serving 1,550 publishers, with Q2 2022 revenue at $63.0 million and Adjusted EBITDA at $23.0 million - In June 2022, the platform processed approximately 409 billion ad impressions daily77 - As of June 30, 2022, the company served approximately 1,550 publishers and app developers77 Financial Highlights (in thousands) | Metric | Q2 2022 | Q2 2021 | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $63,032 | $49,658 | $117,584 | $93,266 | | Net income | $7,819 | $9,921 | $12,598 | $14,839 | | Adjusted EBITDA | $23,048 | $18,594 | $40,054 | $33,088 | Key Factors Affecting Our Performance Performance is driven by growing and monetizing ad impressions, which reached 36.2 trillion in Q2 2022, alongside a 130% net dollar-based retention rate, strategic investments, and managing industry dynamics - The number of ad impressions processed on the platform increased to approximately 36.2 trillion for Q2 2022, up from 20.2 trillion in Q2 202185 - The net dollar-based retention rate was 130% for the trailing twelve months ended June 30, 2022, compared to 150% for the trailing twelve months ended June 30, 202189 - The company is focused on Supply Path Optimization (SPO) agreements with agencies and advertisers to increase ad spend volume on its platform8090 Results of Operations Q2 2022 revenue grew 27% to $63.0 million, but gross margin declined to 70% due to a 45% increase in cost of revenue and a 30% rise in operating expenses, leading to decreased operating income Revenue and Gross Profit Comparison (in thousands) | Metric | Q2 2022 | Q2 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $63,032 | $49,658 | $13,374 | 27% | | Cost of revenue | $18,974 | $13,088 | $5,886 | 45% | | Gross profit | $44,058 | $36,570 | $7,488 | 20% | | Gross profit margin | 70% | 74% | | | - Sales and marketing costs increased by 30% in Q2 2022 compared to Q2 2021, primarily due to a $2.1 million increase in personnel costs from a 10% headcount increase and higher stock-based compensation, plus a $1.4 million increase in marketing and travel126 - General and administrative expenses increased by 28% in Q2 2022, driven by a $1.1 million increase in personnel costs from a 31% headcount increase, and higher facilities and professional services costs129 Liquidity and Capital Resources Strong liquidity with $183.0 million in cash and equivalents, a $25.0 million credit facility, sufficient for $79.9 million in contractual obligations - As of June 30, 2022, the company had cash, cash equivalents, and marketable securities of $183.0 million and net working capital of $204.6 million136 - The company has a revolving line of credit of up to $25.0 million, with no outstanding borrowings as of June 30, 2022. The facility matures on June 6, 2024140 Summary of Contractual Obligations (in thousands) | Obligation Type | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease liabilities | $30,398 | $3,206 | $12,325 | $9,885 | $4,982 | | Other contractual obligations | $48,619 | $10,231 | $33,840 | $4,548 | $— | | Total | $79,908 | $13,542 | $46,450 | $14,735 | $5,181 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risks include low interest rate risk, currency exchange risk from foreign currency expenses, and no material inflation impact - The company does not believe a 100 basis point change in interest rates would materially affect its financial condition163 - A hypothetical 10% change in the U.S. Dollar to Indian Rupee exchange rate could result in a $0.7 million change in operating income for the six months ended June 30, 2022165 - A hypothetical 10% change in the U.S. Dollar to British Pound exchange rate could result in a $0.7 million change in operating income for the six months ended June 30, 2022165 Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2022, with no material changes to internal financial reporting controls - The principal executive officer and principal financial officer concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level167 - No change in internal control over financial reporting occurred during the quarter ended June 30, 2022, that has materially affected, or is reasonably likely to materially affect, internal controls168 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in legal proceedings with a material adverse effect on its business, financial condition, or cash flows - The company is not presently a party to any legal proceedings that, in the opinion of management, would individually or taken together have a material adverse effect on the business172 Item 1A. Risk Factors Risks include advertising demand, customer retention, competition, operational fluctuations, data privacy, infrastructure, ad fraud, international challenges, and concentrated insider control - The business is highly dependent on overall demand for advertising, which can be affected by macroeconomic factors like the COVID-19 pandemic and the conflict in Ukraine190 - For the six months ended June 30, 2022, 13% of revenue was derived from its largest publisher, Yahoo193 - Evolving data privacy laws like the CCPA, CPRA, and GDPR create significant compliance challenges and risks, as the company relies on publishers to obtain consumer consent for data processing254255257 - The dual-class stock structure gives insiders, holding approximately 66% of the voting power as of June 30, 2022, substantial control over corporate matters297 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the current reporting period - Not applicable306 Item 3. Defaults Upon Senior Securities This item is not applicable for the current reporting period - Not applicable307 Item 4. Mine Safety Disclosures This item is not applicable for the current reporting period - Not applicable308 Item 5. Other Information This item is not applicable for the current reporting period - Not applicable309 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents