PubMatic, Inc. (NASDAQ:PUBM) Q1 2026 Earnings Call Transcript

PubMatic, Inc. (NASDAQ:PUBM) Q1 2026 Earnings Call Transcript May 8, 2026

Operator: 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.

Stacie 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.

Rajeev Goel: 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.

Steven Pantelick: 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.

Q&A Session

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

Matthew Swanson: 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.

Steven Pantelick: 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.

Matthew Swanson: 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?

Rajeev Goel: 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.

Operator: Our next question comes from Barton Crockett at Rosenblatt.

Barton Crockett: 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?

Steven Pantelick: 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.

Barton Crockett: 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.

Steven Pantelick: 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.

Barton Crockett: 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?

Steven Pantelick: 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.

Operator: Our next question comes from James Heaney at Jefferies.

James Heaney: 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?

Rajeev Goel: 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.

James Heaney: 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?

Steven Pantelick: 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.

Operator: Our next question comes from Rob Coolbrith from Evercore.

Robert Coolbrith: 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?

Steven Pantelick: 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.

Rajeev Goel: 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.

Operator: 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.

Eric Martinuzzi: Can you hear me?

Operator: Yes, there you go.

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

Steven Pantelick: 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.

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

Steven Pantelick: Yes, a little bit better, yes.

Eric Martinuzzi: 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?

Steven Pantelick: 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.

Eric Martinuzzi: 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?

Rajeev Goel: 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.

Operator: Our next question comes from Justin Patterson at KeyBanc.

Justin Patterson: 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?

Rajeev Goel: 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.

Steven Pantelick: 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.

Operator: Our next question comes from Ken Wu at Wolfe.

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

Rajeev Goel: 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.

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

Unknown Analyst: 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?

Rajeev Goel: 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.

Steven Pantelick: 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.

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

Rajeev Goel: 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.