PubMatic, Inc. (PUBM) Earnings

Management highlights

### Leadership Updates - CFO Steve Pantelick announced plans to retire; he will remain in role through Q1 2027 and serve in an advisory role through July 1, 2027 to support a smooth leadership transition. - New Global Chief Revenue Officer Megan Ram will join the company on August 10, 2026, bringing deep direct-to-brand and performance advertising expertise to strengthen commercial capabilities. ### AI and Product Innovation - PubMatic holds a clear leadership position in agentic advertising, with 80+ Agentic OS campaigns delivered as of Q2 2026 (up from 30 campaigns in Q1 2026), including campaigns with all five global agency holding companies. - A new enterprise agent for Agentic OS launched in Q2, adding configurable controls, approved workflows, and full audit trails for autonomous campaigns to support enterprise adoption. - Decision Fabric, the next evolution of PubMatic's platform, launched in June 2026, enabling advertisers, DSPs, and technology partners to securely deploy their proprietary models directly within PubMatic's infrastructure via containerization to reduce latency and improve performance. - The new Creator Marketplace was launched to bring creator-led video inventory (currently 26% of all TV and video viewers) from walled gardens to the open internet, opening an entirely new publisher category to the platform. ### Strategic Platform Advantages - PubMatic's four core compounding advantages are: 1) Agentic OS with 20+ automated workflow agents, 2) Activate for direct buying in the SSP that improves operational efficiency, 3) proprietary first-party data and intelligence that improves with scale, 4) premium SSP inventory covering nearly the entire open internet, with over 2,000 publishers representing 100,000+ streamers, mobile apps, and websites. - Recent high-profile inventory additions include UK broadcaster Channel 4 and a strategic preferred SSP partnership with Sony Pictures Entertainment, covering PlayStation and Sony-branded TVs, delivering access to hundreds of millions of monthly users. - Live sports advertising activity more than doubled year-over-year, with a new partnership with GraceNote to add real-time contextual decisioning for live impressions, supported by growing programmatic adoption of premium live sports inventory. ### Financial and Operational Efficiency - Q2 2026 adjusted EBITDA was $19.6 million (25% margin), up from 20% margin a year ago, marking the 41st consecutive quarter of positive adjusted EBITDA. Free cash flow grew 47% YoY to $13.7 million, and net operating cash flow grew 36% YoY to $20.2 million. - The company ended Q2 with $137.5 million in cash and marketable securities and zero debt. $21.5 million was used to repurchase 2.1 million Class A common shares in Q2; since the 2023 repurchase program inception, 15.5 million shares have been repurchased for $211.4 million, with $63.6 million remaining authorized through the end of 2026. - Operational efficiency improvements: gross impressions reduced 2% sequentially while monetized impressions increased 4% as the company prioritizes higher-value inventory, and AI automation reduced total headcount YoY while enabling 12% growth in go-to-market headcount, holding total OPEX growth to 4% (well below revenue growth).

Guidance

- Q3 2026 revenue is expected to be $75 to $77 million, representing 12% year-over-year growth at the midpoint, continuing the double-digit growth trend from Q2. - Q3 2026 adjusted EBITDA is expected to range between $17 million and $19 million, with low single-digit sequential increases in cost of revenue and operating expenses driven by continued go-to-market investment. - Q4 2026 adjusted EBITDA margins are expected to be similar to Q4 2025, leading to meaningful full-year 2026 margin expansion. - Full-year 2026 capital expenditure guidance has been increased to $20 to $25 million, up from prior guidance, to fund GPU-centric infrastructure investments to support growing AI workloads and the company's strategic AI partnership with NVIDIA. These investments are expected to have a payback period of approximately 12 months or less. - Political advertising is expected to ramp through the second half of 2026, with the majority of impact in Q4; while it is not expected to reach the 2024 presidential cycle level, PubMatic expects to capture more than its fair share of political ad spend based on its improved product capabilities.

Segment performance

Total Q2 2026 revenue grew 11% year-over-year. All figures below reflect revenue contribution as a percentage of total Q2 revenue: - CTV: Global revenue grew 13% year-over-year, accounting for 20% of total revenue. CTV in the Americas grew 25% YoY, driven by new advertisers and expanded premium inventory including live sports. - Mobile app: Revenue grew more than 40% year-over-year, accounting for 25% of total revenue. Growth was driven by new mediation platform integrations, product innovation, and expansion of the global app publisher base. - Emerging revenue streams: Revenue nearly doubled year-over-year, reaching an all-time high of 15% of total revenue. Growth was driven by increased adoption of new AI products including Agentic OS, and global direct buying on Activate more than doubled YoY. - Total display: Revenue grew 12% year-over-year, primarily driven by mobile app growth. Combined, CTV, mobile app, and emerging revenue streams make up 60% of total revenue, and grew nearly 40% year-over-year as a group.

Risks & headwinds

- All forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from expectations, including macroeconomic conditions that may impact overall digital advertising spend. - The company's revenue can face quarter-to-quarter volatility due to uneven spending across vertical categories, with some verticals experiencing softness in any given quarter that can offset strength in other categories. - The DOJ antitrust case against Google is not included in current guidance or market share expectations; any resolution that benefits PubMatic would be incremental upside, but uncertainty around the case remains a potential external risk factor. - Agentic advertising is still in the early adoption phase, and rapid market penetration growth depends on continued client retention, budget ramping, and organizational change management at advertising clients, which may progress slower than currently expected.

Analyst Q&A

• Q: What factors support the durability of the current double-digit growth, and are there structural shifts benefiting the sell-side? /

  A: Management stated the global advertising industry is rapidly shifting to agentic execution, with decisioning increasingly moving to the PubMatic platform. The company is uniquely positioned with AI-native infrastructure, large-scale publisher relationships, 20+ Agentic OS agents, proprietary data intelligence, and the new Decision Fabric containerization product, creating durable competitive advantages as traditional UI-based competitive lock-in erodes. Operational excellence and long-term product investment have prepared the company for this shift, supporting confidence in sustained growth.

• Q: What is the adoption timeline for Agentic OS, and what core capabilities will matter most in the emerging agentic landscape? /

  A: Management noted Agentic OS is still in the early adopter phase, but all early clients have returned for larger volumes of spend. The company maintains its projection that 25% of ecosystem programmatic spend will be transacted via agentic models by the end of 2028, rising to 50% by 2030. PubMatic's core focus is compressing the value chain to bring advertisers and publishers closer together, executing full end-to-end transactions on its unified platform to improve performance and reduce operational complexity, creating value for both clients and PubMatic.

• Q: How is Agentic OS monetized, and what upside surprised management relative to prior Q2 expectations? /

  A: Agentic OS drives monetization primarily through incremental new revenue streams and the collection of buying fees for direct transactions via the existing Activate direct buying platform. As transactions move onto PubMatic's platform, the entire transaction value stays within the ecosystem, delivering incremental fees that grow the top line and drive margin expansion. All key business segments outperformed expectations: CTV, mobile app (40% YoY growth vs expectations), and emerging revenues (which nearly doubled YoY to 15% of total revenue), with broad-based upside across the business rather than a single outlier.

• Q: What is the current state of the relationship with the large DSP that caused a disruption one year ago, and is the DSP transition drag now complete? /

  A: Management confirmed the relationship remains positive and healthy, and the company continues to do significant business with the DSP. The company has significantly diversified its DSP base over the past year, with growth in mid-market and vertical-specialized DSPs, and increased direct connections with end advertisers and agencies that drive demand for PubMatic's unique AI capabilities. The prior DSP transition drag is now fully behind the company, and the business has returned to double-digit growth ahead of the original schedule.

• Q: What broad industry shift explains PubMatic's accelerating growth versus slower growth at some large DSP peers? /

  A: Management explained that there are clear structural macro trends shifting value to the sell-side, driven by the rise of agentic advertising. More end-to-end transaction decisioning is moving to PubMatic's sell-side infrastructure, as the company adds more value across the transaction chain. Traditional UI-based lock-in that benefited large buy-side platforms is eroding, as advertisers now prioritize performance and ROI over interface familiarity, which plays directly to PubMatic's strengths in AI-powered performance outcomes. Decision Fabric, which allows third parties to run their models directly on PubMatic's infrastructure, further accelerates this shift.