10-Q 1 pubm-20220331.htm 10-Q pubm-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to________
Commission File Number: 001-39748
PUBMATIC, INC.
(Exact name of registrant as specified in its charter)

Delaware20-5863224
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
Not applicableNot applicable
(Address of principal executive offices)(Zip Code)
Not applicable
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, $0.0001 par value per sharePUBMThe Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of May 3, 2022, the registrant had 42,178,200 shares of Class A common stock outstanding and 9,875,297 shares of Class B common stock outstanding.


TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values and share data)
(Unaudited)
March 31, 2022December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents$74,467 $82,505 
Marketable securities100,258 77,121 
Accounts receivable - net 218,359 286,916 
Prepaid expenses and other current assets11,790 14,207 
Total Current Assets404,874 460,749 
Property, equipment and software - net46,790 50,140 
Operating lease right-of-use assets24,973 21,613 
Goodwill6,250 6,250 
Deferred income tax asset2,155 515 
Other assets, non-current12,567 10,948 
TOTAL ASSETS$497,609 $550,215 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable$186,012 $244,321 
Accrued liabilities10,676 18,780 
Operating lease liabilities, current3,869 3,864 
Total Current Liabilities200,557 266,965 
Operating lease liabilities, non-current21,293 17,842 
Deferred tax liability6,067 6,067 
Other liabilities, non-current1,986 2,161 
TOTAL LIABILITIES229,903 293,035 
Commitments and contingencies (Note 7)
Stockholders' Equity
Preferred stock, $0.0001 par value per share, 10,000,000 shares authorized as of March 31, 2022 and December 31, 2021; No shares issued and outstanding as of March 31, 2022 and December 31, 2021
  
Common stock, par value $0.0001 per share; 1,000,000,000 Class A shares authorized as of March 31, 2022 and December 31, 2021; 41,014,591 and 40,695,140 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively; 1,000,000,000 Class B shares authorized as of March 31, 2022 and December 31, 2021; 10,996,149 and 11,159,609 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively.
6 6 
Treasury stock, at cost - 3,140,437 as of March 31, 2022 and December 31, 2021, respectively.
(11,486)(11,486)
Additional paid-in capital175,351 169,401 
Accumulated other comprehensive loss(239)(36)
Retained earnings104,074 99,295 
TOTAL STOCKHOLDERS’ EQUITY267,706 257,180 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$497,609 $550,215 
The accompanying notes are an integral part of these condensed consolidated financial statements.
1

PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

Three Months Ended March 31,
20222021
Revenue$54,552 $43,608 
Cost of revenue17,992 12,300 
Gross profit36,560 31,308 
Operating expenses:
Technology and development4,773 3,738 
Sales and marketing16,456 12,789 
General and administration10,750 8,139 
Total operating expenses31,979 24,666 
Operating income4,581 6,642 
Total other income (expense), net1,601 199 
Income before income taxes6,182 6,841 
Provision for income taxes1,403 1,923 
Net income$4,779 $4,918 
Net income per share attributable to common stockholders:
Basic$0.09 $0.10 
Diluted$0.08 $0.09 
Weighted-average shares used to compute net income per share attributable to common stockholders:
Basic51,910,572 49,109,237 
Diluted56,888,179 56,784,558 

The accompanying notes are an integral part of these condensed consolidated financial statements.
2

PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

Three Months Ended March 31,
20222021
Net income$4,779 $4,918 
Other comprehensive loss:
Unrealized loss on marketable securities, net of tax(203)(1)
Comprehensive income$4,576 $4,917 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)

Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Stockholders’ Equity
SharesAmount
Balance — December 31, 202151,854,749 $6 $(11,486)$169,401 $(36)$99,295 $257,180 
Stock-based compensation— — — 5,469 — — 5,469 
Exercise of stock options130,958 — — 481 — — 481 
Issuance of common stock related to RSU vesting25,033 — — — — — — 
Other comprehensive loss— — — — (203)— (203)
Net income— — — — — 4,779 4,779 
Balance — March 31, 202252,010,740 $6 $(11,486)$175,351 $(239)$104,074 $267,706 
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Stockholders’ Equity
SharesAmount
Balance — December 31, 202048,988,142 $6 $(11,434)$144,163 $1 $42,691 $175,427 
Stock-based compensation— — — 3,318 — — 3,318 
Exercise of stock options278,412 — — 451 — — 451 
Repurchase of treasury stock, at cost(693)— (27)— — — (27)
Other comprehensive loss— — — — (1)— (1)
Net income— — — — — 4,918 4,918 
Balance — March 31, 202149,265,861 $6 $(11,461)$147,932 $ $47,609 $184,086 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
20222021
CASH FLOW FROM OPERATING ACTIVITIES:
Net income$4,779 $4,918 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization7,183 4,550 
Unrealized gain on equity investment(1,373) 
Stock-based compensation5,136 3,165 
Deferred income taxes(1,645)280 
Accretion of discount on marketable securities23 (13)
Non-cash operating lease expense1,272 433 
Other54 2 
Changes in operating assets and liabilities:
Accounts receivable68,557 46,440 
Prepaid expenses and other current assets2,054 (1,241)
Accounts payable(58,588)(40,912)
Accrued expenses(6,822)(4,284)
Operating lease liabilities(1,177)(522)
Other liabilities, non-current (139)(129)
Net cash provided by operating activities19,314 12,687 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(148)(262)
Capitalized software development costs(4,235)(3,018)
Purchases of marketable securities(39,422)(23,168)
Proceeds from maturities of marketable securities16,000 9,600 
Net cash used in investing activities(27,805)(16,848)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options481 451 
Principal payments on finance lease obligations(28) 
Payments for offering costs (805)
Payments to acquire treasury stock (27)
Net cash provided by (used in) financing activities453 (381)
NET DECREASE IN CASH AND CASH EQUIVALENTS(8,038)(4,542)
CASH AND CASH EQUIVALENTS - Beginning of period82,505 81,188 
CASH AND CASH EQUIVALENTS - End of period$74,467 $76,646 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid$323 $192 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Stock-based compensation capitalized as internal use software costs$333 $153 
Property and equipment included in accounts payable and accrued expenses$334 $946 
Capitalized software costs included in accounts payable and accrued expenses$516 $270 
Operating lease right-of-use assets obtained in exchange for new lease obligations$4,632 $3,180 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

PUBMATIC, INC. AND SUBSIDIARIES
Notes to condensed consolidated financial statements
(Unaudited)
Note 1 - Organization and Description of Business
PubMatic, Inc. and subsidiaries (“Company” or “PubMatic”) was founded in 2006. The Company has offices in California, New York, Europe, Asia, and Australia. The Company provides a specialized cloud infrastructure platform that enables real-time programmatic advertising transactions. The purpose-built technology and infrastructure provides superior outcomes for both publishers and advertisers leveraging an efficient design, machine learning, and data processing capabilities, with customer alignment and global omnichannel reach.
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
Fiscal Year
The Company’s fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30, September 30, and December 31. References to fiscal year 2022, for example, refer to the fiscal year ended December 31, 2022.
Unaudited Interim Condensed Consolidated Financial Information
The unaudited condensed consolidated financial statements include the accounts of PubMatic, Inc. and its wholly owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other interim period or for any other future year. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 1, 2022 (the “Annual Report”).
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. The accompanying condensed consolidated financial statements include the accounts of PubMatic, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses.
The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates and assumptions. Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after March 31, 2022, including those resulting from the impacts of the COVID-19 pandemic, may result in actual outcomes that differ from those contemplated by the Company’s assumptions and estimates.
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Concentration of Revenue and Accounts Receivable
The Company defines its revenue concentration based on revenue recognized from individual publishers. For the three months ended March 31, 2022 and 2021, one publisher represented 14% and 20%, respectively, of the Company’s revenue. As of March 31, 2022, two buyers accounted for 29% and 20%, respectively, of accounts receivable. As of December 31, 2021, two buyers accounted for 29% and 19%, respectively, of accounts receivable.
Adoption of ASC 842
In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic ASC 842) which, along with other ASU's containing minor amendments and technical corrections, provides for a comprehensive overhaul of the lease accounting model and changes the definition of a lease within US GAAP. Topic 842 supersedes the legacy ASC Topic 840 accounting guidance and is intended to increase transparency and comparability among organizations by recognizing right-of-use (ROU) lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. Lease expense continues to be recognized in a manner similar to legacy GAAP.
The effect of adopting Topic 842 resulted in the recognition of operating ROU assets and corresponding lease liabilities on the Company’s consolidated balance sheet. The Company adopted Topic 842 in the fourth quarter of our fiscal 2021 reflecting an initial application date of January 1, 2021 using the modified retrospective transition approach under which the adoption date of ASC 842 became the application date, with the comparative periods presented and disclosed under the ASC 840 requirements.
Interim financial data for the comparable prior-year quarter ended March 31, 2021 has been revised to reflect the adoption of Topic 842 and differs from what was disclosed in the prior year Form 10-Q filed on May 14, 2021. The standard did not affect the Company’s consolidated statements of operations, comprehensive income, and stockholders’ equity for the three months ended March 31, 2021. Though net cash provided by operating, investing, and financing activities were unchanged, the standard did affect certain operating cash flow line items within the Company’s consolidated statements of cash flows for the three months ended March 31, 2021.
Select condensed consolidated cash flow items, which reflects the adoption of the new standard as reported for the three months ended March 31, 2021, are as follows (in thousands):
Three Months Ended March 31,
Balances without adoption of Topic 842Effect of Change
As reported(As previously reported in the prior year 10-Q)Higher (Lower)
Non-cash operating lease expense$433 $ $433 
Operating lease liabilities$(522)$ $(522)
Accrued expenses$(4,284)$(4,373)$89 
Net cash provided by operating activities$12,687 $12,687 $ 
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Note 3 – Fair Value Measurements
The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy (in thousands):
March 31, 2022
Level ILevel IILevel IIITotal
Financial Assets
Money market funds$53,874 $ $ $53,874 
Certificates of deposit 4,605  4,605 
Cash equivalents53,874 4,605  58,479 
Commercial paper 55,283  55,283 
U.S. Treasury and government debt securities 44,975  44,975 
Marketable securities 100,258  100,258 
Equity investment7,320   7,320 
Non-current assets7,320   7,320 
Total Financial Assets$61,194 $104,863 $ $166,057 
December 31, 2021
Level ILevel IILevel IIITotal
Financial Assets
Money market funds$65,311 $ $ $65,311 
Certificates of deposit 5,942  5,942 
Cash equivalents65,311 5,942  71,253 
Commercial paper 50,954  50,954 
U.S. Treasury and government debt securities 26,167  26,167 
Marketable securities 77,121  77,121 
Equity investment5,948   5,948 
Non-current assets5,948   5,948 
Total Financial Assets$71,259 $83,063 $ $154,322 

The Company’s financial assets consist of Level I and II assets. The Company had no Level III assets or liabilities for the periods presented. The Company classifies its cash equivalents and marketable securities within Level I or Level II because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. The Company’s fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of the Company’s marketable securities were derived from non-binding market consensus prices that are corroborated by observable market data and quoted market prices for similar instruments.
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Note 4 – Balance Sheet Components
Marketable Securities
The following table summarizes the Company’s marketable securities by significant investment categories (in thousands):
March 31, 2022
Amortized CostGross Unrealized Gain (Loss)Fair Value
Commercial paper$55,282 $ $55,282 
U.S. Treasury and government debt securities45,215 (239)44,976 
Total$100,497 $(239)$100,258 
December 31, 2021
Amortized CostGross Unrealized LossFair Value
Commercial paper$50,954 $ $50,954 
U.S. Treasury and government debt securities26,203 (36)26,167 
Total$77,157 $(36)$77,121 

The remaining contractual maturity of all marketable securities was within one year as of March 31, 2022 and December 31, 2021. Realized gains and losses were inconsequential for the three months ended March 31, 2022 and 2021. As of March 31, 2022 and 2021, there were no securities that were in an unrealized loss position for more than twelve months.
Property, Equipment and Software, Net
Property, equipment and software, net consists of the following (in thousands):
March 31,
2022
December 31,
2021
Internal-use software$33,857 $30,581 
Network hardware, computer equipment and software92,935 92,561 
Leasehold improvements2,508 2,426 
Furniture and fixtures1,448 1,448 
Property, equipment and software, gross130,748 127,016 
Less: accumulated depreciation and amortization(83,958)(76,876)
Total property, equipment and software, net$46,790 $50,140 

Depreciation and amortization expense related to property, equipment, and software (excluding amortization of internal use software) was $5.0 million and $2.9 million for the three months ended March 31, 2022 and 2021, respectively.
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The Company capitalized $3.3 million and $2.1 million in software development costs during the three months ended March 31, 2022 and 2021, respectively. Amortization expense of internal use software was $2.2 million and $1.6 million during the three months ended March 31, 2022 and 2021, respectively. These costs are included within cost of revenue in the condensed consolidated statements of operations and comprehensive income.
The Company did not recognize any impairment charges on its long-lived assets during the three months ended March 31, 2022 and 2021, respectively.
Accounts Payable
Accounts payable consists of the following (in thousands):
March 31,
2022
December 31,
2021
Payable to publishers$177,032 $235,440 
Trade payables8,980 8,881 
Total accounts payable$186,012 $244,321 

Accrued Expenses
Accrued expenses consist of the following (in thousands):
March 31,
2022
December 31,
2021
Accrued compensation$7,595 $17,271 
Accrued and other current liabilities3,081 1,509 
Total accrued expenses$10,676 $18,780 

Note 5 – Loan and Security Agreement
In June 2021, the Company amended and restated its loan and security agreement (the "Loan Agreement") with Silicon Valley Bank ("SVB"). The Loan Agreement provides a senior secured revolving credit facility of up to $25.0 million or 80% of eligible accounts receivable less certain reserves, minus the aggregate principal amount of all outstanding advances. Interest accrues on advances under the revolving line of credit at a variable rate equal to the greater of prime rate or 3.25%. As of March 31, 2022, the applicable interest rate under the revolving line of credit was 3.50%. An unused revolver fee in the amount of 0.40% per annum of the average unused portion of the revolver line is charged and is payable quarterly in arrears in any quarter where the average closing outstanding balance is less than $5.0 million. The maturity date of the revolving line of credit is June 6, 2024. As of March 31, 2022, there were no outstanding advances under the revolving line of credit.
The Company’s obligations under the line of credit and the letters of credit (described in Note 7) with SVB are secured by substantially all of its assets excluding its intellectual property. The Loan Agreement contains affirmative covenants including financial covenants that, among other things, require the Company to maintain an adjusted quick ratio of no less than 1.0 to 1.0. The adjusted quick ratio is defined as the ratio of unrestricted cash and cash equivalents at SVB, plus billed accounts receivable to total accounts payable plus all SVB loans outstanding and outstanding letters of credit. The Loan Agreement also restricts the Company from paying dividends to stockholders without prior consent from SVB. The Company was in compliance with the financial covenants as of March 31, 2022.
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Note 6 – Leases
Operating lease cost is recognized on a straight-line basis over the lease term. Finance lease cost is recognized as a combination of the amortization expense for the ROU assets and interest expense for the outstanding lease liabilities, and results in a front-loaded expense pattern over the lease term. The components of lease cost are as follows:
Three Months Ended March 31,
20222021
Operating lease cost$1,393 $455 
Finance lease cost - amortization of right-of-use assets43  
Finance lease cost - interest on lease liabilities5  
Total lease cost$1,441 $455 
No sublease income was recognized for the three months ended March 31, 2022 and 2021. Short-term and variable lease expenses are not material to the Company’s condensed financial statements.
As of March 31, 2022, a weighted average discount rate of 3.13% and 2.24% has been applied to the remaining operating and finance lease payments, respectively, to calculate the lease liabilities included within the condensed consolidated balance sheet. The weighted average remaining lease term of operating and finance leases is 5.7 and 6.0 years, respectively, as of March 31, 2022.
As of March 31, 2022, the maturities of lease liabilities under operating and finance leases were as follows:

Operating leasesFinance leasesTotal
2022 (Remaining 9 months)$3,611 $104 $3,715 
20234,505 140 4,645 
20244,555 145 4,700 
20254,750 149 4,899 
20265,108 153 5,261 
Thereafter4,993 199 5,192 
Total minimum lease payments$27,522 $890 $28,412 
Less: imputed interest(2,360)(58)(2,418)
Total present value of lease liabilities$25,162 $832 $25,994 

Note 7 – Commitments and Contingencies
Contractual Obligations
In the normal course of business, we enter into contractual obligations with various parties, primarily relate to minimum contractual payments due to data center providers. As of March 31, 2022, our outstanding contractual obligations with a term of 12 months or longer consist of the following (in thousands):

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Contractual Obligations
2022 (for remaining 9 months)$10,000 
202317,338 
20247,887 
2025137 
Total future minimum commitments, net$35,362 
Letters of Credit
As of March 31, 2022, the Company had three irrevocable letters of credit outstanding related to non-cancelable facilities leases in the amounts of $3.5 million, 0.7 million and $0.5 million, with annual automatic renewal and final expiration dates in July 2028, June 2022 and April 2025, respectively. As of December 31, 2021, the Company had two irrevocable letters of credit outstanding related to noncancelable facilities leases in the amounts of $3.5 million and $0.7 million, with annual automatic renewal and final expiration dates in July 2028 and June 2022, respectively.
Legal Matters
From time to time, the Company has become involved in claims and other legal matters arising in the normal course of business. The Company investigates these claims as they arise and accrues for contingencies when the Company believes that a loss is probable and that the Company can reasonably estimate the amount of any such loss. The Company has made an assessment of the probability of incurring any such losses and whether or not those losses are estimable and although claims are inherently unpredictable the Company concluded that these losses are not material to the Company’s business, financial position, results of operations, or cash flows. To the extent there is a reasonable possibility that a loss exceeding amounts already recognized may be incurred, and the amount of such additional loss would be material, the Company will either disclose the estimated additional loss or state that such an estimate cannot be made.
Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves future claims that may be made against the Company but have not yet been made. To date, the Company has not paid any material claims or been required to defend any actions related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. In addition, the Company has indemnification agreements with certain of its directors and executive officers that require it, among other things, to indemnify them against certain liabilities that may arise due to their status or service as directors or officers of the Company. The terms of such obligations may vary.

Note 8 – Stockholders’ Equity and Stock Option Plans
Equity Incentive Plans
The Company maintains the 2020 Equity Incentive Plan (“2020 Plan”), pursuant to which the Company may grant stock options, restricted stock awards, stock appreciation rights, restricted stock units (“RSUs”), deferred stock units (“DSUs”) performance awards, and stock bonus awards. As of March 31, 2022, the Company has reserved 7,515,001 shares of Class A common stock for the issuance of awards under the 2020 Plan. These available shares will increase automatically on January 1 for each of the first ten calendar years during the term of the 2020 Plan by the number of shares equal to the lesser of five percent (5%) of the aggregate number of outstanding shares of all classes of the Company’s common stock outstanding as of the immediately preceding December 31, or a number as may be determined by the Company’s board of directors or compensation committee. To the extent outstanding awards under the 2017 Plan and the 2006 Plan are forfeited, lapse unexercised, or would otherwise have been
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returned to the share reserve under the Prior Plans, the shares of Class B common stock subject to such awards instead will be available for future issuance as Class A common stock under the 2020 Plan. No new awards were issued under the 2006 Plan or 2017 Plan after the effective date of the 2020 Plan.
Stock Options
A summary of stock option activity under the Company’s equity incentive plan and related information is as follows:

Stock Options
Number of Shares Underlying Outstanding OptionsWeighted-Average Exercise PriceWeighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value (in thousands)
Outstanding — December 31, 20216,542,351 $6.08 6.95$184,727 
Options granted417,016 26.64 
Options exercised(130,958)3.68 
Options canceled/expired(4,169)5.74 
Outstanding — March 31, 20226,824,240 $7.39 6.91$135,005 
Vested and exercisable — March 31, 20224,513,131 $3.94 6.06$102,130 

As of March 31, 2022, unrecognized stock-based compensation of $20.9 million related to unvested stock options will be recognized on a straight-line basis over a weighted average period of 2.78 years.
Restricted Stock Units
A summary of RSU activity under the Company’s equity incentive plan and related information is as follows:
RSUs
Number of SharesWeighted-Average Grant Date Fair Value per Share
Unvested — December 31, 2021483,302 $35.23 
Granted1,060,425 28.43 
Vested(25,033)37.29 
Canceled/Forfeited(8,838)33.53 
Unvested — March 31, 20221,509,856 $30.43 
As of March 31, 2022, unrecognized stock-based compensation of $42.9 million related to unvested RSUs will be recognized on a straight-line basis over a weighted average period of 3.58 years.
2020 Employee Stock Purchase Plan
In November 2020, the Company’s board of directors adopted, and its stockholders approved, the 2020 Employee Stock Purchase Plan (“ESPP”), which became effective in connection with the IPO. A total of 500,000 shares of the Company’s Class A common stock were initially reserved for issuance under the ESPP.
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The aggregate number of shares reserved for issuance under the ESPP will increase automatically on January 1st of each of the first ten calendar years during the term of the ESPP by the number of shares equal to the lesser of (a) 1% of the total outstanding shares of all classes of the Company’s common stock as of the immediately preceding December 31 and (b) such number of shares of common stock as determined by the Company’s board of directors. The aggregate number of shares issued over the term of the ESPP may not exceed 7,500,000 shares of Class A common stock. As of March 31, 2022, the Company has reserved 713,475 shares of its common stock for issuance under the ESPP.
Under the ESPP, Class A common stock will be purchased for the accounts of employees participating in the ESPP on each purchase date at a price per share equal to 85% of the lesser of: (a) the fair market value on the offering date or (b) the fair market value on the purchase date. The ESPP provides for, at maximum, 27 month offering periods and each offering period may consist of one or more six-month purchase periods, beginning December 9, 2020 through May 31, 2022 with the purchase date on the last day of each purchase period. As of March 31, 2022, $2.0 million has been withheld on behalf of employees for a future purchase under the ESPP due to the timing of payroll deductions and is included in accrued and other current liabilities. For the three months ended March 31, 2022, there were no shares of our Class A common stock purchased under the ESPP.
As of March 31, 2022, unrecognized stock-based compensation expense related to the ESPP was $0.5 million, which is expected to be recognized over a weighted-average period of 0.17 years.
Stock-Based Compensation
The total stock-based compensation recognized in the condensed consolidated statements of operations and comprehensive income is as follows (in thousands):
Three Months Ended March 31,
20222021
Cost of revenue$278 $168 
Technology and development877 481 
Sales and marketing1,907 1,161 
General and administrative2,074 1,355 
Total stock-based compensation5,136 3,165 
Tax benefit from stock-based compensation(831)(251)
Total stock-based compensation, net of tax effect$4,305 $2,914 

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Note 9 – Net Income Per Share Attributable to Common Stockholders
The Company has two classes of common stock, Class A and Class B. Basic and diluted earnings per share (“EPS”) attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights. The following table sets forth the computation of the Company’s basic and diluted net income per share (in thousands, except share and per share data):
Three Months Ended March 31,
20222021
Numerator:
Net income attributable to common stockholders - basic$4,779 $4,918 
Denominator:
Weighted average common shares outstanding – basic51,910,572 49,109,237 
Net income per share attributable to common stockholders – basic:$0.09 $0.10 
Numerator:
Net income attributable to common stockholders - diluted$4,779 $4,918 
Denominator:
Weighted average shares outstanding – basic51,910,572 49,109,237 
Options to purchase common stock4,926,804 7,675,321 
Restricted stock4,348  
Employee stock purchase plan shares46,455  
Weighted average shares outstanding – diluted56,888,179 56,784,558 
Net income per share attributable to common stockholders – diluted$0.08 $0.09 
The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive:
Three Months Ended March 31,
20222021
Options to purchase common stock
913,742446,845
Unvested restricted stock units653,061
ESPP21,566
Total excludable from net income per share attributable to common stockholders – diluted
1,588,369446,845
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Note 10 – Income Taxes
The Company computes its provision for income taxes by applying the estimated annual effective tax rate to pretax income and adjusts the provision for discrete tax items recorded in the period.
The Company recorded a provision for income taxes of $1.4 million and $1.9 million for the three months ended March 31, 2022 and 2021, respectively.
The effective income tax rate was 23% and 28% for the three months ended March 31, 2022 and 2021, respectively. The effective tax rate in the quarter ended March 31, 2022 includes a benefit of 5% primarily related to an incremental foreign derived intangible income (FDII) benefit partially offset by global intangible low-taxed income (GILTI) and other effects created by the capitalization and amortization of R&D expenses for tax purposes starting on January 1, 2022, which was primarily due to a change in Section 174 of the Tax Cuts and Jobs Act of 2017.
Realization of the Company’s deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, the Company considers its historical, as well as future projected, taxable income along with other objectively verifiable evidence. Objectively verifiable evidence includes the Company’s realization of tax attributes, assessment of tax credits, and utilization of net operating loss carryforwards during the year.

Note 11 – Segment Information
The following table represents total revenue by geographic area based on the publisher’s billing address (in thousands):
Three Months Ended March 31,
20222021
United States$32,768 $27,408 
EMEA14,641 11,309 
APAC6,121 4,194 
Rest of the world1,022 697 
Total$54,552 $43,608 
The Company’s long-lived assets, net by geographic area are summarized as follows (in thousands):
March 31,
2022
December 31, 2021
United States$39,676 $42,059 
Rest of the world7,114 8,081 
Total$46,790 $50,140 

Note 12 – 401(k) Plan
The Company has a 401(k) Savings Plan (the “401(k) Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating employees may elect to contribute up to 100% of their eligible compensation, subject to certain limitations. The 401(k) Plan provides for a discretionary employer matching contribution. The Company made $0.4 million in matching contribution to the 401(k) Plan for the three months ended March 31, 2022 and no matching contribution for the three months ended March 31, 2021.
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Note 13 – Subsequent Events
In April 2022, the Company entered into a new agreement to sublease approximately 30,216 square feet of office space located in New York, New York. The Company will use the space to support its general and administrative functions, sales and marketing, technology and development, engineering and customer support.
Pursuant to the sublease agreement, the term of the Sublease Agreement will commence on the date of the landlord’s execution of a consent to the Sublease Agreement and will terminate on January 31, 2025. The annual lease payments during the first year are approximately $1.6 million, escalating 2.5% annually thereafter. Rent expense will be recorded on a straight-line basis over the sublease term.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally are identified by the words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” and similar expressions. Examples of forward-looking statements include, but are not limited to, statements we make regarding our ability to maintain our growth and profitability, our ability to attract and retain publishers, our expectations concerning the advertising industry, and our ability to successfully navigate our business through the COVID-19 pandemic.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”).
Overview
We are an independent technology company seeking to maximize customer value by delivering digital advertising’s supply chain of the future. Our sell-side platform empowers the world’s leading digital content creators across the open internet to control access to their inventory and increase monetization by enabling marketers to drive ROI and reach addressable audiences across ad formats and devices. Since 2006, our infrastructure-driven approach has allowed for the efficient processing and utilization of data in real time. By delivering scalable and flexible programmatic innovation, we improve outcomes for our customers while championing a vibrant and transparent digital advertising supply chain.
Our specialized cloud infrastructure platform provides superior monetization for publishers by increasing the value of an impression and providing incremental demand through our deep and growing relationships with buyers. We are aligned with our publisher and app developer partners by being independent. We do not own media and therefore do not have a vested interest in driving ad revenue to specific media properties. Our global platform is omnichannel, supporting a wide array of ad formats and digital device types, including mobile app, mobile web, desktop, display, video, over-the-top (“OTT”), connected television (“CTV”), and rich media.
In March 2022, our platform efficiently processed approximately 383 billion ad impressions daily, each in a fraction of a second. As of March 31, 2022, we served approximately 1,490 publishers and app developers representing over 83,000 individual domains and apps worldwide on our platform across a diverse group of content verticals such as news, e-commerce, gaming, media, weather, fashion, technology, and more, including many of the
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leading digital companies such as Yahoo, formerly Verizon Media Group, and News Corp. We have demonstrated that we can retain and grow revenues from our publisher customers, as evidenced by our net dollar-based retention rate of 140% for the trailing twelve months ended March 31, 2022 and 130% for the trailing twelve months ended March 31, 2021.
We generate revenue from publishers primarily through revenue share agreements, generally one-year contracts that renew automatically for successive one-year periods, unless terminated prior to renewal. We primarily work with publishers and app developers who allow us direct access to their ad inventory, as well as select channel partners that meet our quality and scale thresholds. We refer to our publishers, app developers, and channel partners collectively as our publishers.
We enter into written service agreements with our DSP buyers that allow them to use our platform to buy ad inventory, but we earn revenue from our publishers. Our platform service agreements with DSPs generally have one-year terms that renew automatically for successive one-year periods, unless terminated prior to renewal. We also negotiate Supply Path Optimization (“SPO”) agreements with agencies and advertisers that encourage these buyers to spend a higher share of their advertising budgets on our platform. SPO agreements typically have a one-year term and renewal terms are generally discussed one quarter prior to a new term. The effect of these SPO agreements is to increase the volume of ad spend on our platform without corresponding increases in technology costs.
In the first quarter of 2022, mobile (including mobile video) and video (including OTT/CTV) combined comprised approximately 67% of our revenue. We anticipate mobile to continue increasing as a percentage of our total impressions and revenue in the future. We further expect video to constitute an increasingly important component of our business.
COVID-19
The COVID-19 pandemic and its variants has resulted in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including those provided by certain of the advertisers on our platform. This situation could also potentially limit our ad buyers’ budgets or disrupt sales channels and advertising and marketing activities generally. The duration of these disruptive effects will continue for an unknown period of time until the virus is contained or economic activity normalizes. With the decline in economic activity, our revenue growth slowed and turned negative in the second quarter of 2020. Although our revenue has subsequently returned to growth, the impact of the pandemic on our future growth and our results of operations is unknown and we are unable to accurately predict the future impact. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on a variety of factors, including the duration and spread of the virus, including new variants, and its impact on our publishers, ad buyers, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Risk Factors” for further discussion of the adverse impacts of the COVID-19 pandemic on our business.
The table below summarizes the financial highlights of our business:
Three Months Ended March 31,
20222021
(in thousands)
Revenue$54,552 $43,608 
Operating income
$4,581 $6,642 
Net income
$4,779 $4,918 
Adjusted EBITDA(1)
$17,006 $14,494 
Net cash provided by operating activities$19,314 $12,687 
_______________
(1)For a definition of Adjusted EBITDA, an explanation of our management’s use of this measure, and a reconciliation of Adjusted EBITDA to net income, see “Non-GAAP Financial Measure”
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Key Factors Affecting Our Performance
We believe our growth and financial performance are dependent on many factors, including those described below.
Growing access to valuable ad impressions
Our recent growth has been driven by a variety of factors including increased access to mobile web (display and video) and mobile app (display and video) impressions and desktop video impressions. Our performance is affected by our ability to maintain and grow our access to valuable ad impressions from current publishers as well as through new relationships with publishers. The number of ad impressions processed on our platform was approximately 32.6 trillion and 18.5 trillion for the three months ended March 31, 2022 and 2021, respectively.
Monetizing ad impressions for publishers and buyers
We focus on monetizing digital impressions by coordinating daily over a hundred billion real-time auctions and nearly a trillion bids globally, using our specialized cloud software, machine learning algorithms, and scaled transaction infrastructure. Valuable ad impressions are transparent and data rich, viewable by humans, and verifiable. Each ad impression we auction consists of over 460 independent data parameters, which can yield valuable insights if recorded and analyzed properly. This processing of voluminous data for each ad impression must occur in less than half a second as consumers expect a seamless digital ad experience. By deploying our specialized software and hardware and continuously optimizing our machine learning algorithms, we are able to derive superior outcomes by increasing advertiser return on investment (“ROI”) and publisher revenue, while increasing the cost efficiency of our platform and our customers’ businesses. We continually assess impressions from new and existing publishers through a rigorous validation process. We add or remove impressions from our platform based on an assessment of the projected value of the impressions, which is influenced by the type of publisher and its related consumers, as well as the potential volume of monetizable impressions and ad format types, such as digital video. We continuously create and iterate algorithms that leverage vast datasets flowing through our infrastructure to improve the liquidity in our marketplace. Our ability to drive successful outcomes in the real-time auction process on behalf of our publishers and buyers will affect our operating results.
Identifying valuable ad impressions that we can profitably monetize at scale
We continuously review our available inventory from existing publishers across every format (mobile, desktop, digital video, OTT, CTV, and rich media). The factors we consider to determine which impressions we process include transparency, viewability, and whether or not the impression is human sourced. By consistently applying these criteria, we believe that the ad impressions we process will be valuable and marketable to advertisers. In addition, using a combination of proprietary analysis driven by machine learning algorithms that are continuously updated along with specialized third-party tools, we aim to exclude low value impressions from our platform and, in some cases, may suspend certain publishers, or particular publisher sites and apps, from using our platform if they do not meet our standards. Our confidence in our ability to achieve our quality goals is backed by a fraud-free guarantee to all of our buyers which we introduced in 2017. We believe that this rigorous commitment to quality helps us maintain our reputation as a leader in the programmatic advertising ecosystem. Our financial performance depends in part on how efficiently and effectively we can conduct these activities at scale.
Increasing revenue from publishers and advertising spend from buyers
We leverage our extensive platform capabilities and the subject matter expertise of our team members to grow revenue from our publishers and increase advertising spending from our buyers. Our sales and marketing team includes customer success pods to enhance customer knowledge and implementation of best practices. Once we onboard a new customer, we seek to expand our relationship with existing publishers by establishing multiple header bidding integrations by leveraging our omnichannel capabilities to maximize our access to publishers’ ad formats and devices, and expanding into the various properties that a publisher may own around the world. We may also up-sell additional products to publisher customers including our header bidding management, identity, and audience solutions. We automate workflow processes whenever feasible to drive predictable and value-added outcomes for our customers and increase productivity of our organization.
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Net dollar-based retention rate is an important indicator of publisher satisfaction and usage of our platform, as well as potential revenue for future periods. We calculate our net dollar-based retention rate at the end of each quarter for a cumulative twelve months. We calculate our net dollar-based retention rate by starting with the revenue from publishers in the prior trailing twelve-month period (“Prior Period Revenue”). We then calculate the revenue from these same publishers in the current trailing twelve-month period (“Current Period Revenue”). Current Period Revenue includes any upsells and is net of contraction or attrition, but excludes revenue from new publishers. Our net dollar-based retention rate equals the Current Period Revenue divided by Prior Period Revenue. Our net dollar-based retention rate was 140% for the trailing twelve months ended March 31, 2022 and 130% for the trailing twelve months ended March 31, 2021. Our growth in the period ended March 31, 2022 and 2021 was primarily attributable to an increase in the number of ad impressions processed from our publishers, upselling additional products, penetration of header bidding for mobile app and digital video, and increased demand from the growth of our buyer relationships primarily through SPO agreements.
We work with DSPs to help them reduce their costs and improve advertiser ROI, which in turn makes us the specialized cloud infrastructure platform of choice for many of our buying partners. As buyers increasingly consolidate their spending with fewer larger technology platforms, we seek to bring an increased proportion of their digital ad spending to our platform through direct deals. We have entered into SPO agreements directly with buyers, advertisers and agencies through various arrangements ranging from custom data and workflow integrations, product features, and volume-based business terms. The effect of these SPO agreements is to increase the volume of ad spend on our platform without corresponding increases in technology costs.
Managing industry dynamics
We operate in the rapidly evolving digital advertising industry. Due to the scale and complexity of the digital advertising ecosystem, direct sales via manual, person-to-person processes are insufficient for delivering a real-time, personalized ad experience, creating the need for programmatic advertising. In turn, advances in programmatic technologies have enabled publishers to auction their ad inventory to more buyers, simultaneously, and in real time through a process referred to as header bidding. Header bidding has also provided advertisers with transparent access to ad impressions. As advertisers keep pace with ongoing changes in the way that consumers view and interact with digital media there will be further innovation and we anticipate that header bidding will be extended into new areas such as OTT/CTV. We believe our focus on publishers and buyers has allowed us to understand their needs and our ongoing innovation has enabled us to quickly adapt to changes in the industry, develop new solutions and do so cost effectively. Our performance depends on our ability to keep pace with industry changes such as header bidding and the evolving needs of our publishers and buyers while continuing our cost efficiency.
Expanding and managing investments
We make software and hardware infrastructure investment decisions to meet expected increases in ad impressions on both a global and regional data center level throughout the calendar year based on the projected quantity, ad format type, and associated data requirements. In parallel, we seek to continuously improve our infrastructure utilization. Our ability to identify and monetize high value impressions allows us to operate more efficiently because the cost of processing low-value impressions and high-value impressions are approximately the same. We believe that increasing utilization of our platform leads to improved outcomes for our customers and more efficient and effective operations for us. To achieve improved utilization, we leverage the data on our platform through extensive application of artificial intelligence technologies, including machine learning and natural language processing. The magnitude and timing of our investments in our software and hardware may lead to fluctuations in our operating results.
Expanding internationally
We plan to continue expanding our international presence and making additional investments in sales and marketing and infrastructure to support our long-term growth and to position ourselves for expected increases in the penetration of programmatic advertising globally. We expect programmatic advertising to grow at different rates in different geographic markets. Our publishers outside of the United States typically have smaller amounts of
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programmatic inventory, and as a result, our sales and marketing expenses associated with non-U.S. publishers are generally proportionally higher. We are constantly evaluating new markets with a strategy to use our existing infrastructure and adjacent sales offices, or by expanding our infrastructure footprint and placing personnel directly in those markets. Our ability to efficiently expand into new markets will affect our operating results.
Managing Seasonality
The global advertising industry experiences seasonal trends that affect the vast majority of participants in the digital advertising ecosystem. Most notably, advertisers have historically spent relatively more in the fourth quarter of the calendar year to coincide with the holiday shopping season, and relatively less in the first quarter. We expect seasonality trends to continue, and our ability to manage our resources in anticipation of these trends will affect our operating results.
Non-GAAP Financial Measure
In addition to our results determined in accordance with U.S. generally accepted accounting principles (“GAAP”), including, in particular operating income, net cash provided by operating activities, and net income, we believe that adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We define adjusted EBITDA as net income adjusted for stock-based compensation expense, depreciation and amortization, impairments of long-lived assets, interest income, and provision for income taxes.
The following table presents a reconciliation of adjusted EBITDA to net income for each of the periods indicated:
Three Months Ended March 31,
20222021
(in thousands)
Net income$4,779 $4,918 
Add back (deduct):
Stock-based compensation5,136 3,165 
Depreciation and amortization7,183 4,550 
Unrealized gain on equity investment(1,373)— 
Interest income(122)(62)
Provision for income taxes1,403 1,923 
Adjusted EBITDA$17,006 $14,494 

Key Components of Our Results of Operations
Revenue
We generate revenue from publishers who use our platform. Our platform allows publishers to sell, in real time, customized ad inventory to buyers and provides automated inventory management and monetization tools to publishers across various device types and digital ad formats. We generate revenue primarily through fees charged to our publishers, which are generally a percentage of the value of the advertising impressions that publishers monetize on the platform. We report revenue on a net basis. This represents gross billings to buyers, net of amounts we pay publishers. We record our accounts receivable at the amount of gross billings to buyers, net of allowances, for the amounts we are responsible to collect, and we record our accounts payable at the net amount payable to publishers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue, which is reported on a net basis.
Our revenue recognition policies are discussed in more detail under “—Critical Accounting Policies and Estimates.”
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Cost of Revenue
Cost of revenue consists of data center co-location costs, depreciation expense related to hardware supporting our platform, amortization expense related to capitalized internal use software development costs, personnel costs, and allocated facilities costs. Personnel costs include salaries, bonuses, stock-based compensation, and employee benefit costs, and are primarily attributable to our cloud operations group, which maintains our servers, and our client operations group, which is responsible for the integration of new publishers and buyers and providing customer support for existing customers. We expect cost of revenue to generally increase in absolute dollars in future periods.
Operating Expenses
Technology and Development. Technology and development expenses consist of personnel costs, including salaries, bonuses, stock-based compensation, and employee benefits costs, allocated facilities costs, and professional services. These expenses include costs incurred in the development, implementation and maintenance of internal use software, including platform and related infrastructure. We expend technology and development costs as incurred, except to the extent that such costs are associated with internal use software development that qualifies for capitalization. We expect technology and development expenses to generally increase in absolute dollars in future periods.
Sales and Marketing. Sales and marketing expenses consist of personnel costs, including salaries, bonuses, stock-based compensation, and employee benefits costs, for our employees engaged in sales, sales support, marketing, business development, and customer relationship functions. Sales and marketing expenses also include expenses related to promotional, advertising and marketing activities, allocated facilities costs, travel, and entertainment primarily related to sales activity and professional services. We expect sales and marketing expenses to increase in absolute dollars in future periods.
General and Administrative. General and administrative expenses consist of personnel costs, including salaries, bonuses, stock-based compensation, and employee benefits costs for our executive, finance, legal, human resources, information technology, and other administrative employees. General and administrative expenses also include outside consulting, legal and accounting services, allocated facilities costs, and travel and entertainment primarily related to intra-office travel and conferences.
We expect to invest in corporate infrastructure and incur additional expenses associated with the transition to and operation as a public company, including increased legal and accounting costs, increased investor relations costs, higher insurance premiums, and compliance costs associated with developing the requisite infrastructure required for internal controls. As a result, we expect general and administrative expenses to increase in absolute dollars in future periods.
Total Other Income (expense), Net
Total other income (expense), net consists of interest income, unrealized gain on equity investment and other income (expense), net. Interest income is generated by investing excess cash into money market accounts and marketable securities. Unrealized gain on equity investment consists of gains and losses on our investment in equity securities, including unrealized gains and losses from market price changes on securities we continue to hold. Other income (expense), net consists primarily of gains and losses from foreign currency exchange transactions.
We believe that investment gains and losses, whether realized from dispositions or unrealized from changes in market prices of equity securities, are generally meaningless in understanding our reported results or evaluating the economic performance of our businesses. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings.
Provision for Income Taxes
The provision for income taxes consists primarily of federal, state, and foreign income taxes. Our income tax provision may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate and
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other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimates based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision. We reevaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period.
Our effective tax rate differs from the U.S. federal statutory income tax rate due to state taxes, foreign tax rate differences, technology and development tax credits, and stock-based compensation.
Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, we consider our historical, as well as future projected, taxable income along with other objectively verifiable evidence. Objectively verifiable evidence includes our realization of tax attributes, assessment of tax credits, and utilization of net operating loss carryforwards during the year.
Results of Operations
The following tables set forth our condensed consolidated results of operations data and such data as a percentage of revenue for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
Three Months Ended March 31,
20222021
(in thousands)
Condensed Consolidated Statements of Operations:
Revenue$54,552 $43,608 
Cost of revenue(1)
17,992 12,300 
Gross profit36,560 31,308 
Operating expenses(1):
 
Technology and development4,773 3,738 
Sales and marketing16,456 12,789 
General and administrative10,750 8,139 
Total operating expenses31,979 24,666 
Operating income4,581 6,642 
Total other income (expense), net1,601 199 
Income before income taxes6,182 6,841 
Provision for income taxes1,403 1,923 
Net income$4,779 $4,918 
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(1)Amounts include stock-based compensation before tax benefit as follows:
Three Months Ended March 31,
20222021
(in thousands)
Cost of revenue$278 $168 
Technology and development877 481 
Sales and marketing1,907 1,161 
General and administrative2,074 1,355 
Total stock-based compensation expense$5,136 $3,165 

Three Months Ended March 31,
20222021
(as percentage of revenue)
Revenue100 %100 %
Cost of revenue33 28 
Gross profit67 72 
Operating expenses:
Technology and development
Sales and marketing30 29 
General and administrative20 19 
Total operating expenses59 57 
Operating income15 
Total other income (expense), net— 
Income before income taxes11 15 
Provision for income taxes
Net income
%11 %

Revenue, Cost of Revenue and Gross Profit
Three Months Ended March 31,
20222021$ Change% Change
(dollars in thousands)
Revenue$54,552 $43,608 $10,944 25 %
Cost of revenue17,992 12,300 5,692 46 %
Gross profit$36,560 $31,308 $5,252 17 %
Gross profit margin67 %72 %

Revenue for the three months ended March 31, 2022 increased by $10.9 million, or 25%, compared to the three months ended March 31, 2021. The growth in these periods was driven by increased impressions processed on our platform from both existing and new publishers.
As of March 31, 2022, we served approximately 1,490 publishers and app developers worldwide on our platform, which represented over 60,000 domains and 23,000 apps in total, compared to approximately 1,250 publishers and app developers worldwide, which represented approximately 60,000 domains and 28,000 apps in total as of March 31, 2021. For purposes of our publisher count, we aggregate multiple business accounts from
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separate divisions, segments or subsidiaries into a single “master” publisher based on our assessment of the related nature of the group.
We expect revenue to continue to grow in 2022 with mobile and omnichannel video, which is the combination of short form video and OTT/CTV, as our primary growth drivers.
Cost of revenue increased $5.7 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to a $2.5 million increase in depreciation of data center equipment and amortization of internal use software, a $1.9 million increase in data centers costs, a $0.8 million increase in support and maintenance costs, and a $0.4 million increase in personnel costs as headcount increased by 16%, and higher stock-based compensation costs. Overall, our cost of revenue per impression processed for the three months ended March 31, 2022 decreased by approximately 17% compared to the three months ended March 31, 2021.
Our gross margin of 67% for the three months ended March 31, 2022 decreased compared to 72% for the three months ended March 31, 2021 due to timing of infrastructure investments and seasonal ad spend.
We expect the cost of revenue to be higher in 2022 compared to 2021 in absolute dollars as we continue to expand our capacity to process impressions. Cost of revenue may fluctuate from quarter to quarter and period to period, on an absolute dollar basis and as a percentage of revenue, depending on revenue levels and the volume of transactions we process supporting those revenues, and the timing and amounts of depreciation and amortization of equipment and software.
Technology and Development
Three Months Ended March 31,
20222021$ Change% Change
(dollars in thousands)
Technology and development
$4,773 $3,738 $1,035 28 %
Percent of revenue
%%
The increase in technology and development costs for the three months ended March 31, 2022 was primarily due to an increase of $2.1 million in personnel costs partially offset by $1.2 million related to the capitalization of internal use software.
We expect technology and development expenses to continue to increase in 2022 compared to 2021 in absolute dollars, primarily due to investment in technological innovation and additional headcount.
Sales and Marketing
Three Months Ended March 31,
20222021$ Change% Change
(dollars in thousands)
Sales and marketing
$16,456 $12,789 $3,667 29 %
Percent of revenue
30 %29 %
Sales and marketing costs for the three months ended March 31, 2022 increased primarily due to a $2.8 million increase in personnel costs as headcount increased by 14% and higher stock-based compensation, a $0.6 million increase in facilities costs, mainly due to new office space, and a $0.2 million increase in marketing expenses.
We expect sales and marketing expenses to increase in 2022 compared to 2021 in absolute dollars primarily due to additional headcount investment and marketing programs.
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General and Administrative
Three Months Ended March 31,
20222021$ Change% Change
(dollars in thousands)
General and administrative
$10,750 $8,139 $2,611 32 %
Percent of revenue
20 %19 %
General and administrative expense increased for the three months ended March 31, 2022 primarily due to a $1.8 million increase in personnel costs associated with a 27% increase in headcount and higher stock-based compensation costs, a $0.4 million increase in facilities costs, mainly due to new office space, and a $0.3 million increase in professional services composed primarily of recruiting expenses.
We expect general and administrative expenses to increase in 2022 compared to 2021 in absolute dollars primarily due to the additional headcount and increased costs associated with being a public company.
Total Other Income (Expense), net
Three Months Ended March 31,
20222021$ Change% Change
(dollars in thousands)
Total other income (expense), net
$1,601 $199 $1,402 705 %
Total other income (expense), net increased for the three months ended March 31, 2022 compared to the prior year period, as a result of unrealized gains related to our equity investment and due to currency fluctuations.
Provision for Income Taxes
Three Months Ended March 31,