PubMatic Stock

Hello, everyone, and welcome to PubMatic Second Quarter 2026 Earnings Call. My name is Annabeth, and I will be your Zoom operator today. Thank you for your attendance today. As a reminder, this webinar is being recorded.

I will now turn the call over to Stacie Clements.

Good afternoon, everyone, and welcome to PubMatic's earnings call for the second quarter of 2026. This is Stacie Clements, and I'll be your operator today. Joining me on the call are Rajeev Goel, Co-Founder and CEO; and Steve Pantelick, CFO.

Before we get started, I have a few housekeeping items. Today's prepared remarks have been recorded, after which Rajeev and Steve will host live Q&A. [Operator Instructions] A copy of our press release can be found on our website at investors.pubmatic.com.

I would like to remind participants that during this call, management will make forward-looking statements, including, without limitation, statements regarding our future performance, market opportunity, growth strategy and financial outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, macroeconomic environment and future conditions. These forward-looking statements are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. You can find more information about these risks and uncertainties in our reports filed with the Securities and Exchange Commission and available at investors.pubmatic.com, including our most recent Form 10-K and any subsequent filings on Forms 10-Q or 8-K.

Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. All information discussed today is as of August 6, 2026, and we do not intend and undertake no obligation to update any forward-looking statements, 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, including adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, cash flows from operations, free cash flow and free cash flow margin. 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 measure is available in our press release.

And now I will turn the call over to Rajeev.

Thank you, Stacie, and good afternoon, everyone. We delivered an outstanding second quarter. More importantly, we returned to double-digit year-over-year revenue growth well ahead of schedule, and we expect that growth will accelerate through the second half of the year. I'm extremely proud of what the team has accomplished, in particular our innovation and leadership in agentic advertising. Over the past several years, we've made disciplined investments to diversify the business and strengthen our competitive position to deliver both faster growth and strong operating leverage. Today, approximately 60% of our business comes from CTV, mobile app and emerging revenues, all of which fuel profitable double-digit growth. This represents a remarkable transformation of our business and fundamentally strengthens our long-term growth profile.

With this strong foundation in place, Steve has announced his plans to retire. He will remain as CFO into the first quarter of 2027, and then in an advisory role through July 1, ensuring a smooth transition as we conduct a search for his successor. Steve and I have worked together for 15 years, and it's difficult to overstate the impact he's had on PubMatic. Under his leadership, we've built a global company with the financial discipline to invest for the future while consistently generating cash, maintaining a debt-free balance sheet and returning capital to shareholders. I'm deeply grateful for his partnership, his friendship and his many, many contributions to PubMatic. He's built an exceptional finance organization that positions PubMatic to create long-term value for years to come.

Helping us build that future is our new Global Chief Revenue Officer, Megan Ramm, who joins us on Monday, August 10. Megan brings deep direct-to-brand and performance advertising expertise with established relationships across marquee brands. Her rigor around sales process and execution will enhance our sales effectiveness and is a natural fit with our culture. Together, these strengths will help accelerate adoption of our AI-powered platform while strengthening our commercial capabilities.

These leadership milestones reflect the evolution of both our company and our industry. It is clear digital advertising is entering its next major technology transition as AI reshapes how media is bought and sold across the open Internet, and PubMatic is at the epicenter of this change with market-leading scale. Since launching AgenticOS in January, we've delivered over 80 agentic campaigns, including with all 5 global agency holding companies. This is up from 30 campaigns just a quarter ago.

For years, the walled gardens have delivered superior advertising performance because they operate a single, integrated technology platform that optimizes media and audiences for advertisers. With Activate and AgenticOS, we're bringing those same performance and technical advantages to the open Internet. As a result, we're monetizing far more of the value chain between advertisers and publishers than at any point in our history, and attracting entirely new customer types to our platform. And because our business is built on outcomes and usage, we generate revenue when we deliver the best outcomes for our customers. This creates powerful alignment as advertisers increasingly prioritize measurable performance and efficiency.

Further, as advertising shifts to agentic execution, competitive advantage will be determined not by traditional software user interfaces, but rather by AI-native infrastructure, proprietary intelligence, and the ability to consistently deliver superior outcomes. We've spent 2 decades building these capabilities. Today, they're redefining how value is created across the open Internet by delivering compelling, measurable outcomes. Level Agency is a great example of this. In a controlled comparison against their incumbent DSP, AgenticOS delivered in excess of 2x more reach per dollar on qualified audiences, while significantly accelerating campaign setup and activation time.

Additionally, AgenticOS delivered retargeting at scale within days compared to the 1 to 2 months ramp typically required by DSP-led campaigns. As a result, Level increased ad spend with PubMatic to expand its buying across the open Internet. Patrick Van Gorder, Chief Partnership Officer at Level Agency said it best, "What AgenticOS delivered changed how we're thinking about where the open Internet can compete for client budgets, and that's exactly the kind of adaptive advantage and innovation we're always looking for."

Level is one of many examples. Across Havas and Telefonica, Amnet and InterBev, Abovomaxlead, Butler/Till and many others, we're consistently delivering better performance, faster execution and greater efficiency, and it's changing how buyers are thinking about the value chain. Those results are driven by our unified platform, where multiple competitive advantages compound and are increasingly difficult to replicate. They're built on years of investment across our infrastructure, intelligence, solutions and customer relationships.

First, is AgenticOS. We have deployed over 20 agents to automate and optimize core buying and selling workflows. As agentic advertising compresses the traditional workflow, more of the transaction runs through PubMatic's infrastructure. This allows us to create more value for our customers and drive incremental revenue back to PubMatic. This week we announced an exciting new agent for enterprise buyers. It provides configurable controls, approved workflows and full audit trails for autonomous campaigns. As customers move more budget into agentic buying, trusted governance becomes essential, and we believe this capability will help accelerate enterprise adoption of AgenticOS.

Second, is Activate. Activate enables advertisers to buy directly in our SSP. This significantly increases working media and operational efficiency, while also targeting audiences at the point of auction. The result is better advertiser performance and improved publisher yield.

Third is our proprietary data intelligence and AI-native infrastructure. We combine signals from more than 300 data partners, including Comscore, Nielsen, Experian, Transunion, PayPal, Intuit, Klarna, Walmart and more, with our own proprietary bidstream data, which exists only on PubMatic. As our business continues to grow, particularly in logged-in environments like CTV and mobile app, the quality and depth of those signals continues to improve, making our platform smarter with every campaign and every transaction. This intelligence runs on our AI-native infrastructure. Through our partnership with NVIDIA, we're able to process massive amounts of data and execute increasingly sophisticated AI-driven decisioning in real time.

And fourth, is our premium SSP inventory which includes nearly the entire open Internet. Over 2,000 publishers representing 100,000 plus streamers, mobile apps and web sites. Most recently, we added marquee broadcaster Channel 4 in the U.K. and announced a strategic partnership with Sony Pictures Entertainment as their preferred sell-side platform, delivering access to hundreds of millions of monthly users across PlayStation and Sony Bravia TVs.

Importantly, these advantages reinforce one another. Premium supply generates unique signals. Those signals strengthen our proprietary intelligence. That intelligence improves advertising outcomes. Better outcomes attract more advertisers, more campaigns and more data, creating a compounding advantage with every transaction.

Building on this advantage, in Q2, we introduced Decision Fabric, the next evolution of our platform. Introduced in June, Decision Fabric enables advertisers, DSPs and technology partners to securely deploy their proprietary models directly within PubMatic's infrastructure. This is commonly referred to as containerization. By running their models closer to our inventory, data and the point of auction, customers remove the traffic shaping and latency constraints that have historically limited performance across the open Internet, allowing them to unlock better advertising outcomes.

We're seeing encouraging traction with launch partners, including MiQ, Chalice AI, SWYM.ai, InPowered and a growing number of DSPs. This is an exciting opportunity that we believe will transform the way advertising is transacted on the open Internet. More importantly, our unified platform and compounding intelligence are unlocking performance advertising budgets on PubMatic. It's expanding our market, adding entirely new categories of advertisers and ad budgets to our platform.

For example, programmatic trading desk Klever, on behalf of Rouge Care Therapy, a direct-to-consumer wellness brand, expanded into premium CTV without sacrificing the performance measurement and optimization it relies on in social media. Using AgenticOS, the campaign delivered a 5x return on ad spend, double the client's original objective, while significantly accelerating optimization and campaign execution.

We're seeing this same trend scale across our DSP partnerships. Smadex, a leading performance CTV advertising platform for apps and games and a business unit of Entravision, partnered with PubMatic to leverage our premium CTV inventory, using our first-party audience targeting and cross-device measurement capabilities. As performance improved, Smadex increased spend on PubMatic over 10x year-over-year, with 75% of that incremental spend flowing into CTV. This kind of measurable performance is unlocking entirely new advertiser budgets for PubMatic and it's reshaping the inventory advertisers want to buy.

Creator-led video is another incremental opportunity, which now accounts for 26% of all TV and video viewing. Yet, much of that market has remained within walled gardens, even as TV platforms have brought creator content to the living room. As brands look to stand out, they're increasingly seeking creators whose audiences, values and content naturally align with their brand. With the launch of our Creator Marketplace, we're bringing our infrastructure and AgenticOS to the creator economy, enabling advertisers to connect to premium inventory and reach highly engaged audiences while giving creators new ways to monetize across the open internet. For PubMatic, this positions us well as the creator economy, which is approximately $250 billion dollars globally, moves into the open Internet advertising market, representing an entirely new category of publishers to our platform.

Performance is also driving growth across our live sports marketplace, where activity more than doubled year-over-year, highlighting the scale of our premium inventory and the strength of our offering. We were recently recognized with several industry awards, including The Drum's Technology Innovation Award for helping advertisers buy live sports inventory with precision. As more premium events enter the programmatic market like U.S. Open for Tennis, NFL, NBA, MLB and NCAA, there is significant opportunity to scale growth from this vertical.

Accelerating the value of our live sports offering, we recently partnered with Gracenote to bring real-time content intelligence, including contextual signals and live sports schedules, directly into our platform. By bringing this intelligence directly to the point of auction, our AI-native infrastructure can make decisions within the milliseconds available before every impression is served. That's particularly valuable in live sports, where context changes continuously and buyers need to optimize campaigns in real time.

Whether it's contextual signals from live sports or commerce signals tied to purchasing behavior, our strategy is the same: bring differentiated data closer to every advertising decision. As more buyers, publishers and transactions run across our platform, that intelligence compounds and improves advertiser performance, increases publisher yield and makes our platform more valuable with every interaction.

That's the power of the platform we've built. The investments we've made over the last several years are translating into accelerated, profitable growth. By investing early in AI, we've established a leadership position that continues to widen as more customers adopt our platform. We've built a platform that is attracting more buyers, more publishers, more data and more advertising spend. Just as importantly, we're expanding the market we can serve, bringing new forms of advertising, new sources of demand and new intelligence onto our platform. That not only increases the value we create for customers, it also expands the long-term growth opportunity for PubMatic, which we believe is significantly larger than the business we operate today.

I'll now turn the call over to Steve for the financials.

Thank you, Rajeev, and welcome, everyone. We delivered an outstanding second quarter, significantly exceeding our expectations on both the top and bottom line. Our revenues grew 11% year over year, adjusted EBITDA increased 38% and free cash flow increased 47%. We saw strength across channels and formats, underscoring the breadth and depth of our platform. Our high-value formats and channels gained momentum and scale, and we continued diversifying the business. AI adoption across our company is accelerating our innovation, driving revenue growth, improving customer outcomes and unlocking incremental cost efficiencies. Importantly, we returned to double-digit revenue growth ahead of schedule.

Today, our revenue mix is fundamentally different than it was 3 years ago. The majority of our business now comes from high-value formats and channels which are the fastest-growing segments of digital advertising. In Q2, approximately 60% of our revenue came from CTV, mobile app and emerging revenue streams, double that from 3 years ago. Together, these categories grew nearly 40% year-over-year.

Breaking this down further. CTV growth was led by the Americas, which grew 25% year-over-year driven by new CTV advertisers and expansion of premium inventory including live sports. Globally, CTV revenue grew 13% year-over-year and accounted for approximately 20% of total revenue. Mobile app grew more than 40% year-over-year and represented approximately 25% of total revenue in Q2. Growth was driven by the mediation platform integrations we highlighted last quarter, ongoing product innovation and continued expansion of our global app publisher base.

Emerging revenue streams continued their strong momentum and nearly doubled year-over-year, reaching an all-time high of approximately 15% of total revenue. Growth was driven by increased adoption of our new AI products, including AgenticOS. On a global basis, direct buying on Activate more than doubled year-over-year. Total display revenues grew strongly at 12% year-over-year, primarily driven by mobile app growth.

In Q2, we saw the benefit of our broad, diversified omnichannel platform. Across our channels and formats, we generated several million dollars of incremental revenues from the World Cup, Amazon Prime Day and political advertising. We continue to enhance our platform with capabilities that make it easier for advertisers of all sizes to achieve strong ad performance. This is contributing to a broader and more diversified DSP mix. Activity from our mid-market DSP partners accelerated compared to the first quarter, growing over 25% year-over-year in Q2. Looking ahead, we expect activity from mid-market DSP partners to further increase, driven by new inventory categories like content creators, growing demand from direct-to-consumer brands and continued investment in our go-to-market teams.

Turning to our diversified ad verticals, in aggregate, our top 10 ad verticals increased 15% year-over-year. We saw double-digit percentage growth in 5 of the top 10 verticals, led by shopping, health and fitness and personal finance. This helped offset some softness in food and drink, arts and entertainment and travel. Our owned and operated infrastructure continues to be a significant competitive and financial advantage. The investments we've made over the last 5 years are enabling us to introduce higher-value capabilities while improving the efficiency of our platform. That was evident in the second quarter, where revenue grew 11% and gross profit increased 19%.

With our increasing focus on AI native capabilities, we are realigning our platform's compute and processing resources towards products that create the greatest economic value for our customers and our business. We intend to reduce the number of gross impressions processed to unlock cost savings and repurpose compute capabilities while increasing the number of monetized impressions. We saw the first results of these efforts in the second quarter as we reduced gross impressions sequentially by 2% while increasing monetized impressions by 4%. This is an intentional outcome of how we are evolving the platform and should result in an even more efficient business over time. As we prioritize the impressions that create the most value, we expect our monetization rate to continue rising in future quarters.

AI is also improving productivity across the organization. In the second quarter, total head count declined year-over-year as AI and automation increased efficiency across engineering, marketing, customer success and finance. These productivity gains allow us to continue investing in our highest-growth sales opportunities while maintaining a disciplined approach to operating expenses. As a result, we funded incremental investments in our buyer-focused sales team and broader go-to-market organization while holding total OpEx growth to 4%, well below our revenue growth. Q2 adjusted EBITDA was $19.6 million or 25% margin compared to 20% margin a year ago, our 41st consecutive quarter of positive adjusted EBITDA. Q2 GAAP net loss was $1.2 million or minus $0.03 per diluted share.

Moving to cash and our capital allocation. Our balance sheet remains a core strategic advantage. We generated $20.2 million in net operating cash flows in the second quarter, up 36% over Q2 last year, and delivered free cash flow of $13.7 million, a 47% increase over last year. To underscore our long-term ability to generate cash, since the beginning of 2021 through Q2 2026, we have generated nearly $450 million in net cash from operations and more than $246 million in free cash flow.

During the quarter, we used $21.5 million in cash to repurchase 2.1 million Class A common shares. We ended the quarter with $137.5 million in cash and marketable securities and zero debt. Our capital allocation strategy remains disciplined and balanced, focused on long-term shareholder value creation. We continue to invest in innovation and infrastructure to drive incremental organic growth while maintaining the flexibility to pursue strategic M&A opportunities. We have also made a long-term commitment to return capital to shareholders via our share repurchase program. Since the inception of our repurchase program in February 2023 through the end of Q2, we have bought back 15.5 million Class A common shares for $211.4 million. We have $63.6 million remaining in this program authorized through the end of 2026.

Moving onto our outlook. The strong momentum we built throughout the second quarter continued into July. In Q3, we anticipate continued double-digit year-over-year revenue growth, with revenue of $75 million to $77 million or 12% growth at the midpoint. Q3 adjusted EBITDA is expected to be in the range of $17 million to $19 million. We expect cost of revenue and OpEx to increase by A low-single-digit percentage sequentially in Q3, with continued go-to-market investment through the balance of the year. As revenues expand with our leveraged cost model, we expect Q4 adjusted EBITDA margin similar to last year's fourth quarter, leading to meaningful full year margin expansion.

Last quarter, we described our plans to further shift our platform investments to targeted GPU centric infrastructure that will strengthen our proprietary data intelligence, creating a compounding advantage as the business continues to grow. We believe this approach will be a durable accelerant to growth over the long term while also supporting the broader industry shift to performance-based advertising. Our results in the second quarter and our momentum in AI powered products, reinforce this strategy. Accordingly, we are increasing our full year CapEx outlook to a range of $20 million to $25 million. These additional investments support increased AI workloads and our strategic innovation with NVIDIA, and we expect them to generate incremental revenues with a payback of approximately 12 months or less.

In closing, the results this quarter reinforce what we've been building over the past several years. We returned to double-digit revenue growth ahead of schedule, continued to shift our revenue mix toward high-value formats and channels and demonstrated the strength of our financial model through expanding profitability and higher free cash flow. PubMatic is reshaping digital advertising by leveraging our AI-native infrastructure, compounding intelligence and automation to deliver better outcomes for customers. These are durable, competitive advantages that we believe will continue to strengthen our financial model and drive long-term profitable growth.

Let me close with a personal note. As Rajeev mentioned, I plan to retire early next year. It wasn't an easy decision. Rajeev recruited me in 2011 when PubMatic was a small private company. And together, with an exceptional team, we've built something I'm very proud of: a global public company with revenue that's nearly doubled since our IPO, zero debt and 41 consecutive quarters of positive adjusted EBITDA. I'm grateful to Rajeev for his partnership every step of the way.

On the transition, my successor will inherit a finance organization we've spent 15 years building and a leadership team as strong as any I've worked with. One of the greatest privileges of my career has been working alongside such talented team members and building trusted relationships with our customers, investors and analysts. I believe PubMatic is in the strongest position I've seen in my time here. My priority is continuing the momentum in our business.

With that, I'll turn the call over to Stacie for questions.

[Operator Instructions] The first question comes from Shweta Khajuria at Wolfe.

First of all, Steve, congratulations. And I'll miss you. We have some time with you still, but congratulations, and I'm super happy for you, and it's been a great run, and it's been nothing but a joy to work with you. So all the best.

Thank you, Shweta. Very much appreciate that.

Well, on to the earnings. I guess a couple of questions for me, please. One is what are some of the top 2 to 3 things that you would point to that imply durability of this strength that you're seeing, whether it is top line growth, demand trends, product adoption? Anything that you can point to on the durability of the growth you're seeing?

And second, at a high level, are you seeing clear indications that the overall environment is changing to benefit the supply side? And if so, what are some of the tangible indicators that you're seeing that are to your advantage?

Yes. Thanks, Shweta. I can kick that off.

Great.

I think the 2 questions are actually closely related. So I think it's clear that the industry is rapidly moving towards an agentic future, and PubMatic is not only at the epicenter of that shift, but we're driving it. And with that comes a shift in decisioning to the PubMatic platform. So you saw some of the stats, rapid agentic adoption. Obviously, it's still early, but the trend is very clear, 80 Agentic campaigns, 4,000 AI-powered deals. And agentic is driving improved ad performance. So advertisers are getting better performance while also reducing ecosystem complexity and operational overhead, which is growing our addressable market.

And I think when we look at our platform, we're very uniquely positioned with our AI-native owned and operated infrastructure, the scale of our publisher relationships, Activate, which you know we've been building for several years now, direct buying in the SSP with AgenticOS, the 20-plus agents and then the intelligence that we have from our own proprietary data from all of the impressions that we process as well as over 300 data partners. And as I talked about in the prepared remarks, I think the competitive advantage of the past that was built around the software user interface and the lock-in that created with buyers, that's very rapidly eroding. Now I think competitive advantage is increasingly being determined by AI-native infrastructure, proprietary intelligence and the ability to consistently deliver advertising performance.

We have a second major front in this AI area with Decision Fabric. And Decision Fabric allows curators and DSPs to run their models in our infrastructure, which leverages the impressions and data from our SSP along with our proprietary intelligence. So I think these are -- what we see in terms of customer uptake and activity, these to me are the durable signs of not only our ability to continue to grow at double digits, but also this structural shift towards the sell-side with more of the decisioning, more of the processing happening in our infrastructure, which allows us to add more value and participate in that value creation.

Yes. I'd just add to Rajeev's comments, and that is, as an organization, we've always been very focused on operational excellence and execution is in our DNA. And when you think about sort of our strong innovation and all the things that we pioneered over the last 15-plus years, we've really been working towards this position for a very long time, and we're very confident in sort of the trajectory and the durability of everything we've built. And part of it is, it's our DNA, and we're very enthusiastic about the future.

Our next question comes from Naved Khan at B. Riley. I'm going to keep moving just in the interest of time. I'll come back to you if we can get you back on the line. Our next question comes from Andrew Marok. I'm sorry, hold on a second -- from Rob Coolbrith.

All right. First of all, Steve, you're my idol. I don't give you permission to leave, but congratulations on an amazing run at the company and best wishes for your retirement.

Thank you, Rob. Very, very appreciated.

We're looking forward to spending a lot more time with you between now and when you eventually leave. So Rajeev, I wanted to ask you maybe about the pace at which agencies and advertisers are leaning into AgenticOS and agentic more broadly across the landscape. Any way to contextualize that? A lot of this sounds very exciting, but I just wanted to think about how you're thinking about -- or to ask how you're thinking about how quickly this could go in terms of agentic penetration of programmatic media budgets or pools? It seems to be going fast. It seems like there's a lot of incentives for people to make this move, but I wanted to ask about that.

And then I just wanted to ask you may be broadly for your thoughts on, there's a lot of different flavors, different approaches to how people are talking about agentic programmatic media right now, maybe some hops in the supply chain being cut out, some people thinking about fee savings in different parts of the ecosystem. Just wondering what do you think is going to be most essential? Are we going to continue to have a robust sort of highly decisioned programmatic landscape? Any thoughts there on what's going to remain after we have this agentic shift?

Yes. Thanks, Rob. So on the first part of your question, in terms of the agentic pace, maybe the Clayton Christensen framework is useful. We're definitely still in the phase of the early adopters. But what I think is very promising is that all of the clients that we've run agentic campaigns or execution with, they've all come back for much more, right? So it's working. We've put out, I think, case studies in 10 different countries around the world, maybe half a dozen around the world at this point. We're running things with every agency holdco. So the seeds are planted and the grass is starting to grow. We can very clearly see the shoots.

I've said publicly that I think by the end of '28, about 25% of our ecosystem will be traded agentically. And by the end of 2030, it will be 50%. And I continue to believe that that's the case. And so that implies a pretty rapid continued trajectory of growth and acceleration between where we are, still early stages, early adoption and getting to that projection. But we are seeing that advertisers and agencies are able to execute. We're seeing broad-based adoption across independent agencies and holdcos and brands pushing on this. And so that's what gives me confidence.

On your second question in terms of what -- where are some of the benefits, you talked about hops and other things. I think our focus is really on how do we use this amazing technology as more than just a technical revolution, but really around value chain or supply chain revolution. So our focus is really on compressing the distance between the publisher and the advertiser, whether it's programmatic transactions or it's agentically executing IOs, bringing the publisher and advertiser much closer together so that when they transact, they can transact more directly, primarily on our platform, in our case, where between AgenticOS, Activate and our SSP, we have all of the components that are needed for full end-to-end execution of the transaction. And by doing that, we're able to demonstrate very clearly increased -- significantly increased advertiser performance, but also a lot less operational overhead and complexity. And that's leading to, I think, a massive win for our clients and for our business.

Our next question comes from Naved who I think I have back now. Naved, if you can -- there you go.

All right. Can you guys hear me now?

Yes, we can.

Perfect. So maybe a question on this monetization of AgenticOS. Is this -- like what's your -- what are your thoughts? How are you -- is this something you're charging for as an added feature or are you just monetizing because of the lift you might be seeing to the CPMs and to the overall monetization and getting -- participating in that? Just give us your thoughts on that. And then I have a follow-up.

Sure. Steve, you want to take that one?

I mean, first off, Naved, so the AgenticOS opportunity, first and foremost, is opening up net new business for us, right? It's new channels, new opportunities. So that's step one. And AgenticOS can be either a DSP's agent, it could be PubMatic's, it could be any number of third-party agents. But what we've done is we've created Activate that we launched several years ago. And so that's the direct buying interface onto our platform. And so when that happens, we generate a buying fee as a result of that.

And then really, what's important when you think about the economics of what we're building here is that dollar now is entirely within our ecosystem. And so we're making incremental fees and the absolute dollar amount is growing. So it's very much a compounding benefit to us as a company. And you're seeing some of those strong results. Overall, our portfolio of emerging revenues nearly doubled in the quarter, and that's been a very consistent trajectory. That category hit an all-time high of 15% of revenues. So from our perspective, we're building on the platform that we've created. We're making that platform even stronger and broader and more efficient. And so what you're seeing as a business is we're getting leverage not only from top line growth, but also the cost structure. So you should expect to see margin expansion as well.

Okay. That's great to hear and pretty impressive performance across the board. I want to ask maybe versus your own expectations that you set for us for the quarter -- coming into the quarter, where were you surprised in terms of the amount of upside in which segment?

Yes. From our perspective, we were very pleased because we saw positive incremental results across the board. So areas that we've been investing in, executing against, all of them came in better than we expected. CTV, better. As a reminder, CTV in the Americas grew 25% year-over-year. Total CTV globally was up 13%. Mobile app, which is about 25% of our revenues, grew 40% in the quarter, and that's better than we had anticipated. And then I just referenced emerging revenues nearly doubled. So we really saw great incremental progress across the board.

And then in addition to that, we also saw display increased double digits. I know it was largely a function of our mobile app progress. So we're very pleased with the results, and it wasn't just one factor. It was across the board. And that's something that we've been sharing with analysts and investors that we see a very big vision and we've been building it on our platform, and now we're just starting to see the early stages of that ramp.

Perfect. Congrats on the retirement.

Thank you. Really appreciate that.

Our next question comes from Eric Martinuzzi at Lake Street.

My congrats as well to you, Steve, and thanks for sticking around through our September investor conference.

Thank you, Eric.

I was curious to know just on -- we are sort of 1 year removed from a pretty substantial disruption that you experienced with a large DSP. Your business has changed dramatically in those 12 months. And I was just wondering if the -- there was sort of a decrementing of your inventory with that DSP. I was wondering if there's been a kind of a return or a warming of the relationship, if you could comment there?

Sure. I can -- why don't I comment on the relationship.

Let me -- and then turn that Rajeev on the relationship. So from our perspective, we've been investing and modifying and evolving our business for a number of years. We shared a stat that about 6% of all of our revenue comes from high-value formats, and that's a pretty material number, and that's growing double digits. And so we've been growing through the challenges that we've called out in the past. And we had anticipated this was going to happen. And as both Rajeev and I called out, we did it ahead of schedule. And so from our perspective, our focus has always been on investing and making sure that we are developing our capabilities for wherever the fastest-growing opportunities are. You're seeing that in our results. And at the same time, we really have been building out our relationships with DSPs and continue to maintain very healthy positive relationships.

I'll turn it over to Rajeev for any other comments.

Yes, thanks. So the relationship with the DSP remains positive and healthy. We continue to do significant business together. But as Steve pointed out, our DSP base has diversified significantly. I think in general, what we're seeing in the market is DSP growth and penetration is diversifying into many different facets of the market, vertical specialization, mid-market advertisers, SMB advertisers, performance CTV, performance mobile app. So the market, I think, has grown much faster than that DSP in question. And so that's contributing to the diversification on our platform.

At the same time as well, as we have been growing our sales team, we've been connecting more directly with advertisers as well as agencies. We've always been deeply connected into the agencies. But as we've gone deeper into building those advertiser relationships, it's giving us more directed ability to demonstrate the capabilities of our platform where then the advertisers are saying, okay, we specifically want to be buying on PubMatic because of the AgenticOS capabilities, the Activate capabilities, Decision Fabric now. So I think our solution set and our ability to take that to market, to the end customer, the end decision maker is also strengthening the diversification in our business.

Okay. And I wanted to follow-up. You talked about greater than doubling of the AgenticOS adoption within the installed base. As far as the size of those campaigns, the 80 campaigns versus the 30, are we getting -- is the repeat, because I realize it's early adopters, but are they coming back with larger campaigns or are they still kind of same size campaign dipping their toe in the water?

Yes. So there's kind of 2 aspects to it. One is there's more new buyers every quarter, and those new buyers are typically starting with small campaigns and then ramping from there. The existing buyers, so the ones that are repeating, let's say, from Q1 to Q2, they're absolutely ramping the size, volume of their buys as they work through the change management within their own organization and they rapidly see the benefits from agentic execution on PubMatic.

Our next question comes from James Heaney at Jefferies.

Great. And Steve, congrats on the retirement. Really enjoyed getting to work with you, I think, since the IPO. So wishing you all the best.

Thank you.

Maybe I'll start with you. Could you just talk about the pockets of strength and weakness, probably more strength than weakness, but just what you're seeing across different verticals? Do want to ask specifically on maybe categories like prediction markets that we've been seeing doing quite well, and interested if that's something that you're seeing on your end?

So I mean, as I've shared with everybody in the past, one of the strengths of our business is that we have a very diversified set of ad verticals. And so in the second quarter, the top 10 grew in aggregate around 15%. And for example, we have very strong results from shopping and a couple of other categories that helped offset some softness, let's say, in food and drink and travel. And so the strength that we have developed over time is being able to really be a place for any type of advertiser and the opportunities vary depending on the time of the year, macro conditions.

And so overall, we don't -- we haven't seen any material softness. I shared that the July was fairly healthy in terms of momentum. And I think there are certain pockets, as you just point out, prediction markets that rolled up into certain advertising categories. We see some growth there. And from our perspective, we're doing what we need to do, making sure that we continue to develop the relationships on the publisher side that provides all that valuable inventory and then exposing that to an emerging group of new buyers. We've talked about performance DSPs, of which the category that you described would largely fit in. And that part of our business, which we call mid-market DSPs, actually accelerated in the second quarter and grew 25% year-over-year. So overall, there might be quarter-to-quarter some verticals that are softer and others stronger, but we have a very diverse set of verticals that help us navigate that period-to-period.

James, maybe I'll just add a little bit to that, which is, there has been some kind of notable standouts around prediction markets within our live sports business. So that live sports business has been growing pretty rapidly. And we saw, for instance, with World Cup, some of the -- I forget which one, one of the 2 major prediction markets advertising pretty heavily on our platform as part of the World Cup. So I think as they scale, I would expect to attract more of their spend on an ongoing basis.

Okay, great. And then maybe one for you, Rajeev. Could you just talk about the partnership you have with Roku? I mean, I know they're obviously one of your CTV supply partners. So I'm just interested in hearing how maybe the conversations have evolved with them since the acquisition of Fox? And even if you want to broadly comment on other kind of mega deals that we're seeing across the media landscape and just how you think about your position in kind of those -- that consolidation?

Yes, absolutely. So I think one of the things that we're seeing is, obviously, consumers are spending more and more time in streaming. And so that's part of what's driving that growth and the scale of CTV within our business. And then I think the second big trend is that we're seeing what were walled gardens or what might have been walled gardens having much more open approach to monetization and really, I think, appreciating the capabilities in our platform, our ability to drive performance advertising solutions and also the scale of data and the inroads that we have in terms of ad spend budgets flowing on our platform with marquee agencies and advertisers.

So Roku is a great example of that, where we monetize a significant portion of their inventory, and we'll expect that to expand and continue with Fox. We also shared earlier in the quarter that we will be the primary SSP partner for Sony Pictures Entertainment, their streaming service launch at some point later in the year. So that, I think, is a prime example of where I think if we were 3 or 4 years ago, somebody may have approached that as a walled garden. But here now, they're doing that as a -- from an open perspective, and they've chosen our platform with which to do that. And there's many other examples, Roblox and others that we've talked about in prior quarters and years. So I think we remain really encouraged by the open nature of monetization and the strength of our platform and our buyer relationships create significant ability for us to monetize that inventory.

Our next question comes from Barton Crockett at Rosenblatt.

Okay, great. I was curious about share of your business. I mean, you've given us some growth for Activate doubling. You said that the mid-market DSPs grew 25%. But can you give us a sense of how much of your business is on Activate now? And just broadly, how much of your business is not involving a DSP on the other side, just kind of coming direct through your platform one way or the other?

So I'll take that. So from our perspective, we've shared in the past that we estimate our market share to be about 4% globally, and that's obviously has been growing over time. The categories that you just referenced that sit within our emerging revenues portfolio are clearly growing quite significantly. And the way that we -- just to level set the sort of the approach that we take is, these are all rapidly evolving new opportunities, and they are self-reinforcing it. So we are capturing them in this portfolio. We're not currently planning on breaking them out specifically until they get to a certain size. But clearly, as a category, emerging revenues at 15% of total revenues is becoming more and more material.

And the other thing to bear in mind is that we've been growing in the fastest-growing areas of the market. And so we expect to grow at or faster than the market now and into the future as a result of all of our investments and the progress that we're making. And then the last thing I'll comment on, none of our expectations or guidance assumes any resolution of the DOJ case against Google. So all of that would be upside to our market share background.

Okay. Well, if I could just follow-up because I mean, your earnings call is kind of coincident with -- the Trade Desk, which their revenues really kind of flattened out this quarter and yours accelerated. In just broad strokes, is there some broad kind of transition among DSPs and SSPs, some kind of shake up there that you can speak to that maybe -- maybe these things are all kind of related or is it just coincidental but not really related?

Yes, I can take that. I mean, I think, Barton, that there are some broad macro trends that are favoring the sell-side, and in particular, PubMatic. And we -- I think we've been talking about some of them for a while. But first of all, I think the Agentic opportunity, right, the industry movement towards agentic monetization, agentic execution, we're obviously aggressively driving that, and that comes with a shift in decisioning to the PubMatic platform, right? So we're processing more and more of the transaction between AgenticOS, Activate, our sell-side platform and our data platform. More of that end-to-end transaction between the publisher and the advertiser is being processed in our platform, including the decisioning, which means we're adding more value and we're participating in that value creation.

More recently, we've opened a second front in this area with Decision Fabric. So Decision Fabric is our containerization solution, and it allows curators and DSPs to run their models directly in our infrastructure. And so that leverages the impressions and data from our SSP along with our proprietary intelligence. It gives them more time to make bidding decisions, allows the buyer to use a more complicated model, and we're hosting all of that in our infrastructure. Now that's still early, but that, again, is another, I think, sign of the shift that's happening towards the sell-side of the ecosystem.

And I think underlying all of it is the -- if we kind of go back in time, it's a little bit, I think, clear in hindsight is that the user interface that some of the primary buying platforms had trained into agencies and advertisers over years that had created, I think, substantial lock-in where trading organizations were used to a particular user interface. And now with AI and with Decision Fabric, the UI and the value or the lock-in from that UI layer is now eroding. And instead, I think advertisers and publishers are saying, well, hey, where is the greatest performance? What's going to generate the most ROI and the most yield? And that's exactly the opportunity that we're focused on with AgenticOS and with Decision Fabric.

Okay. That's interesting. And just one final just check box. You guys in the past few quarters have talked about a drag from a DSP transition. That's not happening this quarter, right? That's done.

Yes. That is now, Barton, fully behind us.

Our next question comes from Simran Biswal at RBC.

This is Simran on for Matt Swanson. Congrats on the quarter and congrats, Steve. Just thinking about your go-to-market investments, how are they balanced across your growth initiatives versus how much are you leaning into your customers to understand agentic or do you think it's becoming more pervasive?

So our approach on the go-to-market side is really to think about different segments of the buyer community and then to go in with value propositions that are tied to performance, transparency and control. And so when we think about those audiences, the primary audiences, although not the sole audiences, but the primary ones are advertisers, agency holdcos and then independent agencies. And those sit alongside some of the more tech-forward companies like DSPs and curators. So our go-to-market investment is really about broadening the sales footprint that we have so that we can go deeper into each of those categories. So for instance, with advertisers, we want to be covering the top several hundred, not just the top 100. With holdcos, we want to cover not only the investment teams, but also brand by brand, the key teams. With independent agencies, we're going from the top 50 to the top 250.

So that's how we're thinking about, Simran, the investment that we're making. And as we grow and as we penetrate, there's both an account management function as well as a sales function. And so we need to add the right number of people from an account management perspective. But with our own usage of AI internally, what we're seeing is that each account manager can handle more and more accounts and put more time into the relationship side of things rather than the day-to-day management. And so you're seeing that flow through in terms of the leverage that we called out in the quarter.

And a quick stat for you, Simran. In the quarter, on a year-over-year basis, we were able to increase our investment and head count in these areas -- go-to-market areas that Rajeev just described by 12%, while our total head count was slightly down. So this is a reflection of just how we plan and manage and execute using AI as a financial leverage, just not on the top line, but also delivering on the bottom line.

Okay, cool. That's helpful. And then, Steve, just really quickly, anything from political that you're embedding into Q3 guidance or just...

Yes. We are assuming that there is going to be incremental political. If you just step back, there was a large benefit to the company back at the '24 presidential cycle. The good news there is many of the capabilities that we first developed there in terms of Activate and our AI capabilities have just gotten better, stronger over time. And so we are very well positioned to take advantage of the political dollar opportunity. We saw a small amount, relatively speaking, in the second quarter. We expect that to ramp up over the balance of the year.

We don't think it's going to be as large as it was in the '24 presidential cycle, but we are very optimistic about us getting, I would say, probably more than our fair share based upon all the capabilities that we've built. And obviously, I'll update as we go along in the quarter. But I do expect it to be more back-end loaded end of third quarter, but mostly fourth quarter impact.

We have time for one more question from Brianna Diaz at Citizens. Brianna, can you hear us? Okay. Rajeev, I'm going to -- unless Brianna comes back, I'm going to throw it back to you for closing remarks.

Thank you, Stacie. We delivered an outstanding second quarter, returning to double-digit revenue growth well ahead of schedule while expanding profitability and free cash flow. Importantly, our growth was driven by the strategic areas of our business where we've invested over the past several years, reinforcing our confidence in continued double-digit growth in the second half of the year. Our leadership in agentic advertising continues to strengthen as more customers choose PubMatic for superior ad performance and measurable business outcomes, and that performance is expanding our addressable market.

We look forward to seeing many of you at upcoming conferences, including Oppenheimer's 29th Annual Tech Internet and Communications Conference, Rosenblatt's Age of AI Virtual Conference, Wolfe's TMT Conference in San Francisco and Lake Street's Big Investor Conference in New York. Thank you, everyone, for joining us today. Have a great rest of your afternoon.

Hello, everyone, and welcome to PubMatic's First Quarter 2026 Earnings Call. My name is Christian, and I will be your Zoom operator for today.

[Operator Instructions] Thank you for your attendance today. And as a reminder, this webinar is being recorded. I will now turn the call over to Stacy Clements.

Good afternoon, everyone, and welcome to PubMatic's earnings call for the first quarter of 2026. This is Stacy Clements, and I'll be your operator today.

Joining me on the call are Rajeev Goel, Co-Founder and CEO; and Steve Pantelick, CFO. Before we get started, I have a few housekeeping items. Today's prepared remarks have been recorded, after which Rajeev and Steve will host live Q&A. A copy of our press release can be found on the website at investors.pubmatic.com.

I would like to remind participants that during this call, management will make forward-looking statements, including, without limitation, statements regarding our future performance, market opportunity, growth strategy and financial outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and future conditions.

These forward-looking statements are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. You can find more information about these risks, uncertainties and other factors in our reports filed from time to time with the Securities and Exchange Commission and are available on investors.pubmatic.com, including our most recent Form 10-K and any subsequent filings on Forms 10-Q or 8-K.

Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. All information discussed today is as of May 7, 2026, and we do not intend and undertake no obligation to update any forward-looking statements, 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, including adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, cash flow from operations and free cash flow.

These non-GAAP measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release.

I will now turn the call over to Rajeev.

Thank you, Stacy, and welcome, everyone. We delivered an exceptional first quarter with revenue and adjusted EBITDA ahead of guidance. These results reflect the continued strength of our business and accelerating adoption of our AI solutions.

We delivered 13% year-over-year growth in our underlying business. Emerging revenues grew over 80% year-over-year and climbed to 14% of total revenues, aided by AgenticOS. The new strategy we launched in summer of 2025 is delivering tangible results. We're diversifying our DSP mix, growing in high consumer engagement channels such as CTV and mobile app and creating more value for key stakeholders across the advertising ecosystem. As a pioneer in AI, our multiyear investments are paying off in fueling new revenue streams, operating leverage and market-leading advantages that are at the early stages of compounding.

Agentic AI is more than just a productivity tool. It's a structural shift that is redefining the entire digital advertising market. It simplifies the connections between advertisers and outcomes and transforms how value flows through the ecosystem. Over the past two decades, digital advertising has undergone two profound transformations, each creating markets measured in the hundreds of billions of dollars.

The first was real-time bidding and the second was the shift to mobile consumption. Today, a third transformation of even larger magnitude is underway, AI-driven agentic advertising. AI simplifies the ecosystem by automating decisions that once require large teams using fragmented systems. Our platform sits at the intersection of buyers, publishers and audiences, enabling us to apply AI at global scale across the entire value chain from planning and discovery to activation and measurement.

Our approach fundamentally changes how value is created. It drives performance that the legacy fragmented model is structurally challenged to deliver. Importantly, Agentic AI prioritizes outcomes, not interfaces. At the same time, AI is leveling the playing field between walled gardens and the open internet. Capabilities that once benefited closed platforms like efficiency, lower operating costs and stronger advertising ROI are now achievable in the open Internet with the added benefits of transparency and choice.

As advertisers allocate spend based on measurable performance, our addressable market expands, and we are well positioned to capture that shift. Importantly, our growth engine is directly aligned with customer outcomes. We're evaluated on our ability to monetize every ad impression we process, and we earn revenue only when we deliver superior results for publishers and buyers.

As customers see stronger performance, they increase usage, creating a self-reinforcing model where greater adoption and utilization drive both customer ROI and our own profitable growth. Our AgenticOS and Activate products extend this alignment further into the value chain.

Underpinning this model are five competitive advantages, assets that are increasingly difficult for new entrants to replicate and that compound over time. Further, they cannot be vibe coded.

First is scale. Nearly the entire advertising supported open Internet is available on PubMatic. We have nearly 2,000 premium publishers representing over 100,000 websites, apps and streamers, including 28 of the top 30 global streamers. This breadth and depth of access to omnichannel inventory is built through years of trust and performance.

Second is Activate. Our direct buying platform was designed from the beginning to drive performance and simplify the complexity of the ecosystem. By connecting ad demand and premium supply in a single environment, advertisers see higher ROI and publishers benefit from increased yield.

Third is AgenticOS and our growing portfolio of AI agents. We have over 20 different operational agents available for media buyers and publishers with new agents rolling out every month to automate and optimize core advertising workflows. Our newest agent enables buyers to discover and activate curated omnichannel supply in seconds through natural language queries. For example, a media buyer simply asks for CTV inventory for male sports enthusiasts, and the agent instantly surfaces relevant opportunities, audience reach estimates and deal options. This process used to take hours or days and is now reduced to minutes.

Fourth, our owned and operated infrastructure. This is a structural advantage in the AI era. Our long-standing collaboration with NVIDIA brings advanced GPU technology directly into our platform with a variety of distinct benefits. GPU technology improves data processing to handle the massive advertising-specific workloads that underpin bidding, pricing and campaign optimization, cutting compute time and cost.

We're using NVIDIA Triton Inference Server to deploy real-time inferencing for bidding and audience decisioning. As a result, we process data and train models faster and more cost effectively than cloud-based alternatives while also improving model performance. In AI, faster feedback loops lead to better models and better models attract more advertising activity. By owning our infrastructure, we keep that compounding advantage within PubMatic, allowing our competitive moat to widen with every transaction processed.

Our data platform, Connect, is a key input of this flywheel, comprised of data assets from over 300 data and Commerce Media partners, it's our fifth competitive advantage. With faster processing, we are improving our proprietary model training in real time, resulting in significant performance improvements and better optimization for advertiser return on ad spend.

Connect is a powerful platform that enables advertisers to shift their audience targeting strategies to the sell side with greater efficiency and reach, which is a further catalyst for Activate and AgenticOS performance. There is no other company that has all five of these components and is innovating at this pace.

Further, revenue growth is building and customer adoption continues to scale quickly. PubMatic now has AI embedded across its entire platform. Publishers use PubMatic AI Assistant to seamlessly make their inventory available to buyers on PubMatic via deals. Over 1,000 AI-powered deals have been transacted to date, resulting in millions of dollars in publisher monetization.

Similarly, buyers use our AI assistant chat-based interface to discover audiences and inventory and to activate new advertising campaigns. Even more exciting is the adoption of fully autonomous Agentic campaigns. What launched at CES in January with a single campaign has now scaled to more than 30 live fully autonomous campaigns from independent agencies, large buying platforms and global brands across the United States, France, the Netherlands, Australia and India.

PubMatic is the only platform that has operationalized fully Agentic campaigns at scale. Agencies like Butler/Till, MiQ and Brkthru, a digital media solutions provider for more than 1,000 brands and 235 agencies, alongside Amnet and Abovo Maxlead in EMEA are seeing compelling results, a material reduction in fees, more dollars shifting into working media, high-performing KPIs and 80% to 90% time savings in campaign set.

These aren't marginal gains. These are step function efficiency unlocks that validate Agentic buying as a value chain shift. I'm incredibly proud of the team and the results we're delivering. We have the technology, infrastructure, scale and innovation to lead the seismic industry shift.

At the same time, we continue to strengthen our underlying business. The DSP landscape continues to evolve and fragment with a growing share of digital advertising spend coming from outside the Fortune 1000 advertisers. Our growth profile mirrors this trend as we diversify our business and accelerate expansion beyond the largest DSPs.

In Q1, activity from mid-market and performance DSPs continued to grow over 20% year-over-year. Many of these DSPs are also quickly innovating around Agentic. AdRoll became the first DSP to connect to PubMatic's PMP deal troubleshooting AI agent via Model Context Protocol. This integration enables their agents to autonomously troubleshoot private marketplace deals, cutting resolution time from days to minutes as compared to traditional programmatic workflows.

This is an exciting area of innovation and demonstrates how existing software interfaces are quickly becoming obsolete. We also continue to innovate with the largest performance DSPs.

A significant milestone this quarter was our integration with Amazon's Dynamic Traffic Engine now launched globally. This integration shares demand signals from Amazon directly with PubMatic so that we can better match inventory to their advertiser demand in real time.

Early results are delivering increased monetization for publishers on PubMatic, up to a 10% increase in CPM since its launch. We also delivered growth in high consumer engagement channels, including CTV and mobile app. New products like Creative Innovation Suite are now live across AgenticOS, enabling brands to connect with viewers across interactive content and devices. For example, a viewer may start a show on their TV, pick it up later on a phone or pause the content to check something online.

Our technology lets advertisers deliver a consistent story across all of these moments. Premium publishers like Sling TV are unlocking more value from their inventory, while agencies such as Horizon Media, Crossmedia and Kelly Scott Madison use Creative Innovation Suite to deliver more engaging, measurable campaigns for their clients.

Our live sports marketplace continues to be one of the most powerful ways to reach engaged audiences. Through PubMatic, buyers can access premium CTV inventory across major sporting leagues and global events. The scale behind this growth opportunity is significant. We expect the FIFA World Cup alone will bring more than 100 million high-value impressions per day to our platform with growing demand from buyers across the U.K., France, Germany and Italy.

According to eMarketer, digital live sports viewership is projected to grow 20% between now and 2030. With expansive partnerships across some of the largest premium live sports inventory, coupled with over 300 data partners and innovative CTV solutions, we expect live sports to be a strong growth driver over the next several years.

Our mobile app business grew over 25% year-over-year. Over the past quarter, we deepened our integrations across the mobile ecosystem. We're now live with the three leading global mediation platforms, AppLovin MAX, Google AdMob and most recently, Unity LevelPlay. PubMatic now has access to over 90% of global SDK inventory. For example, Zynga, a global leader in interactive entertainment that reaches hundreds of millions of players worldwide, has integrated our SDK to provide advertisers with programmatic access to their high-value mobile audiences at global scale.

Much like mobile app, Commerce Media also benefits from logged-in user engagement, where buyers can prioritize performance and measurable outcomes. With an addressable market of $18 billion, we see a significant long-term opportunity in Commerce Media.

Fueling this are new partnerships that add scale and audience data to the PubMatic Connect platform. We recently announced an exciting partnership with Walmart Connect, which unlocks new advertisers and new ad spend on our platform, particularly for CTV. Our partnership with Walmart Connect Select integrates their first-party shopper audiences with the media on our platform, enabling new performance-oriented ad transactions for SMB and enterprise advertisers.

I'm also excited to share that we have integrated with payments leader, PayPal, integrating the PayPal, as ID. This integration brings over 25 billion transactions across 400 million verified PayPal and Venmo accounts to the platform, giving buyers high-value data to activate across the open Internet. It enhances targeting accuracy, verified identity across devices and true closed-loop attribution in a privacy safe way. As this partnership scales, we expect it to contribute to emerging revenue streams and deliver incremental margin.

In closing, we delivered a great quarter. We continue to add marquee partnerships, focus on innovation and execute across our strategic priorities. AI is an accelerant to our already diverse growth engine. The repeat engagement we're seeing from customers underscores that this technology is driving performance. Each additional transaction compounds our data advantage, driving superior performance and accelerating organic growth across our core business, including CTV, mobile app and Commerce Media.

With our proven model, differentiated infrastructure and expanding global footprint, PubMatic is positioned to capture this next transformational shift in digital advertising, creating long-term value for our customers, partners and shareholders.

I'll now turn the call over to Steve for the financials.

Thank you, Rajeev, and welcome, everyone. We delivered a strong quarter with Q1 revenue of $62.6 million and adjusted EBITDA of $2.6 million, both ahead of the preliminary figures we shared on April 22 and well above the high end of our guidance ranges.

Excluding revenues related to the legacy DSP referenced mid-2025, our underlying business grew 13% year-over-year and represented 83% of our total revenues. This double-digit growth reflects the health of our business, ongoing benefits from our multiyear secular growth investments and the momentum of our strategic transformation.

This execution, coupled with the rapid expansion of PubMatics AI tools and AgenticOS positions us for accelerating double-digit revenue growth in the second half of the year.

The majority of the revenue beat once again flowed through to adjusted EBITDA. Q1 was the 40th consecutive quarter of positive adjusted EBITDA, underscoring the inherent durability of our model, ongoing productivity gains and expense discipline. We also generated $10.7 million of free cash flow, a 17% free cash flow margin and returned value to shareholders through the repurchase of 1 million Class A common shares.

Moving on to the quarterly highlights. Our outperformance was driven by double-digit year-over-year growth in total company monetized impressions, reflecting the structural strength of our usage-based model. Our investments in high-value formats and channels also delivered outsized growth. Combined, revenue from CTV, mobile app and emerging revenues grew over 20% year-over-year and represented the majority of total revenues.

Breaking this down further, strength in CTV was led by the Americas, where revenues grew 13% year-over-year and represented approximately 80% of total CTV revenue. With 28 out of the top 30 global streamers on PubMatic's platform and growing access to live sports, we saw an increase in both the number of CTV advertisers and premium inventory available.

Excluding the legacy DSP buyer, global CTV revenues grew 18% year-over-year. Mobile app extended its momentum as revenue increased over 25% year-over-year. This growth reflects the ramp-up of strategic partnerships, ongoing product innovation and continued expansion of our global app publisher base.

Notably, mobile app saw broad-based growth in both video and display. With its sizable scale on our platform, mobile app also meaningfully contributed to our overall display revenues, which grew 5% year-over-year. Emerging revenue streams were again a standout category and grew over 80% year-over-year and represented 14% of total revenues, driven by increased adoption across our new AI products, including AgenticOS.

On a global basis, direct buy and on Activate grew more than 3x year-over-year. We also continued to diversify our DSP mix. Q1 ad spend from our mid-market DSP partners was up over 20% year-over-year, highlighting the impact of our increased focus and investment, accelerating these high-growth innovative partners.

Revenues in the first quarter related to the legacy DSP buyer were better than expected as we further optimize our platform to meet the needs of this buyer. Across our well-diversified portfolio of ad verticals, we saw double-digit percentage growth in health and fitness, technology and computing and hobbies and interest. This growth helped offset softness in the business and food and drink verticals.

Overall, our top 10 ad verticals increased mid-single-digit percentages year-over-year. Regionally, our APAC and EMEA businesses grew rapidly with year-over-year revenue growth of 25% and 10%, respectively, offsetting a 12% decline in the Americas, which was primarily due to the spend declines we anticipated from the legacy DSP buyer.

Turning to our owned and operated infrastructure. The number of impressions we processed increased 26% year-over-year through optimization efforts and targeted CapEx investments. The combination of these efforts and AI-driven efficiencies enabled us to manage our cost of revenue growth to 2% year-over-year despite industry-wide utility cost pass-throughs from data center colo providers. On a trailing 12-month basis, our unit cost declined 20% year-over-year.

Today, we efficiently process over 1 trillion impressions per day, which is a significant asset and long-term revenue opportunity for us as we accelerate our strategic transformation. Our platform is becoming smarter, faster and more profitable because of the compounding effects of our multiyear investments in AI and advanced computing, growing pool of premium inventory and 300-plus data partnerships.

We will continue shifting our investment away from predominant capacity expansion towards targeted GPU-centric infrastructure that supports higher value, differentiated offerings like live sports, CTV, mobile app and AgenticOS. We believe this approach will be a durable accelerator to growth over the long term and supports the broader industry shift to performance-based advertising.

We will also continue to harness AI and automation internally across our company. Last quarter, I called out significant productivity gains in engineering, finance and legal. We also extended AI operationally across our customer success organization, which is now achieving double-digit productivity gains performing their function. Cumulatively, these internal efficiency gains are sizable and allow us to reallocate people and investments toward our biggest revenue growth initiatives.

Moving on to operating expenses. Total operating expenses in the first quarter marginally increased 3% as compared to last year and includes the incremental investments in our buyer-focused sales team and broader go-to-market organization. Our productivity gains from AI that I just called out helped fund these investments.

Our total company headcount was down year-over-year as a result of this disciplined operating strategy. Q1 adjusted EBITDA was $2.6 million or 4% margin, which included a foreign exchange headwind of approximately $1 million due to the weakening U.S. dollar over the quarter. Q1 GAAP net loss was $12.5 million or negative $0.27 per diluted share.

Moving to cash and our capital allocation. Our balance sheet remains a core strategic advantage. We generated $17.3 million in net operating cash flows in the first quarter, up 11% over Q1 last year and delivered free cash flow of $10.7 million, a 47% increase over last year. To underscore our long-term ability to generate cash, since the beginning of 2021 through Q1 2026, we have generated over $429 million in net cash from operations and more than $232 million in free cash flow. We ended the quarter with $145 million in cash and 0 debt.

Our capital allocation strategy remains disciplined and balanced, focused on long-term shareholder value creation. We continue to invest in innovation and infrastructure to drive incremental organic growth while maintaining the flexibility to pursue strategic M&A opportunities. We have also made a long-term commitment to return capital to shareholders via our share repurchase program. Since the inception of our repurchase program in February 2023 through the end of Q1, we have bought back 13.5 million Class A common shares for $190 million. We have $85 million remaining in this program authorized through the end of 2026.

Moving on to our outlook. We expect Q2 revenue to be in the range of $68 million to $70 million, which includes continued momentum from high-value formats and channels and expanded use of our AI tools and AgenticOS. In April, our usage-based model continued to perform well with continued growth in monetized impressions. Ad spend across our top 10 ad verticals was also healthy in April. As a reminder, our Q2 outlook includes the impact from the legacy DSP we called out mid-2025 and which we will lap in Q3.

Q2 adjusted EBITDA is expected to be in the range of $8 million to $10 million and assumes a similar FX headwind as Q1. The sequential margin expansion compared to Q1 reflects our revenue scaling on a largely fixed cost base. Beginning in Q3, we expect to return to revenue growth and accelerate through the second half. With this revenue growth, we anticipate margin expansion supported by targeted investments in sales and AI products, expense discipline and continued AI-driven cost efficiencies across all functional areas.

Sequentially, quarterly cost of revenue and operating expenses are anticipated to marginally increase in the low to mid-single-digit percentages. Full year CapEx is projected to be approximately $16 million to $19 million, with the majority of our CapEx to be invested in AI capabilities and advanced computing infrastructure.

In closing, Q1 was a strong start to the year, demonstrating both the durability of our model and the momentum building behind our strategic transformation. Our growing diversification across DSPs, verticals, geographies and high engagement environments reduces concentration risk and positions us to grow from a broader base. As we lap the DSP impact in Q3 and accelerate through the second half, we are well positioned for both revenue and margin expansion. Importantly, AI is not just a product catalyst, it is a financial lever. We are driving new revenue from AI-powered solutions while using AI to expand margins, improve productivity and fund the investments that drive our next phase of growth.

With that, I'll turn the call over to Stacy for questions.

[Operator Instructions] Our first question comes from Matt Swanson at RBC.

Great. I guess just a couple of things. First, Steve, kind of picking up where you left off, the headwind from the DSP last year has obviously made things a little bit murkier to see all the good growth drivers. Can you just remind us in terms of timing in Q3? Is Q3 like completely neutral, so like no more headwind? Or was it at a certain point within the quarter that the headwind really started to pick up? Just first to kind of think about that.

Sure. Good to reconnect, Matt. We'll see the benefit of lapping it not really at the start of the quarter. We saw some of the impact flow in at the beginning of the quarter. But by mid-quarter, we'll be fully lapping the impact.

And then maybe for Rajeev. Once we get through that headwind, you guys will just have to deal with the cyclical secular conversation everybody else still does. So I mean you've got a lot of really fast-growing segments of your business. And then there's also areas that are growing less quickly. Can you just kind of help us think through how these newer emerging technologies ramp? And I guess, how you kind of think about those as they become the larger portion of your business and what the time line would be on that?

Sure. Yes. So thanks, Matt. So I think there's a couple of things that give us good confidence to achieve double-digit rate of growth in the second half of the year. So first of all, let's start with AI, right? I mean there's, as I said in the prepared remarks, there's a huge agentic transformation underway in the industry. I think it will be the, it's the third transformation after RTV and mobile. And I think actually it will be bigger than those two. And so that opportunity for us, which is obviously something we're innovating very hard against, I think making terrific progress.

That for us is a huge TAM expansion opportunity because I see AI as much more than just technical revolution, but actually a value chain revolution where we can connect the buyer and the advertiser much closer together and increase our TAM. And so that's going to cut across every ad format, not just the high-growth formats that we're participating in like CTV, mobile app or Commerce Media.

So even within display and online video, as we reshape the value chain with Agentic execution, there's an opportunity for us to deliver more value across the ecosystem and for us in turn to capture more value. So I'm excited about the AI growth opportunity. And then I'm also excited about the other areas that I mentioned, CTV growth, mobile app growth, which is very strong for the last several quarters, Commerce Media, where I think we're really gaining steam. And then we have our rest of our emerging revenue streams, which, as Steve noted, grew over 80% year-over-year in Q1.

Our next question comes from Barton Crockett at Rosenblatt.

Yes, I was first just wanted to kind of understand in the guide, given the noise around the DSP exit, did you guys tell us like what the growth is ex-DSP in your guide for the second quarter?

No, we didn't share that. But I mean, the trajectory will be similar to what we saw in the first quarter. The reality is, as Rajeev and I have called out, we have a lot of really strong growth drivers and the second quarter is going to be the last full quarter where we're going to be lapping the impact. And so I would expect the midpoint of the guide is in the single-digit range, excluding the DSP impact and the boundary, upper boundary is going to be high single digits. So absolutely underscoring the fundamental growth that we're seeing in our business across the board, which I think is really the important point for investors to understand. It's not just one particular format and channel. It's mobile app, it's CTV, even display showed very strong growth in the first quarter.

Okay. So yes, I was backing in basically to the numbers that you gave. So just as a follow-up, I mean, it does suggest slower than the really robust 18% growth ex-DSP in the first quarter. Is that just conservatism in the guide? Or is there something out there that tougher comp or something else less of a contributor that argues for a bit of a slowdown.

Yes. Just to clarify the data point, it's actually 13% is what was the data point for the first quarter. No, it's absolutely not. I think we're feeling very good about sort of all the momentum that we're seeing in the business. I'd say if you step back, we're not seeing in the macro, but we're being appropriately prudent given sort of the amount of noise out there across the globe in terms of impacts from the war and consumer reticence to buy. But from my perspective, we are very well set up for a solid Q2. And more importantly, the momentum that we have going into the second half. We anticipate returning to reported growth in the third quarter and accelerating to double-digit growth in the second half.

Okay. All right. And then just one final kind of question. When you're talking about the kind of growth in Agentic volume, you talked about 1,000 kind of campaigns, just to kind of reality check, I mean, this is still like an immaterial percentage of your business. Is that correct? And what, give us a sense of the degree of materiality you think we might see in that over the next few quarters?

So I mean the way to think about our overall AI set of initiatives, it's not just one particular vector. We're operating and excelling on a number of different vectors. From an AI-powered impact on our revenues, it's, of course, the Agentic campaigns that Rajeev described, but it's also all the other solutions that help drive our overall emerging revenues. We shared the stat that the emerging revenues grew over 80%. And AI-powered revenues are a big part of that growth. So I fully anticipate that along the spectrum of AI-powered or enabled for publishers to set up campaigns more quickly to troubleshoot to fully Agentic campaigns are going to help drive double-digit revenue growth for us in the second half, amongst all the other strong momentum that we have in mobile app and CTV.

Our next question comes from James Heaney at Jefferies.

Yes. Great. Can you just talk about the momentum that you're seeing within the mid-market DSP segment? Just curious also over time, how big of a driver you think that can be for your business compared to maybe the top five DSPs?

Sure. Yes. Thanks, James, for the question. So we are seeing, I think, really tremendous growth opportunity in that mid-market DSP cohort. And I think it's consistent with where the advertising spend growth is. If we look at the kind of the Fortune 1000 advertisers, many of them large enterprises, their incumbent brands, their ad budgets are pretty stagnant in many cases, as their revenues are quite stagnant.

And instead, what we see is that challenger brands, mid-market, upper mid-market, SMB brands, they're growing at a much faster pace in terms of their core business, and that means then that their advertising budgets are growing much faster. And in particular, we see that in that upper mid-market category. And as a result, there's a lot of fragmentation in the DSP space. So just in the last year, we've added over 50 DSPs. We continue to add more in the first quarter of the year. So we're seeing, I think, really strong growth there. And I think over time, it will change the composition of the market. It will diversify the opportunity base for us. I think AI is only going to enhance that because AI will make it easier for these DSPs to onboard new clients. that are in that mid-market or small advertiser category. It will make the cost of service, the cost of onboarding lower.

So I think we're going to continue to see that. And I don't know that I have a projection or a forecast of what percentage of the overall business it could be. But I would just say that I expect it to be, it already is significant, and I expect it to grow as a share of the total in the coming years.

Great. That's helpful. And then, Steve, one for you. Just as we think about the second half environment that you're assuming, what are kind of your macro assumptions? Like is there an element of conservatism? I mean, I know you haven't given specific guidance, but anything on the macro? And then also how are you sizing up political for Q3 and Q4?

Sure. Let me start out sort of nearing. The results that we saw in April, ad spending was healthy. We saw double-digit growth for a number of ad verticals on a year-over-year basis. And as a reminder to everybody, we have a very well-diversified set of ad verticals, 20-plus. And so strength in one or two or three or four certainly help offset softness in others. And that's really a function of sort of long-term investments we've made in our publisher base. tools, et cetera.

So we've been able to navigate and operate in a number of different macro environments. And so the environment right now is stable, healthy, and we operate in an environment where we, the programmatic world benefits when there is these kinds of stresses because we can show transparency, results, et cetera. So I currently am being, I'd say, cautiously optimistic about the macro for the balance of the year.

Now set against that, just as a reminder, I called out as Rajeev, we have a lot of really significant drivers that are going to help us continue to power our results through the course of the year. Rajeev has described the AI leadership that we have established in market, and that is definitely going to be a tailwind, we just commented on the DSP diversification. Many of the new 50 DSPs that we brought in last year were performance-based. So that obviously is a great place to be in a challenging economic environment, if that's what happens. We continue to see great CTV leadership. We've been investing in secular growth areas in emerging revenues. You can see the tremendous growth that we're seeing there.

And so overall, the way that I think about the second half, we are well poised in a number of different macro environments to continue to grow. We're going to return to growth. And we anticipate, given a stable macro environment, we'll return to double-digit growth. So we're feeling really good about where we are right now as a business.

Our next question comes from Rob Coolbrith from Evercore.

Congratulations on the results. Steve, a couple for you. Just any improvement in the trends of the legacy DSD in the quarter? Obviously, it was well publicized that they had some disruption in terms of the direct connects with some of the agencies. And we've heard that those direct connects may have lost some share of voice within the DSD during the quarter. So I just wanted to ask on that. The vertical commentary and the macro commentary also very helpful. But just wondering, you may broaden that a little bit. Did you see any slowdown in March related to the situation Iran or fuel prices or anything like that and subsequent recovery in April. Just wondering if you can give us a little bit of indication on whether you already saw a slight slowdown now recovery and maybe that gives you a little bit more confidence in the shape of the macro.

Finally, Rajeev, with all the moves you are making around Agentic AI, just wondering if you can maybe discuss the potential opportunity for you to power ads within the on themselves? Are those discussions that you're having? Or is that an area where you see opportunity?

Sure. Rob, so great question. So let me take each one in turn. So with respect to the legacy DSP that we call out mid-2025, part of our outperformance in the Q1 time frame was the results were a little bit better than we anticipated. And so that was a contributing factor, not a huge factor, but definitely a good indicator of the progress that we've made. It's because we continue to optimize our platform to meet the buyers' needs.

And there's a whole host of factors behind that. And I think the takeaway for investors is that it's, we've established a stable business with this DSP after the initial drop back mid-2025. And what I saw in April, similar circumstances, and we're going to lap that in the coming months. And so that will be one headwind that we won't have, and it's going to contribute to our accelerated growth in the second half.

Now second point around the macro, I do want to underscore again sort of our diversified portfolio across the board, shopping, health and fitness, food and drink, copies and interest, arts and entertainment, et cetera. And what we've seen over a very long time frame, 15 years, there will be strength in some and some softness in others, and we really worked hard to make sure that we are not over-indexing in any one area. But in the first quarter, across the board, it was pretty healthy and offset some softness. The softness that we saw in the first quarter that I called out was food and drink was a little bit soft. The softness in business, and from my perspective, that's just normal sort of puts and takes as there's certain pressures across any ecosystem.

In April, we saw strong results in the same categories that we saw in the first quarter. So, April, we saw more than half of our ad verticals grow very nicely. And maybe a little bit of softness in travel, a little bit of softness in arts and entertainment. But by and large, with our diversified portfolios, not really constraining our business.

Now looking ahead, TBD. But again, I would rather be in our situation in programmatic advertising in a business where we are investing in performance advertising, transparency, data, we are tapped into where all the growth is, where advertisers want to invest than any other place because what's going to happen is there's still going to be advertising if there's pressure in the macro, and we're going to, based on history, our space, our company has been a beneficiary of that.

Over to you, Rajeev.

Thanks, Steve. And Rob, just to underscore on the last point Steve was making around performance. I think it's worth highlighting our partnerships that we announced with both Walmart and PayPal. So, these are obviously Commerce Media partnerships, but these are, I think, great counterbalances from a performance advertising growth perspective to any macro uncertainty.

So, with Walmart Connect, we're a preferred partner for their Walmart Connect Select product, and that's a little bit of a mouthful. But really, what we're doing there is marrying their shopper audiences, right? So great first-party data, one of the largest retailers in the world, marrying that with our high-quality inventory, CTV, mobile app, web and giving Walmart advertisers, whether they're enterprise advertisers or small, medium business advertisers, the ability to target those audiences on our platform. And so that's a great opportunity to bring performance dollars and to bring incremental ad spend to our platform.

And then with PayPal, there are about 25 billion transactions, 400 million verified accounts from PayPal and Venmo. And so, we're integrating their transaction graph, their ID graph as well as data into our platform and again, bringing performance advertising solutions to the market. So again, these are, I think, just great opportunities as we scale these for the second half of the year to counteract any potential macro from the broader environment.

Now turning to your question around OpenAI and LLMs. I think we all probably saw their $100 billion ambition around advertising. And I think for me, what that indicates is that they're going to have to work with a wide variety of partners across the ecosystem. They're going to have to tap into enterprise advertisers, small and medium business advertisers going to have to tap into brand advertising and performance advertising. They're going to have to tap into display as well as richer video formats.

So, it's going to be an ecosystem-wide effort, I think, for them to get to that level. And I think we do have an opportunity to partner with companies like that in order to bring the value of our business relationships, our infrastructure, our data, our end buyer relationships, all to a party like that. We've been working with much smaller companies in the space like Context and Tapier, we're already innovating on the ad formats and appropriate signals to monetize that kind of inventory, and I think that puts us in a good position.

Our next question comes from Eric Martinuzzi at Lake Street. Eric, I'll put you back in the queue. We cannot hear you unless you're on mute.

Can you hear me?

Yes, there you go.

Sorry about that. Yes. So I was curious, maybe I missed it. Did you give a net dollar-based retention number for Q1, Steve?

Yes. I mean it was basically flattish, very similar to our overall reported number and reflects sort of the impact from the legacy DSP, and I fully anticipate that to return to positive going into the second half of the year.

Okay. So when you say flattish, it was sequentially up versus Q4. Just I think Q4 was 96%.

Yes, a little bit better, yes.

Okay. And then the expectation, historically, you guys have been in that kind of definitely above 100%. Is that expectation is once we anniversary the large DSP that's what happens?

Absolutely. I mean really important to underscore this for everybody on the call. We have made tremendous progress across a number of fronts, focused on secular growth areas and managing through the DSP impact. And so going into the third quarter, we're going to return to year-over-year revenue growth. We're going to see revenues accelerate to double-digit rates based upon the multitude of initiatives that we've called out and continue to see really great adoption and long-term trajectory ahead of us.

Okay. And then you had a high-level leadership turnover. That was part of the reason for the prelim results. Just wondering if you can give us an update there, specifically with regard to the sort of single Uber CRO. Any update for us?

Sure. Yes, I can take that. So we have two tremendous leaders that have been here for 15 years in one case and 13 years in another that are leaving for personal reasons. Pauline, our Chief Growth Officer, has made the difficult decision to leave due to health reasons and Kyle Dozeman, our Americas CRO, is leading to pursue an entrepreneurship opportunity, which has long been a personal ambition of his. Both are still in their roles for a transition period. We've engaged Heidrick & Struggles to work with us on a global CRO search.

So I think there's an opportunity to consolidate some of our revenue-generating functions under a global CRO for improved execution consistency and structure. At the same time, we've got a deep leadership bench and full confidence in the rest of the team. So that search is moving at pace, and we're seeing a lot of great quality candidates. I think where we're positioned in terms of the business model, in terms of profitability and cash generation, the diverse portfolio of growth drivers as well as, of course, our AI leadership is a very attractive combination. So I'm looking forward to getting the right person in place in the next couple of months.

Our next question comes from Justin Patterson at KeyBanc.

I was hoping you could expand a little bit more on just what you think the business looks like over time as AgenticOS scales and more AI is running through. Should we think of any kind of changes in the market structure and then just the type of client needs you can serve?

Yes, sure. Why don't I start with that, and then, Steve, feel free to chime in, of course. So I think there's an opportunity to really simplify the complexity that exists in the ecosystem today. Today, obviously, we have kind of siloed ecosystem, advertiser agency, DSP, SSP, publisher, consumer, and then there's other parties like verification and data management, et cetera. And really, what our focus is on, and I think it's quite different than what others are doing as it relates to AI, but our focus is on applying AI across the full value chain of the ecosystem.

And I think this is a really important distinction. In my opinion, the true value of AI can only be achieved when it's not operating within a silo, AI operating within an SSP that connects with AI operating within a DSP, but instead when AI is running end-to-end. When the data is available end-to-end, we see much better outcomes. AI agents running agentically, they're going to do their best work, which is both increasing the effectiveness of advertising as well as increasing the efficiency when they're all able to operate much more broadly and much more autonomously against the customers' objectives.

And so, with that in mind, it really opens up a lot more of the addressable market opportunity to us where, for instance, when a customer is using Activate, which is direct buying in our SSP and then accessing that agentically with AgenticOS, and we shared over 30 campaigns that are live. Then the customers are seeing tremendous working media efficiencies. So more of their dollars are going to purchasing media.

You're seeing 30% to 40% improvements in CPMs, 40% more media being able to be bought. And importantly, we actually see increases in revenue because we're delivering more ROI, and we're delivering more value across the ecosystem. And so, it's an absolute revenue growth opportunity for us.

I think the other key point is that I see AI as an opportunity to really level the playing field between walled gardens and the open internet. So the when advertisers buying directly in our SSP, it's a single layer of technology, and it looks a lot like what the walled gardens leverage to drive ad performance, right, when you think about a Meta or a Google or some of those large platforms. And so now the strong advertiser ROI that historically the walled gardens have been at an advantage at, we're now seeing that ability to achieve that for advertisers.

And then lastly, I think what we're also very quickly confronting is that user interfaces are becoming obsolete. So, AI agents obviously have no use for them. I think humans operating with AI also have decreasing utility from a UI, which I think all of a sudden feels both very constrictive and taxing at the same time.

We published case studies where clients that are using AgenticOS are seeing 80% to 90% time savings for a campaign setup when using AI. So that's obviously a tremendous value add, and I think we'll have a huge opportunity, is a big opportunity within both agencies and advertisers. So let me stop there and turn it over to Steve.

Sure. Thanks, Rajeev. From our perspective, this is just an ideal opportunity and moment in time for our company because many of the things that we've been focused on over a decade plus, developing, owning and operating our own infrastructure, being a first mover in leveraging AI capabilities through engineering now to drive revenues. We've really positioned ourselves to take advantage of the revenue opportunity, but also there's going to be a significant margin opportunity because of the way that we leverage our fixed cost base.

And so we're going to be able to continue to manage our costs on a unit basis, but incrementally add these new revenue streams. Many of them are net new to us as a business. So we are very positive about the impact on this generational trend, as Rajeev has described it.

We're a company that we've been building for years, and this is this time that we're going to be able to really take advantage of that for all the reasons that we've cited. So we continue to put incremental resources in the right areas behind secular growth areas into advanced infrastructure and our focus on expense discipline, our focus on productivity will help us drive margins as the revenues come emerge from this opportunity.

Our next question comes from Ken Wu at Wolfe.

Rajeev, can you provide an update on your view of Google's antitrust trial and the potential impact?

Sure. Yes. Thank you, Ken, for the question. So we, of course, alongside, I think, everybody else in the ecosystem are eagerly awaiting the verdict in terms of the remedies to come down. I think some folks had anticipated that would have already been released. So we're expecting to see it any day or any week now.

Obviously, we're waiting to see the extent of structural remedies as well as behavioral remedies. Our view is that the behavioral remedies can be implemented quite quickly. It's pretty clear and pretty straightforward. And so we see the potential for opportunity pretty imminently post that verdict, again, subject to what exactly that verdict is.

And just as a reminder, we estimate that Google is a 60% market share player and each 1% market share could add $50 million to $75 million in revenue to our business with very high margins around 8-ish percent. And we think there's an opportunity to more than double our share of the market, currently 4%, again, depending subject a little bit to what the, exactly the verdict looks like. So big opportunity, massive opportunity really, and we're waiting for that verdict at any point now.

We have time for one more question. Brianna Diaz of Citizens.

Rajeev, on AgenticOS, it launched a couple of months ago now, and you've already seen thousands of deals. I guess what surprised you the most positively or negatively about how customers are actually using AgenticOS? And how is that real-world feedback shaping where you take the product from here? And then just also on AgenticOS, mentioned last quarter that you're still figuring out pricing. Are there any updates to that as to pricing structure or anything that you can share for those deals that are active today?

Sure. Yes. Thank you, Brianna. So in terms of what's surprising, maybe I'll call out a couple of things. I think there's an ecosystem-wide expectation that the use of AI can lead to efficiency, less kind of manual time, less trader time to set up campaigns, less time reviewing reports, things like that. And clearly, we're seeing that, and I spoke to some of the metrics earlier about that.

But I think what's been a really positive surprise is what we're seeing in terms of the effectiveness of advertising, which is that we've been able to show that with AI, we're able to optimize things much faster than what humans can do. Of course, humans have some built-in, let's say, biases or preconceived notions that a machine does not have. And so I've been really pleasantly surprised that we're seeing this dual benefit of both efficiency as well as effectiveness of advertising increasing.

And I think that's a really powerful opportunity for us. And so we are investing behind that significantly in terms of, as Steve mentioned earlier, using AI internally at PubMatic to create efficiencies. So teams are able to take on more work. And so we're taking some of that upside opportunity and reinvesting that back into sales, back into our GTM and back into product innovation. And that I think is going to be also a key driver of our double-digit growth in the second half of the year.

Maybe the last quick surprise, Brianna, is we're seeing independent agencies really move quickly around AI. The holdcos are focused on it, but they have much bigger teams, much bigger systems, platforms, customer relationships. And so they tend to move a little bit more slowly, although there's definitely, I think every holdco is focused on this opportunity, but really the speed with which we're seeing independent agencies is pretty fantastic. Let me turn it over to Steve to see if he's got any comments on the pricing.

Sure. Just two brief comments. One, we anticipate the benefit of sort of our Activate product, which is our buying interface on our platform, which is revenue share based to be sort of that interface with the Agentic buying software. So very much consistent with our overall revenue share approach.

We are also looking at subscription models in certain cases for our AI-powered tools. And then finally, with respect to sort of the overall benefit to our business, just as a reminder, when an Agentic buyer comes in, utilizes Activate, the whole, I'll use the $1 as an example, the whole dollar that gets bought stays within our ecosystem, meaning it accrues to our publishers as opposed to if that dollar had gone to a DSP, we would get our relevant share of that DSP, whatever share of that wallet is

So we get both incremental benefit from the revenue share via Activate plus all of the revenue share that we normally charge for our supply side platform. So obviously, significant incremental upside for us.

Thanks, Steve. We are out of time. So I'm going to turn the call back over to Rajeev for a few closing remarks.

Thank you, Stacy. We delivered a strong Q1 with momentum continuing into the second quarter. Further, we expect to return to double-digit revenue growth in the second half of this year, along with corresponding margin expansion. Agentic advertising is transforming the industry. It's creating automation and workflow efficiencies that no longer require a software interface and will materially change the value chain of our industry.

We are scaling Agentic faster than our peers, and each additional transaction compounds our data advantage and drives superior performance. I'm looking forward to seeing many of you at upcoming conferences, including the Needham Technology, Media & Consumer Conference in New York, the Jefferies Software, Internet, and AI Conference in Newport Coast, Evercore's TMT Global Conference in San Francisco and Rosenblatt Age of AI Technology Virtual Summit. Thank you, everyone, for joining us today, and have a great rest of your afternoon.

Hello, everyone, and welcome to PubMatic's Fourth Quarter and Full-Year 2025 Earnings Call. My name is Rees, and I will be your Zoom operator today. Thank you for your attendance today. And as a reminder, this webinar is being recorded.

I will now turn the call over to Stacie Clements.

Good afternoon, everyone, and welcome to PubMatic's Earnings Call for the Fourth Quarter and Full-Year 2025. This is Stacie Clements, and I'll be your operator today.

Joining me on the call are Rajeev Goel, Co-Founder and CEO; and Steve Pantelick, CFO.

Before we get started, I have a few housekeeping items. Today's prepared remarks have been recorded, after which Rajeev and Steve will host live Q&A. [Operator Instructions] A copy of our press release can be found on our website at investors.pubmatic.com.

I would like to remind participants that during this call, management will make forward-looking statements, including, without limitation, statements regarding our future performance, market opportunity, growth strategy and financial outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and future conditions. These forward-looking statements are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. You can find more information about these risks, uncertainties and other factors in our forms filed from time to time with the Securities and Exchange Commission and are available at investors.pubmatic.com, including our most recent Form 10-K and any subsequent filings on Forms 10-Q or 8-K.

Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. All information discussed today is as of February 26, 2026, and we do not intend and undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

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

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

Thank you, Stacie, and welcome, everyone.

We delivered an exceptionally strong fourth quarter, with revenue and adjusted EBITDA ahead of guidance, healthy margins and strong cash flow. Our results highlight continued growth in our underlying business, our leadership position in AI solutions and the durability of our business model.

For the full year, CTV grew over 50% year-over-year, excluding political, and Activate activity grew over 3x. Emerging revenues, which include Activate, commerce media and new AI solutions, nearly doubled over 2024 and now represent nearly 10% of total revenues. Over the past year, we made decisive moves to reposition PubMatic for renewed profitable growth. Those actions are bearing fruit and have directly contributed to our performance over the last 2 quarters. They have strengthened our competitive moat and have positioned us to deliver accelerated double-digit percentage growth for the second half of 2026.

These moves represent the first critical steps of our 5-year road map designed to reaccelerate growth, expand margins and compound long-term shareholder value. This road map marks an important turning point for PubMatic and coincides with the pivotal transformation in the industry driven by AI. In fact, AI in the form of agentic advertising, has emerged as a new and incremental tailwind to our business.

Advertising is entering a new phase, one defined by AI-driven autonomous systems operating in real time. We sit at the center of a highly competitive, millisecond-level auction environment where value is determined by measurable outcomes such as yield, performance and efficiency. PubMatic is enabling AI adoption across the open Internet. Our proprietary data, scaled infrastructure and thousands of deep integrations across buyers and publishers form a real-time execution layer that cannot be replicated by vibe-coded software.

Our leadership in agentic advertising gives us confidence we can shape this next evolution of digital advertising, and we are investing and executing aggressively to capture that opportunity. In October, we co-founded the Ad Context Protocol alongside Yahoo, LG Ad Solutions, Raptive and others, setting industry standards for safe and interoperable agent-to-agent interaction.

In December, we partnered with Butler/Till and Geloso Beverage Group to launch the industry's first fully autonomous, end-to-end agentic campaign, proving that PubMatic's agents can execute media plans and optimize outcomes on behalf of advertisers. The campaign delivered more than 5x cost efficiencies, enabling significantly more advertiser spend to shift directly into working media.

Following this success, the agency quickly launched a second campaign. In addition to delivering top-tier agentic performance, our AI-powered platform handles more complexity with significantly less manual effort. We are cutting campaign setup time by 87% and speeding up issue resolution time by 70%. This means faster activations, higher productivity and better outcomes for our customers.

In January, agent-to-agent transactions became a scalable reality. At the Consumer Electronics Show, we unveiled AgenticOS alongside our launch partners including WPP Media, Foxtel Media, and multiple independent agencies and tech partners. As Skyler McGill, Head of Video and Programmatic at independent agency Wpromote put it, "We're witnessing the biggest transformation in programmatic since real-time bidding. Our work with PubMatic puts us at the forefront of defining how human strategy and autonomous systems converge to unlock new capabilities in personalization and scale."

Now, building on this momentum, we recently delivered one of the industry's first agentic CTV advertising campaigns with Abovo Maxlead in Europe, integrating directly with the largest independent media agency in the Netherlands. Adoption of AgenticOS continues to be swift. We have already run over 250 agentic deals across our platform, many of which represent new and incremental advertisers to PubMatic. Our Agentic AI Accelerator Program enables customers and partners to launch live agentic campaigns within weeks and quickly scale usage.

Remarkably, almost 100 brands, agencies and streamers have applied to join, making it the fastest early-stage adoption of any product we've launched. This strong uptake underscores 2 important and distinctive points. First is the magnitude of the secular growth opportunity as digital advertising adopts agentic AI. By 2028, I expect 25% of all digital advertising to be executed autonomously via agentic AI. And by 2030, I expect that to jump to 50%.

As an early AI leader, this unlocks transformative growth for PubMatic long before our peers. With our scale already building in agentic AI, this leading advantage is widening, with each transaction enhancing our model's ability to drive improved performance, fueling long-term revenue growth and incremental margin expansion.

And second, the opportunity is much bigger than simply technology revolution. Agentic AI will upend and collapse the industry's value chain, bringing advertisers and publishers much closer together. This will create a step-function change in advertising efficiency and effectiveness, which will significantly expand the open Internet advertising market in aggregate with new advertisers and increased budgets.

In short, AI is an incremental tailwind for PubMatic, and we are uniquely positioned to take advantage of this opportunity with nearly 2,000 premium publisher integrations representing over 100,000 sites and apps, 250-plus data partners on Connect, our direct buying platform, Activate and our fully owned AI-enabled infrastructure.

While the past 20 years were about real-time bidding, the next decade will be about AI-led intelligence that connects the entire customer journey. The depth of our publisher inventory, combined with our tech stack, gives PubMatic a clear competitive advantage in this transition. We own our own infrastructure, sit at the intersection of media and the consumer and innovate rapidly without dependence on third parties. These strengths power our 3-layer architecture of advertising intelligence.

At the infrastructure layer, our NVIDIA partnership enables next-gen AI models to run in our private cloud, with hardware and software solutions optimized for digital advertising. Owning our infrastructure also means that as compute requirements grow, our efficiency and margins expand with scale. At the application layer, AI is embedded into core workflows and publisher solutions that unlock new revenue opportunities.

Nearly 10% of publishers on our platform are now deriving revenue from our AI solutions and generating incremental revenue for PubMatic. And at the transaction layer, Activate and AgenticOS are transforming how advertisers and publishers connect, delivering higher performance and efficiency. Together, these layers form a flywheel for growth. Each innovation drives usage and strengthens our long-term competitive moat. They also allow us to innovate around growing opportunities within open Internet advertising. We recently partnered with Kontext, a monetization layer for generative AI content experiences.

Our integration enables publishers to monetize conversational AI experiences programmatically, while maintaining control over their content, data and user experience. Our direct integrations and AI-first infrastructure position us well to support and scale as these and other emerging ad formats evolve. Even as agentic advertising accelerates, we remain sharply focused on the 5 strategic priorities we set mid last year. These priorities are fueling underlying growth across our platform and will underpin double-digit revenue expansion in the second half of 2026.

First, we continued to diversify our buyer mix, integrating with 50 new DSP partners last year. The mid-market advertisers represented by these DSPs are the fastest-growing segment of the market as demand for performance-oriented solutions accelerates. This growth is reflected by the strength of the open Internet, which offers professionally created content and a growing logged-in user base across CTV and mobile app. This logged-in scale is critical for measurement, conversion and ROI, making the open Internet increasingly compelling for performance advertisers.

Second, we grew our buyer-focused go-to-market team by nearly 20% year-over-year and strengthened that team with new leadership to support deeper market penetration and account expansion. These investments are translating into stronger direct relationships with brands and agencies, with Activate consistently delivering top-tier performance that drives repeat spend and broader adoption. For example, in an IPG Kinesso-led campaign, Activate outperformed on every key metric, generating 72% more clicks, 11% more impressions purchased and nearly 20% lower CPMs for a leading global oil company, upending their traditional approach to programmatic buying.

Similarly, MiQ, a global programmatic partner, significantly boosted brand visibility. Using Activate, MiQ powered a CTV campaign that required transparent, show-level reporting, capabilities unavailable in its legacy buying platform. These outcomes demonstrate how Activate collapses the value chain in the open Internet, improving efficiency and ROI. What's more, with AgenticOS, Activate will increasingly serve as a gateway to AI-enabled advertising for a broad range of advertisers.

Third, CTV remains one of our most exciting growth channels. We recently added a new marquee global streamer to our platform and now partner with 28 of the top 30 global streamers, including Roku, Samsung TV Plus, DirecTV, Fox Sports, Tubi, Vizio and more. This leadership continues to attract top global brands to our platform.

Sony Network Communications recently chose PubMatic to seamlessly reach both linear and CTV audiences programmatically via our platform. The campaign highlights how PubMatic helps brands unlock new incremental customers while driving stronger monetization for CTV publishers. Longer term, this campaign illustrates how PubMatic's programmatic solutions can drive execution across linear formats.

Similarly, our mobile app business continued to scale with major mediation solutions. Most recently, we announced that PubMatic's OpenWrap SDK is now integrated with one of the largest global mobile ad networks, Google AdMob and Google Ad Manager for mobile app. This integration gives buyers a direct connection to high-quality, brand-safe inventory. As we enter 2026, mobile remains a strong secular growth area for us, with more partnership announcements in the near future.

Fourth, emerging revenues will continue to be a significant growth driver in 2026 as adoption increases across several new products, in particular, new AI-powered solutions. Strategically, these solutions strengthen our revenue model in 2 ways. They increase platform usage as automation drives more transactions and higher performance, and they introduce incremental revenue streams. For example, earlier this month, we announced AI Insights, which gives publishers actionable sales intelligence so they can maximize yield.

Using these insights, leading CTV and online video publishers are unlocking 20%-plus higher CPMs. Realtor.com's Senior Vice President of Digital Media and Advertising, Yi-Fang Yen, explained that PubMatic's AI Insights deliver the timely market-level visibility we need to spot performance opportunities, understand shifts in demand and make confident real-time optimizations as conditions change.

And finally, just as we are using AI to drive increased customer performance, we're also using AI to drive our own operational excellence. AI has become a core productivity engine across PubMatic, embedding into processes and work streams across the business. In engineering, over 40% of new code in the second half of 2025 was written by AI, boosting productivity and accelerating time to market. These efficiencies funded new investments in sales and marketing while slightly reducing overall headcount. We'll continue to drive increased productivity in 2026 through AI adoption, which in turn will fund investments for profitable growth.

I'm proud of the progress we've made and the discipline with which we built a more durable, scalable growth model. As we enter 2026, we remain focused on our key strategic priorities: Activate adoption, DSP diversification and accelerating growth in CTV, mobile and emerging revenue streams. We expect these initiatives to drive double-digit year-over-year revenue growth in the second half of the year.

Looking ahead, agentic AI is an incremental tailwind and a defining advantage for PubMatic. It enhances advertiser performance, expands our addressable market and increases the flow of budgets to the open Internet. With adoption accelerating faster than anticipated, PubMatic is leading the next wave of innovation, helping our customers drive better outcomes through more automated, intelligent and transparent advertising. We have the strategy, technology and team in place to capture the opportunities ahead and to create lasting value for our shareholders.

I will now turn the call over to Steve.

Thank you, Rajeev, and welcome, everyone.

Q4 was a pivotal turning point for us, as we significantly exceeded expectations on both revenue and adjusted EBITDA. Adjusting for political revenues and revenues derived from the legacy DSP referenced mid last year, the remainder of our business, which represented 83% of revenue in Q4, grew 18% year-over-year. This strong double-digit growth was driven from secular growth areas: CTV, mobile app and emerging revenues as well as solid performance in display. These results materially expanded our Q4 adjusted EBITDA margin to 35%, underscoring the efficiency and operating leverage of our business as incremental revenue dropped to profit.

Our strong Q4 capped a year in which we established ourselves as an AI leader among our peers, successfully realigned our business to address dynamic changes in our industry and positioned the company for sustained profitable growth. Here are some of the notable achievements we delivered in 2025. We generated revenue and increased usage on our platform from newly launched AI solutions. These existing products, along with new products being launched in the coming months, provide an incremental tailwind for us in 2026.

We ended the year with nearly 50% of our revenues coming from high-engagement, first-party data-rich environments of CTV, mobile app and emerging revenues. We added 50 new DSP partnerships and reshaped the mix of our largest DSPs towards fast-growing commerce and high value-add verticals like pharma. We increased productivity through the effective use of AI across every business function, enabling us to increase investment in revenue growth initiatives while reducing overall headcount.

We accelerated our free cash flow by 32% compared to 2024. And we've made significant progress executing on our multi-year innovation road map, investing in key growth areas with operational discipline, supported by a strong financial profile. I'm incredibly proud of what the team has accomplished and the momentum we're carrying into 2026. Our multi-year journey transforming our business focused on high-value, high engagement and data-driven revenue streams is on track.

Beginning with CTV, our 2025 results represented the fourth year in a row of significant organic revenue growth. Over this period, CTV's compound annual growth rate has been over 50%. We now monetize inventory from 28 of the top 30 global streamers and over 450 CTV publishers. It is a global business with approximately 60% of our customers in the Americas and 40% in the rest of the world.

In Q4, we saw robust incremental monetized impression growth from both newly signed partnerships and existing publishers. The 4-year compound annual growth rate for our mobile app business has been 15% and in Q4, delivered over 25% year-over-year revenue growth. This performance reflects the ramp-up of strategic partnerships, ongoing product innovation and continued expansion of our global app publisher base.

Emerging revenue streams in the fourth quarter grew over 75% year-over-year and represented roughly 12% of total revenues, driven by increased adoption across several new products. Just 3 years ago, emerging revenues represented less than 1% of revenues, demonstrating our ability to scale innovation and diversify our revenue base into high-value profitable areas. We've achieved double-digit percentage growth across our curation, data, commerce and Activate offerings.

Notably, our new AI-powered solutions are already starting to scale. In just a few months, nearly 10% of publishers on our platform are now deriving revenue from our AI solutions and generating incremental revenue for PubMatic. We anticipate our AI solutions will provide an incremental and growing tailwind for us in 2026 and beyond. Display revenues in the fourth quarter returned to year-over-year growth in the mid-single-digit percentages. Excluding the legacy DSP referenced earlier, display revenues grew over 20% in the fourth quarter, significantly outpacing the market rate of growth.

Turning to ad spend. We benefit from a diversified portfolio of ad verticals. In Q4, we saw strong year-over-year double-digit percentage growth in the shopping, health and fitness and technology and computing verticals. We saw some softness in the business and food and drink verticals, which declined year-over-year in the single-digit percentages. Overall, our top 10 ad verticals in aggregate grew nearly 10%.

As Rajeev shared, we continue to expand our business beyond the largest legacy DSPs, focusing on both product innovation and targeted sales execution. These efforts gained momentum in Q4, with ad spend from our mid-market DSP partners up 30% year-over-year, accelerating from 25% growth in Q3. With the addition of 50 new DSP partners to our platform, we are well positioned to further diversify our buyer mix.

Regionally, our APAC and EMEA businesses grew rapidly at over 25% and 15%, respectively, offsetting a minus 18% decline in the Americas, which was primarily due to spend declines from political advertising and a large DSP buyer. Throughout 2025, disciplined cost management and AI-enabled automation supported both growth and profitability. We significantly expanded infrastructure capacity, processing 337 trillion impressions, up 28% over 2024, while keeping cost of revenues relatively flat.

On a trailing 12-month basis, unit costs declined 20% year-over-year, demonstrating the efficiency and scalability of our own infrastructure and the leveraged model that we built. We also harness AI and automation across our back-office functions to drive measurable and sustainable efficiency gains. For example, in legal, the application of AI-enabled contracting tools has reduced average contract cycle times by roughly 15%, while also supporting a higher overall contract volume.

In accounting, we achieved over 35% efficiency gains in our procure-to-pay process, enhancing speed and control in our financial operations. In FP&A, we've significantly reduced manual data aggregation efforts by nearly 1/3 while maintaining analytical rigor via AI-assisted data processing and reporting. Collectively, these initiatives showcase how AI-driven automation is unlocking real productivity, cost efficiency and operational leverage across PubMatic.

Illustrating this point, in the fourth quarter, total operating expenses were flat year-over-year. At the same time, we increased investments in revenue-driving initiatives, most notably our buyer-focused sales team, which increased by nearly 20% year-over-year. Q4 adjusted EBITDA was $27.8 million or 35% margin, which included a foreign exchange impact of approximately $0.5 million due to the weakening U.S. dollar over the quarter. Q4 GAAP net income was $6.7 million, or $0.14 per diluted share.

Moving to cash and our capital allocation. Our balance sheet remains a core strategic advantage. We generated $81 million in net operating cash flows in 2025, up 10% over 2024. We delivered free cash flow of $46 million, a 32% increase over last year. In addition to our disciplined approach in managing our working capital, cash flow benefited from lower cash taxes following the new federal tax legislation.

To underscore our long-term ability to generate cash, since the beginning of 2021 through Q4, we have generated over $410 million in net cash from operations and more than $220 million in free cash flow. We ended the quarter with $145.5 million in cash and 0 debt. Our capital allocation strategy remains disciplined and balanced, focused on long-term shareholder value creation. We continue to invest in innovation and infrastructure to drive incremental organic growth, while maintaining the flexibility to pursue strategic M&A opportunities.

We've also made a long-term commitment to return capital to shareholders via our share repurchase program. Since the inception of our repurchase program in February 2023 through the end of Q4, we have bought back 12.4 million Class A common shares for $181.1 million. We have $93.9 million remaining in our repurchase program authorized through the end of 2026.

Moving on to our outlook. In terms of the latest trends, our January revenues came in line with our expectations and ad spending was healthy. Factoring in the changes from the legacy DSP we called out mid-2025, we expect Q1 revenue to be in the range of $58 million to $60 million. Spend from this DSP continues to be stable and in line with normal seasonal patterns. We expect to lap this impact by the end of Q2. Excluding this DSP, the midpoint of our outlook implies year-over-year growth in the high single-digit percentages.

Q1 adjusted EBITDA is expected to be in the range of minus $0.5 million to positive $1 million, which includes a negative foreign exchange impact due to the continued weakness of the U.S. dollar. As a reminder, we have a fixed cost model and margin scale as we gain leverage over the course of the year. Looking beyond Q1, we expect to return to double-digit revenue growth in the second half of this year, with a corresponding expansion of our margins from revenue growth, supported by disciplined investment and increased efficiencies from AI.

Full year cost of revenue is expected to marginally increase in the low single digits, primarily due to industry-wide utility cost pass-throughs from data center providers beginning in Q1. We anticipate partially offsetting these costs by continued efficiency efforts already underway. Full-year operating expenses are expected to grow in the mid-single-digit percentages and include the cost to pursue our litigation against Google.

Sequentially, quarterly operating expenses are anticipated to marginally increase in the low single-digit percentages. We will continue to invest in high-return AI revenue initiatives, while pursuing cost savings unlocked by AI productivity efforts across all functional areas. Full-year CapEx is projected to be approximately $15 million to $19 million and reflects a shift away from investments for increased ad impression capacity and instead towards expanding support for AI workloads where we're seeing strong performance gains and revenue from our AI solutions.

In closing, Q4 represented an important structural inflection point for PubMatic. As our secular growth engines in CTV, mobile app and emerging revenue scale, our model generates operating leverage. In Q4, we delivered 35% adjusted EBITDA margins and strong free cash flow, reinforcing the durability of our own infrastructure and fixed cost base.

As we move through 2026, 3 dynamics give us confidence. First, revenue growth is broadening. We are increasingly diversified across DSPs, verticals, geographies and high-engagement environments, which reduces concentration and strengthens the resilience of our model. Second, AI is not just a product catalyst, it is a financial lever. We are simultaneously driving incremental revenue from AI-powered solutions while using AI to expand margins, improve productivity and fund growth investments. Few companies in our space are capturing both sides of that equation.

Third, our balance sheet remains a strategic advantage. With approximately $146 million in cash and no debt, strong operating cash generation and nearly $94 million remaining under repurchase authorization, we have the flexibility to invest, return capital and pursue strategic opportunities, all while maintaining financial discipline.

Importantly, we expect to return to double-digit revenue growth in the second half of this year, with corresponding margin expansion driven by revenue scale and AI-enabled efficiencies. We enter 2026 with a stronger revenue mix, a more efficient cost structure and a scalable AI-enabled platform. That combination positions us to expand margins, grow cash flow and create durable long-term shareholder value.

With that, I'll turn the call over to Stacie for questions.

[Operator Instructions] Our first question comes from Shweta Khajuria at Wolfe.

Could you please maybe speak to how you work with Amazon, what role Amazon plays with your partnership and in the industry as it relates to their involvement in the ad tech chain? Maybe that's not very well understood as we think about the supply side of it all.

Sure. Yes. So, we work with Amazon in multiple ways, and that partnership is growing and expanding as, of course, their ad business is growing. So first of all, we're 1 of 3 SSPs in their Certified Supply Exchange program, which was publicly announced, I think, over a year ago. And the goal of that program is to foster collaboration amongst our go-to-market teams for mutual growth in addition to from a product and technology perspective. And that program has grown well. It exceeded the targets that we laid out in 2025, and we're excited about the growth opportunity for that in 2026.

On the sell side, we monetize streaming inventory through our partnership with Amazon Publisher Services or APS as well as Fire TV devices from almost a dozen different streaming apps. So, these are CTV streamers that have apps for Amazon's Fire TV devices. We've been monetizing this inventory for multiple quarters now, a couple of years, and we do that by delivering unique PubMatic ad demand to our shared streaming publishers while also expanding the streaming inventory that's available to buyers on our platform.

We also monetize omnichannel inventory, so non-streaming inventory, mobile web, display, et cetera, through the wrapper, Amazon's wrapper, Transparent Ad Marketplace. Now this DSP -- from a DSP perspective, they've been scaling and they're a top 5 buyer on PubMatic. So, we've collaborated with them on multiple different product releases, including traffic shaping in order to drive greater efficiency. We've got a number of growth opportunities in the pipeline with them for 2026, and I anticipate sharing more about our relationship with them in the future.

Next question comes from Matt Condon, Citizens.

Just one for me. But Rajeev, as you take a step back and you look at this new AI world that we live in, it seems like ad platforms really need to differentiate on either data asset or access to unique inventory. As you think about PubMatic, just what are the structural assets that PubMatic has that really differentiates it from other platforms?

Yes. Thanks, Matt. So, I mean, first of all, I'd just say the interest and energy around agentic has been amazing to witness. I think we're seeing a wholesale revolution in how media is planned, transacted and optimized. And while it's early, we're well ahead of the curve on this. And just to kind of give a sense of where we see the opportunity, I think the last 10 to 15 years of the industry have really been about real-time bidding, right? So, optimizing that individual impression in real time. But if we step back a little bit, we look at what's happening upstream and what's happening downstream, there's a lot of manual effort happening, discovery of inventory, planning, media plan, what inventory, what data, which users to go after pricing and then downstream of the actual RTB transaction. There's a lot of work to be done in measurement and optimization.

So, now with the introduction of generative AI, we're in a position to automate all of those pieces and create a lot of value for the ecosystem in the process, right? And I think this is just kind of super obvious where we can leverage AI and allow humans to do more value-added work, more creative work and make advertising not only more effective, but also to make it a lot more efficient, which should grow the overall market opportunity as well as grow our addressable market.

So, on your question about what's unique about how we're positioned, I think we are uniquely positioned to win in this arena for a few reasons. So, first is that we have a significant advantage with respect to deep customer integrations. So, you heard me talk about on the call, several thousand publishers representing over 100,000 sites and apps. So, we have code on those websites, in those apps, et cetera. That's a huge network effect where a buyer can effectively access the entire open Internet ecosystem on our platform. And that advantage only sits on the sell-side because of the yield optimization that we provide to publishers.

Second, with Activate, buyers can now buy directly in our SSP, which really simplifies the end-to-end workflow and agentic communication. And this is, I think, really critical because we are not in a position where we have to wait for standards to emerge so that sell-side tech and buy-side tech can communicate in a standardized protocol because we have Activate, which is direct buying in our SSP, we're free to innovate beyond any standards and so we can move a lot more quickly.

Third is that we've launched AgenticOS to provide Model Context Protocol or MCP-enabled access to all of the core use cases on our platform and in the ecosystem. And we think we're well ahead of where the market is with AgenticOS. And then fourth, we have purpose-built AI infrastructure. So, we have owned and operated infrastructure, which we've partnered with NVIDIA on, and that enables us to run next-gen AI models in a customized hardware and software stack.

And then finally, we have not only the data from our publisher base, but also 250 data partners in our Connect data platform, providing first -- very rich first-party data and commerce data and the like. So, when you put all of that together, that's why we're in the position we're in where we've gone from the first campaign in December to over 250 agentic campaigns being run in a very short period of time.

I also want to just close by saying this is not something that can be vibe-coded by 3 guys with an LLM subscription, right? Even if you could recreate the application software overnight, vibe-coded software is not going to be tuned for high volume of transactions for high concurrency, for low latency, for efficient memory consumption, efficient storage. You need customized infrastructure for these advertising workloads, which has been built on $100 million plus of CapEx. You need integrations with thousands of publishers and buyers around the world. You need commercial contracts in place, payment flows. So, we think we're in a really strong position to lead this revolution, which is much more than just technology. It's really something that's going to upend the entire value chain of the ecosystem.

Question comes from Barton Crockett at Rosenblatt.

I was curious, Rajeev, when you gave your outlook about '28 and 2030, I think 25%, 50% volume being agentic. Is that -- when you say volume agentic, do you envision this working like with Butler/Till where it would be entered through an LLM like Claude straight to you guys and in that way, maybe streamlining the industry a bit, lowering fees and perhaps losing a DSP in the process?

Yes. So, I think it could happen in a variety of different ways, Barton. And to be clear, we're quite early, right, in this kind of opportunity and revolution here. So it could be through LLMs. It could be through buyer agents, so specialized agents that various tech companies are building or launching into the ecosystem. It could also be directly through our platform. It could be through an agent that a DSP builds. So, I think all of those are opportunities.

I do think that with AgenticOS and Activate bidding directly within our SSP, we are creating more value and adding more value across the ecosystem. And I expect us to participate in that with increased revenue from those transactions, even at the same time as we're reducing the cost to transact advertising. So, I see a really strong dual benefit on both the top line and the bottom line.

Okay. But just to follow up, I mean, is it your vision that AI over time streamlines and reduces fees in open Internet? Is that basically your kind of base case of what happens and you're just trying to position to be the player within that?

Yes, that is right. So, I do think, as I mentioned earlier, this is going to be not just technology, but a value chain disruptor. And by that, what I mean is the supply side and the buy side, I believe, are going to come much closer together. And Activate is a great example of that where a buyer can buy directly in our SSP. Of course, they can continue to choose to work with any of 150-ish DSPs that are integrated into our platform. So, I do think that we can create efficiency in the ecosystem. Part of that is operational overhead of people and systems and part of that can absolutely be fee efficiency. And it's probably natural to expect that as any industry scales up, including digital advertising, there should be more and more fee efficiency built over time.

Next question comes from Rob Coolbrith at Evercore.

Rajeev, I just want to ask you -- so the 5x cost improvement and campaign execution that you talked about resulting increase in working media dollars, so is that by elimination of supply chain ops, specifically the DSP or just anything more you could tell us about that?

And then just taking another step back, I think there's sort of dual or maybe competing visions or maybe there's multiple visions of agentic, one where it sort of sits on top of existing programmatic infrastructure, one where it potentially displaces it where you could have more sort of a federated model of -- there could be 1,000 walled gardens effectively, if you will. So, just wondering why maybe one or the other might win out? Do you have ultimately a preference? I suppose you guys could be the one powering the 1,000 walled gardens. So just any thoughts on how this ultimately plays out? Is agentic going to make the programmatic world more centralized or more federated over time?

Sure. Yes. So, just on the first part of that question, so the 5x cost efficiency, it's looking at the entire cost to execute a campaign, right? And so pre-agentic, there's a lot more manual activity involved, as I talked about earlier in terms of campaign setup and then in-flight optimization, post-campaign measurement. And then there's, of course, multiple technology partners in the mix with fees kind of pre-using the agentic approach with us.

And then post, we look at, okay, how much manual activity came out of that process. how many third parties were eliminated and look at that efficiency as a percentage of the total media campaign, and that's where we get the 5x cost efficiency. So, these are pretty substantial. And what it leads to is that performance in the open Internet when transacted agentically can be much stronger than what it is today. And I think that can be a big driver of total addressable market and of the market that we're going after.

On the second part of your question, yes, I would say like maybe a month or 2 ago, I heard a lot of conversation about is AdCP or agentic going to replace programmatic or real-time bidding. I definitely do not see that. I see what's happening with agentic capabilities and what we're building with customers to be complementary, meaning a lot of this work is being done on top of programmatic pipes where ultimately, transactions do need to be bided in real time. And AI is just not at a place where it can deliver at the low latency and high throughput that is needed. And so I very much see this as bringing a lot more volume into our platform.

Great. Steve, just to ask you a quick follow-up. Just versus the forecast, I wanted to maybe ask if you could take us through the top couple of drivers of upside in the quarter from your perspective, any key verticals, demand platform, supply platforms that they have outperformed?

Sure. Yes, no, obviously, we're very pleased with our Q4 outcome. We exceeded our expectations by a significant amount. And the good news is that it was all driven by areas that we've been investing and innovating to see key secular growth areas. So, we saw strong growth in emerging revenues, which grew over 75% in the fourth quarter year-over-year. We saw mobile app accelerate to 25% growth. And we saw CTV continue to perform double-digit rates. And so from our perspective, we had all the key areas that we've been investing, innovated around, deliver above expectations.

At the same time, we also saw stability in the DSP change that we called out mid last year. So, that was stable and was a net neutral to positive. And then importantly, I think when you step back and think about what we've done as a business, we've been transforming our business over the last couple of years. And so the fourth quarter really distilled down all those key trends and sort of laid down the foundation. As Rajeev called out, we've diversified our DSPs in the mid-market. And so feel really good about the outcome in terms of exceeding expectations and the setup for 2026.

Now with respect to particular ad verticals, I called out there were a couple, shopping, for example, was robust in the fourth quarter and there was overall pretty healthy ad spend. So, I think it speaks to stability in the ad ecosystem, and that's our expectations in '26 that that's going to continue.

The next question comes from Matt Swanson, RBC.

Going back to what you were just talking about, Steve, but the question might be a little more for Rajeev, but just that DSP diversification. I mean, first of all, congratulations because I had no idea there were that many DSPs in the world that you're now working with. But could you just talk a little bit more after these last 2 years, kind of how much of a renewed point of emphasis that is within your company to make sure that you control everything that you can control and not get overly set on 1 or 2 large providers?

Yes. Sure. Let me take that off and then Steve, I'll hand it over to you. So, I think this is an exciting growth area for us, and we've made tremendous headway in expanding our DSP mix. And I think if we go back and consider the industry from a couple of years ago through the preceding 5 to 7 years, it was very much characterized by DSP consolidation. A couple of DSPs emerged as winners and consolidators. But now what we've seen is something very different where in the last couple of years, I think, as the industry has continued to fragment, we've seen depth in a lot of new verticals, retail media, pharma, for instance.

We've seen new formats like CTV streaming, et cetera, come into the mix. There are many more specialist DSPs that are out there. And I think it probably also reflects a much bigger broadening of the number of advertisers, many in the mid-market, whether it's upper, middle, lower, that have very different and diverse needs than the head of the market, the top 250 or top 500 advertisers have had. And so that's creating a lot of opportunity, and we have a really robust road map going after this group of DSPs because we see, a, there's a lot of growth potential; and then b, strategically, it's very good for us from a diversification perspective.

Let me turn it over to Steve as well.

Sure. Matt, I think you hit the nail on the head when you commented on focusing on what we can control. And so Rajeev called out some of the key drivers of that, identifying where the opportunities are. We had tremendous results in '25, adding 50 more DSPs. And that's a function of focus and making sure that we go after the right DSPs and then innovating around them. And what allowed us to do that is our continued focus on efficiency, and we've actually put more resources into the sales area, focused on advertisers, DSP buyers to really take advantage of the trends that Rajeev just described. So, we continue to control what we can control. We're investing in areas where we see upside.

And then you are starting to see the outcome of that with improved diversification. I called out the stat that the mid-market DSPs that we've been spending more time with, accelerated growth in the fourth quarter to over 30% year-over-year. So from our perspective, this is a multi-quarter longer-term process, but we believe we're doing exactly the right things to diversify our overall buying base.

Yes. That's super helpful. We've gone over a lot of company-specific positives for both the quarter and kind of playing out through 2026. And you've talked about the DSP headwind diminishing somewhat and starting to improve. Could you just talk a little bit more about what goes into that Q1 guidance? Obviously, a beat and raise quarter, but still from a year-over-year perspective, down a bit. So, just is there still DSP headwinds, macro? Just kind of how you're thinking through that, Steve?

Sure. No, absolutely. The big headwind that we're working through is what we called out mid last year is the large legacy DSP. And one of the stats that I shared was if you -- for the fourth quarter, if you adjust for that DSP as well as political, which was a big factor in the fourth quarter of '24, we grew 18%, which is well above market growth rates. And so you can see the impact that, that DSP headwind had on us.

Now with respect to the guidance, making that same adjustment, obviously, political is not a factor. So just adjusting for the DSP, our expectation is the midpoint of our guidance is in the high single-digit. So from our perspective, clearly, on track in terms of getting back to growth. And by midyear, we will have lapped that impact. And so we expect revenue acceleration in the second half of the year because we've been investing and seeing results, mobile app, CTV, emerging revenues. So all told, what you're really seeing is that headwind that's still in the reported numbers that we're going to grow through in the second half of the year.

Other factors are obviously built into it, so assumption that the macro will remain relatively stable. And what we saw in January was that was the case. We saw 6 out of 10 ad verticals grew double digit. So all told, we see a stable background. We see the results of our investment, and we see working through some of the structural headwinds that we feel are now stable and will soon be behind us.

Next question comes from James Heaney at Jefferies.

Rajeev, when you say that your Q4 results represented an inflection point in your business, could you just elaborate on what you think the biggest unlock was this particular quarter? Is it a combination of things? Or is there one thing you'd call out?

Sure. Yes, I would say it's a combination of a number of things, right? And to kind of just highlight it, Steve called out the metric just now in the last Q&A, which is excluding political and that legacy DSP. 83% of our business grew 18% year-over-year in Q4. So, clearly, a very positive signal. So, things that I think are working well. CTV grew in the double digits, excluding political. We partner now with 28 of the top 30 global streamers. So, we added one more. We'll share more on that one a little bit later.

Mobile app grew 25% year-over-year. The emerging revenue streams, that's now 10% of revenue growing very quickly. The DSP diversification that we talked about earlier. And then I think the big one that certainly I am personally very focused on is the emergence of agentic as a new incremental tailwind in our business. And we just started to see a bit of that in Q4 as we launched those initial campaigns in December. But just the fact that we're now at 250 and growing campaigns that have run, obviously, we feel very excited and bullish on that opportunity.

And if I would just add a couple of additional comments. We think about -- obviously, we have been working through structural changes in the industry. And I think what really distilled for us is that the confluence of our hard work in terms of innovation, investing, gaining efficiencies and really setting ourselves up for a strong, healthy 2026 with accelerating revenue in the second half of the year. And so from our perspective, to rephrase again, we're controlling what we can control and we're seeing the fruit of our labors. And so we're feeling very confident about the trajectory of the business because we are seeding our business around the areas that will have long-term growth opportunity for us.

The next question comes from Jason Helfstein at Oppenheimer.

This is Steve Hromin on for Jason. So, just a quick question on AgenticOS. The over 250 deals metric is encouraging. But just can you help us understand whether these deals are already driving meaningful revenue? Or is that more of a this year and next year story?

And then also, how do the economics work? Like are you charging higher CPMs or an expanded take rate or separate fee structure?

Sure. Steve, do you want to take that?

Sure. No, from our perspective, first, we're out of the gate. And from our perspective, we are absolutely the leader among our peers in terms of this respect, having an end-to-end system that's working, PubMatic's AgenticOS. And so as we've done with many other innovations in our company, we build out the foundation and then we scale it over a number of quarters and years. And so this will be similar in that regard.

To give you some proof points, it was about 3 years ago, where our emerging revenues was less than 1% of our revenues, and we exited '25 at 12% of revenues. That's Activate, curation, commerce, et cetera. And so we expect our agentic efforts will build a base and then it will accelerate over time. So for -- in the second half of the year, we would assume that, that will be a similar profile, but it's going to take time. But the key point is that we are actually leading the pack and actually learning from the process and we'll start to hit the revenue line.

Now, we're experimenting with a lot of different models in terms of CPM-based, et cetera. The powerful aspect of what we're doing is that we now have sort of a complete breadth. We obviously have the deep integrations that Rajeev called out. We have the buying capability. So, we have a lot of flexibility in terms of how the economics play out over the long run. And any good company that's innovating is we're experimenting and testing and see what is most palatable and will be the unlock for our customers and partners.

Yes. Maybe just 2 data points to add to that. So thank you, Steve. So, when a buyer uses AgenticOS as the agentic doorway into PubMatic and they buy through Activate, then we do generate an incremental fee. So Activate, the direct buying interface into our SSP, we do generate an incremental fee on those transactions above and beyond the SSP fee.

And then second, I called out in the prepared remarks that 10% of publishers are now generating revenue from AI solutions, and that can be AgenticOS as well as a variety of different publisher solutions that we have. So, that number -- it's great that it's in double digits, but that number should be 100% eventually. So, I think it just points to the fact that we're still early and there's a lot of runway ahead of us.

Zach Cummins at B. Riley.

I just wanted to start off with the impacts that we've seen to search traffic with the emergence of some of these large LLM models, just curious if you've seen a meaningful shift in terms of channels that advertisers are now prioritizing versus maybe what you saw 6 or 12 months ago?

So, we have not seen a meaningful shift. I mean, obviously, OpenAI is out with a new advertising solution. And I think it's pretty early. I don't know if you call it an alpha, beta or something like that. And so I don't think that's at scale. And I think that's primarily competing with search budgets, which do not flow on our platform to begin with. So, we aren't seeing that from a kind of channel perspective.

I'd also say that our business is quite limited in terms of exposure from a traffic perspective. We've sized it at single-digit percentage of revenue if search traffic were to go away because about 60% of the impressions that we process are now for CTV and mobile app, and those are unaffected by the kind of the changes in search. And then industry data indicates that for the remainder of our business, about 15% of traffic is referral traffic versus direct navigation.

So, when you play that math out, you get into the single-digit percentages. I mean, we continue to grow the impression volume on our platform. There's no shortage of both browser web monetization web impressions as well as mobile app as we continue to grow with the Google announcement. And then, of course, CTV, as we add more and more streamers to our platform.

And one thing I'd add, Zach, just to underscore the point and really speak to the strength of PubMatic in the fourth quarter, we actually had a very robust display growth. We returned to growth on a year-over-year basis in the mid-single-digit percentages. And if you adjust for the large legacy DSP, our display business actually grew 20% year-over-year in the fourth quarter. So, hard to see sort of any bleed over from AI pressures in that regard.

But really, what it speaks to is that when you think about all the things we've been doing, executing against our strategic priorities, all of those efforts are starting to benefit across all formats and channels. In fact, it's lifting all boats. And really, display with that said, highlights that the benefit of those efforts that is really broad-based across our platform. And of course, there's all the other structural aspects, controlling what we can control, adding more DSPs helps. Rajeev called out the strong Activate progression, the mobile app progression, all that feeds into volume growth, not just in CTV, but also our legacy formats like display.

Understood. And Rajeev, I'm curious if you can give any sort of update around the Google Ad Tech Remedies trial. I'm still awaiting a final decision on that front, but maybe just level setting kind of base case outcome that you view is most likely. And I'm assuming that none of that potential tailwind is included in the forward outlook.

Yes, that's right. So, that's not included because obviously, the timing and the nature of the remedies is uncertain. So, maybe there's 2 things to comment on. One is the Google DOJ case and then the other is our own lawsuit against Google for damages. So on the former, we, like you are waiting for the court's verdict in terms of remedies, I think many people are expecting it sometime this quarter. And many folks are expecting it to be more so behavioral remedies rather than structural remedies where the primary structural remedy is Google divestiture of AdX.

So, we don't know anything special. So, we're kind of waiting and seeing. I think as you know, we estimate Google is a 60% market share player and each 1% of market share would add $50 million to $75 million in very high-margin revenue, roughly 80%, 90% incremental margin revenue to our platform. So, we think it's a tremendous opportunity. But like you, we are waiting for that verdict that remedies to be handed down.

And then the second piece is our own litigation against Google. And that's going to be a bit of a longer process. This is for damages. And there was, I think, a very positive decision where the judge in New York, which is where this case has been sent to determined that the factual findings made by Judge Brinkema and the DOJ litigation should be applied without relitigating the facts. And so what that means is that we don't need to prove that there was antitrust or anticompetitive behavior on the part of Google. We only need to demonstrate what the magnitude of damages is.

Question comes from Elle Niebuhr at Lake Street.

So, I was just wondering if you could quantify how much of the Q4 CTV growth is tied to live sports versus the always-on budgets. Do you guys see sports becoming a higher mix of CTV revenue? Or could you comment on that?

Sure. I mean, from our perspective, live sports is obviously a key long-term driver for our CTV business as for the industry overall. So, we've been making great progress expanding inventory in not just live sports, but agency, marketplaces across the globe. And they're all going to be strong secular growth areas. And I think the way to think about the opportunity is really to dovetail with earlier comments that as we scale as a business, bring in more publishers, Rajeev shared, we now work with 20 of the top 30 global streamers.

We have over 450 global CTV publishers, and we're growing that all the time. So, we have inventory that buyers value and in the process of making us easier to use through our AI capabilities, we anticipate that CTV will certainly benefit from it. And it's benefiting because we have inventory at scale, and we expect that to continue to be a long-term growth driver for us.

Yes. Just to give you a couple of examples. Last year, we monetized Cricket World Cup. U.S. Open for tennis, MLB, NFL, NHL, so kind of the list goes on and on of live sports. So it absolutely is a key growth driver of our overall CTV business, and we're continuing to get closer to both the streamers and the buyers in order to work through many of the technical challenges.

We are out of time. So, I'm going to turn the call back over to Rajeev for closing remarks.

Thank you, Stacie.

We entered 2026 with a stronger revenue mix and more efficient cost structure and expect to return to double-digit revenue growth in the second half of this year with corresponding margin expansion. Our early leadership in agentic AI is both an incremental tailwind and a structural advantage for PubMatic. And given our scale and proprietary data, it drives greater advertiser outcomes, unlocks new addressable ad demand and increases budgets to the open Internet.

We look forward to seeing many of you at upcoming conferences, including the Citizens Tech Conference on Monday, March 2, and the KeyBanc Emerging Tech Summit on Tuesday, March 3, both in San Francisco. I will also be speaking at the NVIDIA GPU Technology Conference, or GTC, their Global AI Conference on March 19.

Thanks, everyone, for joining us today, and have a great afternoon.

Hello, everyone, and welcome to PubMatic's Third Quarter 2025 Earnings Call. My name is Emmanuel, and I will be your Zoom operator today. Thank you for your attendance today. As a reminder, this webinar is being recorded. I will now turn the call over to Stacie Clements with The Blueshirt Group.

Good afternoon, everyone, and welcome to PubMatic's earnings call for the third quarter of 2025. This is Stacie Clements with The Blueshirt Group, and I'll be your operator today. Joining me on the call are Rajeev Goel, Co-Founder and CEO; and Steve Pantelick, CFO. Before we get started, I have a few housekeeping items. Today's prepared remarks have been recorded, after which Rajeev and Steve will host live Q&A. [Operator Instructions] A copy of our press release can be found on the website at investors.pubmatic.com.

I would like to remind participants that during this call, management will make forward-looking statements, including, without limitation, statements regarding our future performance, market opportunity, growth strategy and financial outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and future conditions. These forward-looking statements are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. You can find more information about these risks, uncertainties and other factors in our reports filed from time to time with the Securities and Exchange Commission and are available at investors.pubmatic.com, including our most recent Form 10-K and any subsequent filings on Form 10-Q or 8-K. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. All information discussed today is as of November 10, 2025, 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, including adjusted EBITDA, non-GAAP net income, cash flow from operations and free cash flow. These non-GAAP measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release.

And now I will turn the call over to Rajeev.

Thank you, Stacie, and welcome, everyone. We delivered a stronger-than-expected quarter with revenue and adjusted EBITDA ahead of guidance as well as strong cash flow, demonstrating the power of our platform, the continued diversification of our business and our accelerated pace of innovation. CTV significantly outpaced the market rate of growth and grew over 50% year-over-year, excluding political, driven by increased premium supply, continued scaling of agency marketplaces, traction in our live sports marketplace and growth of small and mid-market advertisers. Emerging revenues grew over 80% year-over-year as sell-side targeting and newly launched AI solutions quickly ramped. We also strengthened our end-to-end platform with cutting-edge AI innovations that are deepening our competitive moat and unlocking measurable incremental revenue opportunities. The industry is rapidly redefining itself, and we are actively shaping its future.

The impending Google Ad tech remedies verdict will very likely shift market share. The prioritization of data targeting and performance is shifting value creation in the ecosystem to the sell side. And over the past few months, we've seen a groundswell of AI-driven innovation reshaping the entire ecosystem. AI is now at the center of every strategic conversation, whether the objective is advertising performance, transparency or automation. As an early adopter of AI, our leadership is a defining advantage for us, which will grow over time. We continue to innovate with an AI strategy centered around 3 distinct layers of programmatic advertising, the infrastructure layer, the application layer and the transaction layer. For the infrastructure layer, we own and operate our full technology stack, giving us the efficiencies, control and independence that many of our peers don't have, evidenced by multiple recent public cloud outages. Through our technical collaboration with NVIDIA, we are deploying next-generation AI models on the world's most advanced GPU architecture. 5 years in the making, this collaboration required 3 ingredients: physical infrastructure capable of deploying GPUs at scale, massive transaction volume to test and optimize across the full open Internet and technical sophistication to be an early adopter. Today, our infrastructure is a clear differentiator, and we believe years ahead of peers.

The business impacts are tangible, 5x faster bid responses and 85% fewer auction timeouts, all recovering millions in ad spend. These results close the infrastructure advantage of walled gardens and directly translate into advertiser performance with higher publisher yield. Looking ahead, as autonomous AI agents begin planning and negotiating ad campaigns, industry compute requirements are expected to grow dramatically. These early investments only widen our infrastructure advantage as legacy platforms are constrained by cloud and computing limits. This is the monumental shift for open Internet digital advertising that PubMatic has been building for.

Next, at the application layer, we're deploying some of the most exciting and innovative capabilities we've ever launched, embedding AI directly into our products to power intelligent workflows and decision automation. We launched AI-powered buyer and publisher platforms that now handle more complexity with significantly less manual effort. Our solutions cut campaign setup time by 87% and speed up issue resolution by 70%, translating directly into faster activations, higher productivity and better outcomes for our customers. Independent agency Butler/Till has been using our AI-powered PubMatic for buyers' platform. Scott Ensign, their Chief Strategy Officer, said, and I quote, "Historically, systems don't talk to each other. Data sets are disparate, walled garden data is hard to connect. AI allows us to scale human reasoning and run campaigns that truly look across all channels and optimize across them. Working with PubMatic for buyers helps make that possible." This same enthusiasm is building on the publisher side. Our newly launched publisher suite already includes 17 operational AI agents guiding yield, diagnostics and creative setup. Customer feedback has been exceptional. One of our largest omnichannel partners, Overwolf, told us that the PubMatic Assistant AI chatbot is unique with respect to the accuracy and speed of execution.

And finally, at the transaction layer, we're preparing for the next major step at Agentic AI, where advertisers and publishers AI agents will be able to transact directly through our infrastructure. We are a co-founder of the newly established Ad Context Protocol, or ACP, alongside partners like Yahoo!, LG Ad Solutions and Raptive and the first to publish a model context protocol specification for agent-to-agent communication in the programmatic industry. We are establishing the protocols, safety mechanisms and the interoperability standards that will enable AI agents across the entire ecosystem to transact efficiently and securely.

With this 3-layer strategy, infrastructure, application and transaction, we are building the complete system for Agentic AI, the high-performance car, the roads to drive on and the traffic laws to govern it all. While still in early days, we are already seeing material benefits. First, AI is driving increased platform usage. As we roll out new generative AI and Agentic AI features across our platform, our customers are able to launch campaigns and resolve issues faster and improve performance. Validating our leadership in AI, customers have repeatedly said they are not seeing this level of innovation from other companies in the industry. Second, AI solutions are generating new revenue streams. One example is our new AI-based yield optimization solution for publishers, which uses adaptive learning models to automate pricing and improve auction efficiency. This AI solution is driving growth for our publishers, increasing their revenue on average by 10%. Launched just a few months ago, it has already unlocked tens of millions of dollars in incremental revenue for our publishers and in turn, is generating new pragmatic revenue as part of our emerging revenue category. And third, AI is improving our operational efficiency and profitability.

In the last 2 months, we deployed a dozen AI agents internally to automate operational workflows, accelerate development and reduce overhead. Our goal is to deploy substantially more agents in the coming quarters to give us measurable margin leverage while we continue to invest and strengthen our long-term moat. Looking ahead, despite the significant progress we have made, we believe we're just scratching the surface. AI will continue to drive higher usage across our platform, generate incremental revenue streams and improve operational leverage. And because we're investing across all 3 layers, thematic is poised to lead the next era of Agentic AI advertising. While AI is a powerful driver of our long-term growth strategy, it's equally important that we execute across the 4 other strategic priorities I outlined last quarter. I'm pleased to report that we're making significant progress in each of those areas.

First, we're broadening our demand side ecosystem and accelerating our pipeline. We expanded a top 3 DSP partnership, introducing programmatic guaranteed deals that streamline execution for advertisers across premium streaming content. This integration reduces friction in deal setup, accelerates time to market for campaigns and unlocks incremental budgets. It's a great example of how our relationships with global DSP partners are becoming more strategic as we diversify beyond the legacy DSPs. We also launched a new partnership with Bliss, an omnichannel DSP that brings high-value demand from leading global brands across automotive, retail and financial services. Bliss combines T-Mobile's app engagement data with real-world movement patterns and transaction signals to drive performance-focused campaigns with measurable outcomes from brand awareness to store visits and sales. This partnership expands our reach into premium brand advertisers who prioritize full funnel measurement and offline attribution. These mid-market focused DSPs like Bliss represent one of the fastest-growing advertising segments.

In Q3, ad spend from this segment grew 25% plus year-over-year, reflecting meaningful progress in our diversification strategy. Second, we're accelerating our investment on the buy side. We're extending our reach with independent agencies and direct advertisers, expanding our focus from the top 20 agencies to the top 150 and from the top 500 advertisers to approximately 1,500. Supply path optimization remains a key growth driver with the majority of this addressable market as greenfield opportunity. SPO represented over 55% of activity on our platform in Q3. As a pioneer in SPO, we are the leading incumbent offering scale and a rich history of performance and efficiency gains. Building on this momentum, we are onboarding more buyers on to Activate, our direct-to-supply buying platform. Over the first 9 months of the year, the number of active campaigns grew more than 4x over last year with a 35% increase in customers.

Activate is a key solution that enables the ecosystem-wide push for increased performance, transparency and efficiency of programmatic advertising. And this is only the beginning. We've begun integrating AI-powered agent-to-agent workflows into Activate to boost performance and reduce friction, making advertiser adoption even easier. We believe that this new technology could have a massive impact on Activate adoption over the medium-term as we accelerate investment in mid-tail buyers. Finally, we continue to deepen our integration with DSPs to create value beyond real-time bidding transactions. We are the first SSP to integrate the Trade Desk's price discovery and provisioning API, which allows publishers and advertisers to share deal metadata between our platforms to better identify and resolve issues with underperforming deals in real time. Today, over 50% of programmatic deals sit dormant because this information was previously only available offline. We anticipate this innovation will accelerate our share of PMP and PG deals as we drive adoption together with the Trade Desk.

Third, our momentum in Activate is also fueling our growth in CTV. Excluding political advertising, CTV revenue grew more than 50% year-over-year, and the format remains a primary growth engine for our business. Live sports is an especially exciting category. Buying activity rose more than 150% sequentially from Q2 to Q3 as we scaled our AI-powered live sports marketplace and launched new programmatic guaranteed deals around tentpole events like the U.S. Open for Tennis and Monday Night Football. We also continue to expand our CTV publisher footprint. New deals and expanded partnerships with a number of free ad-supported streaming services, including Tubi, Future Today and Local Now added to a strong roster with over 90% of the top 30 global streamers now on PubMatic. We offer these premium content streamers incremental ad demand that other platforms can't offer because of the scale of our SPO, Activate, Curation and commerce businesses. For example, Fremantle, one of the world's largest entertainment content creators behind franchises like American Idol, America's Got Talent and the X Factor, generated a 78% increase in incremental programmatic demand across their expanding FAST channel portfolio by partnering with PubMatic.

This is a remarkable outcome and highlights significant incremental ad revenue our platform generates for our partners. Additionally, we're expanding ad formats on our platform. In collaboration with Dentsu Group, we recently launched pause ads for CTV through Activate. Advertisers can now serve dynamic, contextually relevant ads when viewers pause content, representing a premium brand-safe moment that boosts engagement and yields incremental revenue for publishers. What's more, with $155 billion of ad dollars still in linear television, we believe our CTV business has a long runway for growth given the scale, performance and ad formats now available for buyers on PubMatic. And fourth, we're making significant progress in scaling our emerging revenue streams, which grew over 80% year-over-year in the third quarter. Commerce Media continues to gain momentum. We continue onboarding and scaling with some of the world's leading retailers and transaction-based enterprises as they seek to activate and monetize their first-party audience intelligence. These partnerships are expanding our reach beyond the traditional impression model while generating platform fees and database monetization that accelerate revenue growth.

Sell-side curation is another fast-growing emerging revenue stream. We expanded partnerships with leading data providers around the world. Nielsen, for example, tapped PubMatic as their exclusive sell-side partner to bring their more than 10,000 audience segments to Australian advertisers and agencies. Together with the previously mentioned AI yield solution for publishers, these initiatives drive incremental high-margin revenue that is scaling quickly.

In closing, our results demonstrate the power of our differentiated business model. We continue to innovate, diversify our business and operate with discipline. We are leading from a position of strength. We're confident that the investments we're making today, particularly across the 3 layers of our AI strategy, are expanding our competitive advantage while creating sustainable, profitable growth over the mid- to long-term. All of this is happening alongside a once-in-a-generation shift in digital advertising that will likely result in the competitive landscape being reshaped, where even a modest share shift could unlock substantial incremental high-margin revenue for us given our owned and operated infrastructure. PubMatic is not only positioned to adapt, we're helping define what comes next. We have the technology, the talent and the financial foundation to build a more intelligent, efficient and enduring business, one that creates lasting value for our customers, partners and shareholders.

Let me now turn the call over to Steve.

Thank you, Rajeev, and welcome, everyone. We exceeded expectations on both revenue and adjusted EBITDA. This outperformance was driven by CTV, combined with stronger-than-expected year-over-year growth for online video and mobile app. We managed expenses, leveraged AI and delivered improved margins and strong free cash flow. Stepping back, it is important to call out that our efforts to transform our business started several years ago as we anticipated the value of the ecosystem shifting to the sell-side. We built an end-to-end solution that prioritizes control, performance and transparency while recognizing the need to diversify our business and unlock new paths to monetization. Today, over 40% of our revenue is derived from CTV, mobile app and emerging revenue streams, which represent long-term value for our business, up from less than 30% 2 years ago. Further, these efforts directly benefit our profitability and enable continued innovation and investment in the business.

Turning to the quarterly results, starting with the revenue breakdown. To provide apples-for-apples comparability, year-over-year growth rates for video are adjusted to exclude political ad spend. On that basis, total omnichannel video revenues grew 21%, underscoring the strength of our premium video portfolio and growing adoption of AI-powered optimization across formats. Within this category, CTV once again grew over 50% year-over-year, driven by the success of our live sports marketplace and growth in programmatic guaranteed deals across expanding buyer relationships. We monetized CTV inventory from over 90% of the top 30 global streamers. Omnichannel video contributed approximately 38% of total revenue in Q3 2025. Emerging revenue streams continued their high-growth trajectory, growing over 80% year-over-year while scaling to 10% of total revenue in the third quarter. This growth represents incremental durable revenue streams beyond our core sell-side platform capabilities. Most notably, year-over-year revenue from Activate grew over 100% in our Curation and data business Connect grew over 40%.

Based on the results we are seeing, we will continue to invest for incremental growth opportunities that diversify our revenue like the new AI-driven product capabilities for publishers that are already showing meaningful traction. The growth across these key secular areas helped offset the impact from lower spend by a large DSP we identified last quarter. Following our optimizations and integration adjustments by SPO partners, spend stabilized from this DSP in August and September, resulting in lower but steady run rate. As anticipated, display revenue was down minus 5% year-over-year and was the format most affected by the DSP impact. Excluding this DSP, display grew in the low single-digit percentages. With respect to Q3 ad spend across the top 10 verticals, in aggregate, they grew in the single-digit percentages year-over-year. Health and fitness, personal finance and technology each increased over 15%. We saw softer trends in business and automotive, which declined single-digit percentages in the quarter. Ad spend from our mid-tier DSP partners grew over 25% year-over-year in Q3. Importantly, our AI-driven buyer platform is resonating well with performance-focused buyers across CTV, mobile app and e-commerce verticals, and we believe lays the foundation for sustainable growth in the quarters ahead.

We anticipate that new buyer relationships like Bliss and Mountain will bring incremental ad demand across our wide portfolio of verticals. Regionally, APAC and EMEA revenues grew plus 12% and plus 7%, respectively, offsetting a minus 14% decline in the Americas, which was primarily due to spend declines from a large DSP buyer. Moving on to our operating priorities. We continue to invest and reallocate resources to the highest return areas of the business. As Rajeev noted, we're seeing strong growth across our DSP mix and within Activate as customers increase usage and new products drive incremental revenue. Our focus on generative AI is also improving operational agility, streamlining internal workflows and allowing us to redirect resources towards growth initiatives without adding structural costs. This efficiency has allowed us to expand our sales team focus on buyers and grow spend from existing partners and onboard new partners. We are making great progress integrating with the fast-growing mid- to long-tail segment. And so far in 2025, we've added over 25 new DSP partners. All of these efforts help us counter the near-term headwinds from legacy DSPs and further diversify beyond the top 5, as I described last quarter.

Core to our long-term strategy is being nimble in identifying opportunities and then executing rapidly to capitalize on them. We have achieved this while managing our costs and consistently delivering profits in many different environments. The foundation of this approach is expanding our capacity while driving down our unit costs. We processed approximately 87 trillion gross impressions in Q3, a 24% increase over last year and a 12% sequential gain versus Q2. Nearly 60% of total impressions were from CTV and mobile app inventory, highlighting our increasing focus on high engagement channels. Further, the increase in impressions is highly leveraged over our fixed cost base. Over a trailing 12-month basis, unit costs in the third quarter declined 19% over the comparable prior year period. In terms of operating expenses, our early investments in AI to drive operational efficiency are yielding measurable results. Year-to-date, every quarter, we have successfully kept our total operating expenses roughly flat at $51 million, while realigning investments to the areas that deliver the strongest ROI. This allows us to scale profitably even as we invest ahead of growth. For example, we increased our buyer-focused sales team by 19% in Q3 compared to the prior year, while the overall total headcount was flat. This disciplined approach enabled us to deliver our 38th straight quarter of adjusted EBITDA profitability. This is a track record few companies in our sector can match.

Q3 adjusted EBITDA was $11.2 million or 16% margin, which included foreign exchange costs of approximately $1 million due to the weakening U.S. dollar over the quarter. U.S. GAAP net loss was minus $6.5 million or minus $0.14 per diluted share. Moving to cash and our capital allocation. Our balance sheet remains a core strategic advantage. In the third quarter, we generated $32.4 million in net operating cash flows and free cash flow of $22.8 million. In addition to efficient working capital management, there were 2 other factors that improved our cash flow for this period. The DSP that made changes in mid-2024 returned to growth in Q3, which favorably improved our DSOs. There was also a reduction in cash taxes paid because of the new federal tax bill that went into effect earlier this year. To underscore our long-term ability to generate cash since the beginning of 2021 through Q3, we have generated over $390 million in net cash from operations and more than $215 million in free cash flow. We ended the quarter with $136.5 million in cash and 0 debt.

Given the strength, we continue to deploy our capital to maximize shareholder value. Since the inception of our repurchase program in February 2023 through the end of Q3, we have bought back 12.4 million Class A common shares for $180.6 million. We have $94.4 million remaining in our repurchase program authorized for the end of 2026. This program, combined with our ongoing investments in AI innovation reflects a balanced approach to capital allocation and a commitment to long-term shareholder value.

Turning to our Q4 outlook. We anticipate strong growth in secular areas of the business, including double-digit growth for CTV when excluding political advertising and 30% plus growth for emerging revenues. As a reminder, Q4 2024 political advertising represented about 12% of revenue, nearly 80% of which was via CTV. In terms of latest trends in October, the typical holiday seasonal uptick thus far has been relatively muted for some consumer discretionary ad verticals such as food and drink and art and entertainment. Accordingly, we are taking a prudent approach to guidance based on the latest trends. We expect Q4 revenue to be in the range of $73 million to $77 million. As it relates to the large DSP that declined in July, we are assuming its associated revenue to be flat in Q4 relative to Q3. We anticipate Q4 operating expenses to be similar to Q3's level as AI-driven efficiencies continue to offset selective investments in our sales team. Q4 adjusted EBITDA is projected to be in the range of $19 million to $21 million, which also factors in continued weakness of the U.S. dollar. For the full year, we expect revenue to be in the range of $276 million to $280 million and adjusted EBITDA to be in the range of $53 million to $55 million, inclusive of more than $5 million of estimated negative FX impact. We are maintaining our full year CapEx projection at $15 million, which is year-over-year reduction made possible by AI-driven optimization efforts.

In closing, our Q3 results highlighted the durability of our financial model and validate the progress we are making behind our business transformation. Looking ahead, we're confident in our robust multifaceted strategy. Our AI-first end-to-end platform is driving measurable results. We're adding new revenue streams, expanding our SPO relationships and rapidly diversifying our DSPs in line with future growth opportunities in commerce, performance CTV and mobile app. With respect to potential remedies in the Google AdTech antitrust trial, we continue to believe that any remedies that level the competitive playing field, whether structural, behavioral or both will benefit the open Internet and PubMatic. In 2026 and beyond, as revenue growth reaccelerates, we anticipate margin expansion at both the gross and adjusted EBITDA levels because of our efficient and leveraged business.

Our decade-plus experience owning and operating our global private cloud infrastructure has given us several advantages. First, it has enabled us to expand capacity while at the same time, progressively reduce our rate of CapEx and drive down unit costs through optimization initiatives. Second, it's allowed us to invest early on in next-generation technology with NVIDIA. Today, our infrastructure is a clear differentiator with investments well ahead of our peers that will continue to drive efficiencies and business impact. We are also continuing to leverage AI to drive efficiency and increase our team's productivity. We anticipate total headcount will remain relatively flat in 2026, while investments supporting our fastest-growing areas of our business will increase through internal reallocations. And finally, we are also laser-focused on free cash flow generation and aim to increase cash flow next year supported by further working capital improvements and incremental AI-driven efficiencies. Collectively, we believe our efforts will drive a return to double-digit revenue growth in the future.

With that, I'll turn the call over to Stacie for questions.

[Operator Instructions] The first question comes from Andrew Marok at Raymond James.

Rajeev, if you could maybe expand a bit on the topic of SPO and some of the recent moves companies like the Trade Desk have made kind of leaning into OpenPath, launching OpenAds and declaring all SSPs as resellers. But then on the other hand, the 2 of you are collaborating on that DYD management API. So, I guess since we last spoke last quarter, how would you characterize the state of play there? And then I have a follow-up for Steve.

Sure. Yes. Thanks, Andrew, for the question. So yes, let me first just clarify on the reseller kind of noise that's out there. So, the industry standard definition, which has been with the industry for over a decade, is that a reseller is the term for when inventory flows from a publisher to an intermediary and then to an SSP. And an intermediary can be another exchange or some sort of aggregator of inventory. In contrast, direct is when inventory flows from the publisher directly to the SSP. PubMatic is a platform for direct inventory monetization. Reselling is not our business. We are a direct connection to publishers, and that's how we're able to provide significant incremental value to publishers and to buyers. And I think it's pretty clear we provide values in ways -- value in ways that DSPs do not. Yield optimization is a key example of that. So, Trade Desk, in particular, has been very clear that they are not in the yield optimization business. And so, a publisher needs to have a yield function in place in order to maximize their revenue, which is core to what we do. At the same time, we're also providing value to Trade Desk and others, right, who, as you noted, Andrew, they're relying on us to improve deals with our price discovery and provisioning API integration announcement.

So, I think what you can see here is that the ecosystem is multifaceted, certainly complex. Our focus is really on taking that direct integrations with publishers that we have, all of that inventory flowing through our platform, the data the audiences and really creating value for buyers in such a way that they're able to generate increased return on ad spend, increased ROI, which causes them to then spend more on our platform. And then that, in turn, generates higher yield for our publishers. And so that's really the core and the focus that we have. And what we're finding with Activate and other capabilities on our platform, a lot of the focus on AI that we talked about in the prepared remarks is that we have a lot of opportunity coming at it from the sell side of the ecosystem based on the auctions and the data and our close integrations with publishers to be able to add value to both the buyers and to the publishers.

And then maybe, Steve, if I could, on the COGS point, can you just expand a little bit on the ability to drive that unit cost leverage there and how we should think about that line either on an absolute dollar basis or a percentage of revenue going forward?

Sure. Well, good to reconnect, Andrew. So, from our perspective, we, for many years, have been focused on owning and operating our own infrastructure and have done it very successfully, as you noted, driving down unit costs. We've consistently done that for a decade, often double-digit unit growth reductions. And so, from our perspective, '26 is no different. Other than that, we continue to leverage AI more and more to drive optimizations. As you saw in our prepared comments, we increased the number of gross impressions processed by over 20% in the quarter. We didn't do that by just throwing a lot of CapEx at it. We did it through software and AI. And so that basic process is going to continue, but we have more tools and more ability to do that. So, I would expect in the future, as our revenue reaccelerates, we're going to increase our gross margin. It's going to be a function of revenue and managing our costs.

Our next question comes from Matt Swanson at RBC.

Obviously, a super strong quarter for CTV growth ex-political. And you called out a lot of the drivers there, right, the great growth in the live sports, maybe some of that expansion of mid-market DSPs and the 90% coverage now top 30 streamers. Could you just give us kind of a little more color maybe over the past year, just what sort of evolution you've seen in the CTV environment and kind of how you're investing to grow or continue to grow next year?

Sure. Yes. Thank you, Matt, for the question. So, CTV has been obviously a very strong growth area for us, and we've seen tremendous scale really building from 0 organically several years ago to where we are today. And I think there's a couple of trends that are happening. First of all, we are working with more and more premium publishers, right? So, this quarter, we shared over 90% of the top 30 globally. We added some new fast streamers to the Future Today and Local Now. That builds on our base of premium inventory from existing publishers like Roku and Paramount and NBC. At the same time, there's huge growth in the advertiser mix in CTV. So, whereas traditional TV has a couple of hundred, maybe 500 advertisers in aggregate that are the lion's share of ad budgets. With streaming TV, what we see is that there's tens of thousands of advertisers reaching now into the hundreds of thousands, and that number is growing very quickly. And as we have focused on going after mid-market focused DSPs, many of them are focused on small and medium businesses like Mountain or TV Scientific where they're focused on performance advertising, again, some of those same folks, there's a lot more dollars that we're able to bring on to the platform. And so that's creating another layer of growth.

And then third is we've really leaned into AI, as you could tell from the past calls and also the prepared remarks today. all 3 layers of the technology stack. And I think that's really unlocking incremental budgets as well. So live sports is just one example of that. Actually, one of our first generative AI creative tools we launched last year, which was focused on helping publishers bring in more political ad spend by scanning political ad creatives. And so, we're continuing to apply that technology for other use cases. So, there's a lot of other verticals like pharma, for instance, health and wellness, where there's sensitive categories, but we're able to generate unlock of spend through AI. So, we think it's a really obviously exciting area for us. We're going to continue to focus global investment in this area. And as we bring more buyers onto our platform via Activate, via curation capabilities and now with the ad CP launch, we think there's a long runway of growth ahead of us for CTV.

Maybe following up on your commentary on GenAI and some of the Agentic. Obviously, we've been hearing a lot from a lot of players in the space around these 2 themes. Can you just talk a little bit about kind of the right to win and how you help your stakeholders understand the value creation versus the noise around these themes. And maybe as you said, with the AdCP, it's not about winning yourselves or creating a TAM expanding ecosystem around those themes.

Yes. So, I think -- let's take each of those in turn. So, first of all, I think the right to win comes from a couple of things. First of all, it's owning all of our own infrastructure. And so, what that means is that we're in a unique position to be able to deploy cutting-edge AI technology, AI foundational infrastructure like the partnership that we announced with NVIDIA. And that came as a result of multiple years of collaboration. So, it's not just something you can wake up and do all of a sudden. But to be able to do that, you have to really own and control and be in a position to manage all of that infrastructure. So, I think that's the first right to win is our long-term capability set there and expertise. Second is you got to have the transactions and the data flowing on your platform. So, an AI algorithm is only useful to your customers and only relevant to them if you have the scale and ability to transact. And of course, we have that with 1 trillion or so daily ad impressions flowing on our platform, almost 2,000 publishers, depth in CTV and mobile app in display and so on and so forth. So, I think that's the second key for the right to win.

And then I think the third is a demonstrated ability to innovate and to really build solutions, not just talk about them. And I think what you've seen from us over the last year is that we are significantly ahead of our competition. We have launched 17 agents in our publisher platform already using AI. I think one of our competitors shared that they're planning to build their first agent, right? So, you can see that's a 1- to 2-year advantage that we have in terms of track record of execution. And so, what that means is that when we're launching things like AdCP, the ad context protocol, which is managing workflow via AI we are in a position to be able to go talk to both publishers and buyers about here's how you get started. Here are the first use cases to implement, and these things are available on our platform today. And so, I think that's a key part of creating value within the ecosystem is being able to participate in those early transactions being on the frontier and then benefiting from the groundswell of growth that we see in front of us.

Our next question comes from Shweta Khajuria at Wolfe.

I have a follow-up on the first question on OpenPath, not specifically just OpenPath, but are you seeing, Rajeev, any trends that would suggest that perhaps Trade Desk is increasingly going direct and you are getting impacted by -- not only just as a reseller, but in terms of the impressions volume. Are you seeing any impact to your business in general? And is it related to them actually launching that Kokai platform? I would think not, but there is this concern in the industry. So, if you could please perhaps comment on that to correct that, that would be great.

Sure. Yes, absolutely. So, first of all, good news is we are a platform for direct inventory. So regardless of what label anybody wants to put on anything, we know that we are working directly with premium publishers and there is not a more efficient way for buyers to access the inventory than what is coming through our platform. So, I think underlying your question, the new Trade Desk platform, Kokai does evaluate and buy media differently from what we have seen. And so, we took 2 important steps over the course of Q3, resulting in spend from them stabilizing in August and September, as Steve mentioned. So, the first is that we revised our machine learning algorithms to ensure we're sending an optimal mix of inventory to them. That work is largely behind us. So, we're always doing some level of continuous optimization to drive more spend. And then second, we worked with our SPO supply path optimization partners to help them configure their seat in the DSP to ensure that they're getting the benefit of their SPO relationships with us. And that work is largely completed as well. So, we have agency marketplaces set up with pretty much every major Holdco in different parts of the world, in many different parts of the world. And so, these agencies had to make changes over the last couple of months to ensure that their marketplaces stay intact and that they continue to get the performance and efficiency that they're seeking. And of course, these marketplaces are critical to the agency's media buying offerings that they provide to their advertiser clients.

So, we've shared publicly, for instance, we power WPP's premium marketplace. And so that's built on top of our SSP. And so, making sure that they're receiving their SPO data, workflow efficiency benefits is key to their being able to continue to offer that in market. Similarly, given we're a leader -- market leader in curation, we work with our curation partners to ensure that their campaigns continue to run via our SSP and that they get the ROI, the transparency and the control that caused them to choose to work with us in the first place. So, I think Trade Desk shared that, I believe, 85% of their clients are now up and live on Kokai. So, we think probably the bulk of this movement is behind us. But that's a key part of why we're also very rapidly diversifying our DSP mix. As the market evolves to a more fragmented DSP landscape, we're finding significant success with 25% plus year-over-year growth with mid-market DSPs on our platform in Q3.

Our next question comes from Matt Condon at JMP.

My first one is just there's been a lot of talk of just the impact across the open web on publisher traffic, just given these AI platforms that are taking increased share. Can you just talk about what you're seeing across your publisher base as far as search traffic?

Yes, absolutely. So, we've seen, I would say, a fairly limited impact. And I would say, just stepping back, we believe the exposure overall in our business is limited to a single-digit percentage of revenue if there was 0 search traffic going to our publishers, and we took no steps to mitigate it. So that's probably a high-end kind of watermark of potential impact. So, we shared in our comments today that roughly 60% of the impressions that we are processing are for CTV and mobile app. And so of course, those are unaffected by AI search. Now of the remaining business, which is browser-based where search is relevant, industry data indicates that search referral traffic is roughly 15% with the rest of publishers' traffic coming from either social or direct navigation. And given that we work in the ahead of the market with the top publishers rather than the long tail, I would expect that 15% number to actually be even a little bit lower. And so, if you take, okay, 40% of the impressions, 15% impact at the high end, that gets you to a mid-single-digit percentage potential impact.

Again, if we had no mitigating steps that we took. But actually, there's a lot that we can do in terms of bringing -- continuing to bring on board more CTV, more mobile app, more commerce impressions and the like. I think the other thing that we're seeing is the offensive opportunity. which is that there's a growing number of AI search experiences that consumers are spending more and more time on. So, for instance, Gannett launched a solution where users on their properties can search the archives of Gannett articles and get answers to questions. And so that, I think, is actually a growing canvas of inventory of opportunity for us as consumers get more and more used to that AI search kind of consumption behavior, then they're looking for that from many of their traditional content partners where they consume content. And so, we think that's a new tailwind that is emerging in the business.

And then my second one is just on your O&O infrastructure and just the differentiation there and your partnership that you announced with NVIDIA, just the 5x speed improvements in bid response times, just can you just talk about the structural difference that's allowing? And is it allowing just win rates and auctions to be higher? And just talk about the differentiation there and how that can drive sustainable growth as we think about 2026.

Yes, absolutely. So actually, the good news is that there's multiple ways that having this kind of infrastructure cooperation collaboration with NVIDIA can benefit our business. And it really is a collaboration, not just in hardware but also in software. I think NVIDIA themselves says that I think it's over half, maybe over 60% of their revenue comes from software solutions, right? So obviously, they're well known for hardware, but it's really a combination of hardware and software. So, I'll give you kind of 3 specific examples. So, we use NVIDIA GPUs to power real-time ad decisioning in very low latency environments. So, think about things like connected TV or live sports, where if we can process ad transactions faster, if we can cut latency, then that leads to fewer time outs, more bids in the auction on our platform and then more opportunities for us to win with the publisher. And so that boosts outcomes, ROI for both advertisers and publishers, also boost our revenue.

The second example is using NVIDIA Triton inference servers, where we use a specific hardware software implementation with them for traffic shaping. And traffic shaping is a very important and critical role that anybody on the sell side plays, which is to figure out which of the roughly 1 trillion ad impressions we have per day we should send to each particular DSP. Some DSPs, we might send tens of billions, some might be single-digit billions, some might be hundreds of billions of ad impressions. So, it's really important that we pick the right ones. And for every DSP, there's got to be a different decision set of calculus based on the types of advertisers and campaigns that are in their platform. And of course, these decisions have to be made within milliseconds of the publisher requesting a bit from us.

And then third is in the reporting area. So, we're using an NVIDIA software accelerator for Apache Spark, which allows us to streamline and improve the speed at which we're able to process data. And that, in turn, allows for smarter optimization across a wide array of different use cases. So those are, I think, hopefully just 3 tangible examples of how our NVIDIA partnership is really leading to the leadership that we talked about in the prepared remarks, in particular, at the infrastructure layer, which then allows us to drive benefit in the application and transaction layers of the AI stack.

Next question comes from Rob Coolbrith at Evercore.

Rajeev, I wanted to go back to this 5x faster and big response unlocking optimization strategies previously impossible to programmatic rates. Can you unpack that? And assuming you have a very substantial lead in accelerated computing in this space, are there counterparties on the demand side who can take advantage of that? Or do you think you need to take on a bigger role either in optimizing demand or hosting demands logic and optimization to sort of fully take advantage of those capabilities. There's something more akin to what the walled gardens do maybe in terms of their highly vertically integrated supply chains. And Steve, I just wanted to maybe get a finer point on this Trade Desk issue. Just given current trends, do you see the potential to maybe see growth alongside their growth in the back half of '26?

Yes. Thanks, Rob. So yes, let me start with your first question, and then I'll hand it over to Steve. So, we absolutely do see opportunity to better leverage our infrastructure through vertical integration. And I'll give you 2 examples of that. So one is, as we work more and more with mid-market focused DSPs who themselves tend to be smaller, what we find is that there's a lot of opportunity for us to use our platform to help them compete more effectively. And so, what I mean by that is we have huge amounts of data on our platform from these 1 trillion daily ad impressions. A typical mid-market DSP, they may see 5% to 10% of the traffic that a very large DSP like a Google DV 360 would see. And so, these mid-market DSPs, because they're smaller in nature, they don't have access to all of that same data. At the same time, they also don't have access to all of the performance aspects of the auction that we're running on behalf of the publisher. And so, there's opportunities for us, which we are working very hard on to use our platform to help those DSPs derive better performance, better targeting and ultimately better ROI. And that plays very closely with the infrastructure that we've deployed.

So that's one example, Rob, of where I think vertical integration where we can do more than we have done traditionally for a legacy DSP. And I think these mid-market DSPs because they're growing quickly, they're very hungry for that kind of collaboration and our ability to help them solve problems. And then the second is with our Activate solution, where buyers are buying directly in our SSP. And so here, that faster processing of bids that are inferencing, all of these things, they help make Activate a very effective solution. And we're seeing that play out in terms of the growth, up 4x year-over-year. Campaign numbers are growing on a similar basis in terms of the number of campaigns run. So, we think there's a lot of benefit from vertical integration. And as you said, Rob, that is somewhat akin to what the walled gardens do. And of course, it's no secret that they're very good at driving performance, and we think that vertical integration is a key part of that. I'll turn it over to Steve now.

Sure, Rob. Just correct me if I don't have the right question. But in terms of our growth opportunities in '26. So obviously, we're going to come back shortly with the next earnings talk about 2026. But there's a lot of things that we focused on to put us in a very strong position to reaccelerate growth. You heard some of the stats from the third quarter, strong CTV growth, mobile as well as our emerging revenues. So, once we work through the current transition that we've identified in the second half of this year, we are very confident that we're going to be growing on a number of different fronts. Just as a reminder, we've been investing in secular growth areas. This has been a long-term strategy, and we're seeing the results of that. We are expanding, diversifying our DSP base. We're growing very strongly with commerce DSPs, specialized DSPs around pharma. And so, the coupling of our focus on secular growth, expanding our buyer base and then innovation around AI, not just in the infrastructure, but certainly in terms of capabilities, functionality. We launched this past quarter, AI-driven publisher products, and that will continue to be sources of growth. So, we're very positive about the growth in the second half of '26 as we look at the plethora of opportunities ahead of us.

Our next question comes from Jacob Armstrong at KeyBanc.

This is Jacob on for Justin. Can you discuss how you believe the role of SSP needs to evolve in the coming years as Agentic AI expands? And what are the key investments needed to ensure PubMatic is best positioned to capitalize off this transition over the next few years?

Sure. Yes. So, I think the role of the SSP is going to expand significantly from transaction automation to a much bigger role in workflow automation, particularly around audience and inventory discovery and planning and in measurement. So if we think about where programmatic technologies have been applied so far, maybe for the last 15 or so years, I would say it's been heavily applied at the transaction level. So, meaning we have an ad impression, and we want to get a number of advertiser bids on it. And then we're helping DSPs bid on that individual ad impression. And so, there's been a lot of maturation and innovation and focus on that like single atomic impression. But we still have RFPs that advertisers send or agencies send out to publishers via e-mail, fill out the spreadsheet. We're launching this ad campaign. We want to understand what audiences or what inventory you might have available. Some human at the publisher fills that out and then they e-mail that back to the agency. The agency collects those and then they decide where they're going to set up and allocate budget. So that's still a largely manual process. Some things have improved, but still a lot of manual approaches.

So I think there's a huge opportunity to think outside of the pure atomic impression or transaction around the discovery and planning and then after the transaction to the measurement to use AI where an advertiser's agent or an agency's agent can say, "Hey, I'm launching this product or service, please tell me what you can do for me as a publisher or media owner from an audience and an inventory perspective and we can take a structured response, aggregate that up across many of the publishers that we're working with and then deliver a preconstructed campaign brief to the agency. Agency can begin to buy that using our transaction pipes, and then we can have a feedback loop around measurement with that. And then the agency can revise their campaign." So I think there's a lot that can be done outside of that single transaction element, and that's really where we are focused with the transaction layer of the stack that I mentioned earlier with ad context protocol, we're working out what exactly should those structured requests and responses look like and then how do they get set up, who owns what data and then how do they get optimized. So, I think there's a long runway, Jacob, ahead in that area.

Next question comes from Ed Alter at Jefferies.

I wanted to talk about the investments you're making to meet the demand from the mid-market DSPs like Mountain. Where exactly are those going to show up? Is that more headcount type investments? It would be great to talk about the color on that.

Sure. So, we've been very focused throughout this year and really leading into this year is to be as efficient as possible in terms of where we deploy our teams. And we made a very conscious decision in the last 18 months to move more and more resources towards the fastest-growing areas, secular growth areas. of which, of course, critical DSPs are part of that. And so, we've been increasing investment in the team that is -- goes directly and calls on these DSPs. This year, we increased thus far about 19% in terms of headcount. And we've done that by reallocating team members around the organization. You can see from our results. Our overall headcount is roughly flat. And so, we've done a very careful analysis of how we're going to keep on leveraging our existing resources. And of course, all of this is supported by the progress we've made in AI in terms of becoming more efficient just in our daily activities.

And so, when I look ahead to '26, I'm anticipating we're going to keep our headcount roughly flat, but we're going to keep increasing the resources against those areas that are driving the greatest results. And we're on a great mission to do that. And it's not just on the OpEx side. We are looking at our CapEx, and we don't anticipate increasing our CapEx in '26 based upon sort of all the optimization, the work with NVIDIA, a lot of other things that are in the pipeline around efficiency and optimization. And so, from our perspective, we're very confident that we are able to move dollars against the right opportunities without burdening the P&L. And so, feeling good about the progress and our ability to increase our margins as revenue reaccelerates.

Unfortunately, we are just about out of time. So, I'm going to turn the call back over to Rajeev for closing remarks, and we'll talk to you all in your follow-up calls very shortly.

Thank you, Stacie, and thank you all for joining us today. Our results demonstrate the power of our differentiated business model. We continue to innovate, diversify our business and operate with discipline. Our AI innovation is leading the industry with measurable outcomes driving momentum across the ecosystem. Looking to 2026 and beyond, as revenue growth reaccelerates, we anticipate margin expansion at both the gross and adjusted EBITDA levels because of our efficient and leveraged business. We look forward to seeing many of you at upcoming conferences, including the UBS Technology and AI Conference on December 2, the Wolfe Virtual SMID Cap Conference on December 3 and Raymond James TMT Conference on December 9. Thanks, everyone, for joining us today. Have a great afternoon.