Hello, everyone, and welcome to PubMatic's Fourth Quarter and Full Year 2022 Earnings Call. My name is Kelly, and I will be your Zoom operator today. Thank you for your attendance. This webinar is being recorded. And I will now turn the call over to Stacie Clements with the Blueshirt Group.

Good afternoon, everyone, and welcome to PubMatic's earnings call for the fourth quarter and year ended December 31, 2022. This is Stacie Clements with the Blueshirt Group, and I'll be your operator today. Joining me on the call are Rajeev Goel, Co-Founder and CEO; and Steve Pantelick, CFO. Before we get started, I have a few housekeeping items. Today's prepared remarks have been recorded, after which Rajeev and Steve will host live Q&A. If you plan to ask a question, please ensure you've set your Zoom name to display your full name and firm. If you would like to ask a question during this time, please use the raise hand function located at the bottom of your screen. A copy of our press release and accompanying slides can be found on our website at investors.pubmatic.com. I would like to remind participants that during this call, management will make forward-looking statements, including, without limitation, statements regarding our future performance, market opportunity, growth strategy and financial outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other 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, including our most recent Form 10-K and any subsequent filings on Forms 10-Q or 8-K, which are on file with the Securities and Exchange Commission and are available at investors.pubmatic.com. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. All information discussed today is as of February 28, 2023, and we do not intend and undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. In addition, today's discussion will include references to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP net income. 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. With that, I will now turn the call over to Rajeev.

Thank you, Stacie, and welcome, everyone. Revenue for the year grew 13% over 2021, yet again outpacing the global digital ad market forecast of 8.6% growth. Omnichannel video grew 42% year-over-year and CTV alone tripled over last year as the format continues to evolve towards programmatic. These high-growth, highly profitable channels drove adjusted EBITDA margins of 38%. We generated over $87 million in net cash from operating activities and $38 million in free cash flow. Altogether, a compelling financial profile combined with ongoing targeted investments for long-term growth. The fourth quarter undoubtedly had its challenges. Performance was slightly below expectations; sharp declines in ad spend across the industry, particularly in December, impacted our business. In our case, we saw the largest sequential drop over November in the last 10 years. This primarily impacted the display portion of our business, which declined 11% over last year and continues to pressure overall growth. While omnichannel video continues to gain share at a rapid pace, display remains roughly two-thirds of our business. Revenues for our omnichannel video business in the fourth quarter continued to grow 25% year-over-year, and connected TV and over-the-top streaming more than doubled over Q4 last year. These high-growth areas remain intact, and we have reorganized resources to move quickly to innovate and execute across these areas. While these long-term growth drivers will diversify our revenue over time, we believe that when ad spend growth reaccelerates, display will recover as well. While visibility is limited due to the uncertain economic environment, our business model is unique with respect to our ability to consistently generate cash and maintain 30% plus annual adjusted EBITDA margins while also investing in future growth opportunities. We are efficient as a company and technology platform. We are highly nimble and innovative, leading in our category, and we have a strong balance sheet, coupled with a long track record of profitability. As a result, we will use the current challenging economic environment to build even deeper relationships with our customers and make highly focused innovation investments that we believe will position us for significant gains when digital ad spend growth inevitably turns upward. Moreover, we have taken significant steps to operate within the current environment, protect our cash flow and set ourselves up for higher margins in the future. We ended 2022 with an estimated market share of 4% to 4.5%, significantly up from when we went public just over two years ago. We are well on our way to our stated goal from the time of our IPO of 20% market share, and we intend to use the downturn to further accelerate our gains. Stepping back, the opportunity for open Internet advertising has never been greater. Advertisers and publishers continue to seek alternatives to the walled gardens. This tailwind, along with the structural changes, including ongoing antitrust activities, will only expand our total addressable market as an independent technology provider. Moreover, consumers are increasingly seeking ad-supported content experiences to offset other household budgetary priorities. As the ecosystem grows more complex, the need for greater efficiency is driving publishers and buyers toward technologies that help them better compete. The challenges of today's macro environment will pass, and we believe the investments we make today will have exponential impact as we continue to increase the value proposition and stickiness of our platform and expand our addressable market. We have a sizable global total addressable market that includes high-growth ad formats such as CTV, online video and mobile. In addition, we recently entered new markets like France, Spain, South Korea, and non-domestic China, expanding our addressable market even further. We see strong signs of success in these new markets with nearly 90 customers signed in 2022 alone, such as French media company Amaury Media, Spanish mass media company Vocento, the CTV content and ad business of electronics giant TCL, known as TCL Ffalcon, and Korean addressable TV leader SKBroadband. We have over 1,600 publishers we already work with and continue to acquire new marquee customers, such as Roku and TiVo in CTV and Kroger in Retail Media. In this slower economic environment, our priority is to deepen our relationships with existing customers and build the technical pipes or integrations with our customers for inventory and data access so that we are in an advantaged position when ad spend growth picks up. Publishers are actively looking to add the right partners that can help them increase their revenue in these uncertain times. I have spent significant time in the last several months with a number of customers, and my view is that today’s economic environment is likely to accelerate programmatic growth as publishers seek greater operational efficiencies to the alternatively high-costs of managing a traditional insertion order-based business. In fact, we closed 50% more new customer additions and upsells in January 2023 compared to January 2022. Once we sign a new customer, our focus turns to expanding that relationship through our sticky portfolio of solutions such as our wrapper, mobile app SDK, identity, and data solutions, which further embed us into publisher monetization and workflows. Once integrated, customers continue to grow with PubMatic. In 2022, we had high publisher logo retention of 97% and benefit from a high net dollar-based retention rate of 108%. We spent the last two years investing in our sales and customer success team. We believe we have strong market coverage in place to continue to execute and drive market share gains. We enter 2023 having significantly reduced the pace of hiring, focusing instead on a very select number of high-priority roles. At the same time, ad buyers are looking for more data-driven decision making and measurable results. Major ad buyers are looking to consolidate their budgets with fewer partners in order to drive operational efficiency and effectiveness. The majority of ad spend comes from top agencies and advertisers. These powerhouses typically have multi-layered decision makers across multiple regions and require vast market coverage and expertise. We believe we are well positioned to gain share for two reasons. First, we’ve made the investments in our go-to-market coverage over the last two years, and our teams are already executing. Second, our differentiating technology, including workflow and data solutions, provide buyers with greater control over their ad budgets and ultimately higher return on ad spend. Activity from supply path optimization grew to over 30% in Q4 2022, up from 21% in 2020. We continue to expand our relationships with major holding companies like GroupM and Havas, and recently with independent agencies like Horizon. We are one of only two independent, global, and omnichannel platforms at scale, and so it’s quite possible that this economic environment will accelerate our supply path optimization penetration in 2023. Let me turn now to our focus as it relates to product innovation. In 2022, we increased the number of products and features released by 30% over 2021 to almost 400, including Connect, OpenWrap for CTV and mobile app, private marketplaces, CTV monetization, agency-specific solutions, and infrastructure upgrades. Looking to 2023, the key pillars of our focus for this year are Supply Path Optimization and Retail Media. We are accelerating our cadence of product releases in these two areas based on product and engineering investments made over the last couple of years and our acquisition of Martin last fall. Our first priority is expanding our Supply Path Optimization offering. We have been hard at work integrating Martin technology, and we are receiving great feedback from agencies and advertisers on how we can help them further drive return on ad spend, measurement, and operational efficiency. We will make a series of product releases for buyers on our platform over the course of this year with a particular focus on CTV and online video optimization. Our second priority is Retail Media, which is one of the fastest-growing categories within our addressable market. Over the past several quarters, we have been readying existing capabilities in onsite monetization, data management, and audience targeting specifically for retail media customers. Over the course of this year, we will make a series of product launches that bring automation, scale, and efficiency to this market. There is no doubt that we are in a challenging economic environment with muted digital ad spend growth in the near term. Based on our prior experience in such downturns, however, we expect to come out of this period even better positioned. We believe this environment favors scaled companies like PubMatic that are efficient, highly innovative, nimble, and profitable. Our focus on acquiring new customers and deepening integrations with existing customers, as well as rapidly innovating in supply path optimization and retail media, will be well rewarded when ad spend growth re-accelerates. Importantly, we have built a durable business, and we enter this period with a very strong financial profile, generating healthy free cash flow and no debt. This attractive profile provides us with an opportunity to expand our priorities with respect to capital allocation. We operate in a large and growing market, and so we will continue to appropriately invest in the business to drive market share gains both organically and via acquisition from time to time. In addition, we are announcing a share repurchase program that allows us to return more value to shareholders. And finally, I want to add that we have aligned our investment strategy and continue to optimize for maximum productivity in anticipation of a less robust economic environment in the second half of the year compared to what many are assuming. If the economy rebounds at a faster rate, we will adjust our plans appropriately to capture the opportunity. And now, let me turn it over to Steve to provide additional detail.

Thank you, Rajeev and welcome everyone. As noted by other digital ad companies, December spending across the ecosystem was uncharacteristically soft. As a result, our fourth quarter revenue was $74.3 million, down 1.7% year-over-year, driven by an 11% decline in display, which is about two-thirds of our revenues. This result was below our expectations. Importantly, our high growth areas continued to shine. Revenue from omnichannel video grew 25% year-over-year driven by CTV revenue, which more than doubled. At the outset of the fourth quarter, our outlook assumed continued weakness in display but not the severe industry-wide deceleration that occurred in December. Our display revenues were down 15% versus the prior December. We are taking actions to mitigate the display impact on our business. Despite these challenges, we continued to outpace the overall market and were up 13% year-over-year to a record $256.4 million. This growth was on top of 2021’s growth of 53%. Significantly, we are seeing the benefits of our investments in long-term growth drivers like omnichannel video which grew 42% year-over-year on top of 2021’s growth of 79%. These investments and others have enabled us to more than double our revenues from 2019. 2022 was our 7th straight year of GAAP net income and 10th straight year of adjusted EBITDA. And notably, our business generates significant cash flow. 2022 was our 9th straight year of positive cash from operations and since 2016 we have generated approximately $150 million in free cash flow. This consistent performance stands out amongst our peer set. Q4 adjusted EBITDA was $32.6 million, a 44% margin. We generated $19.4 million in net cash from operating activities and $7 million in free cash flow. Full year adjusted EBITDA was $98 million, a 38% margin. We generated $87.2 million in net cash from operating activities and $38.3 million in free cash flow or 15% free cash flow margin. In the last two years alone, we have generated $88 million in free cash flow, and that is after investing $60 million in platform infrastructure with an expected average lifetime of over five years. These financial results are driven by our strong publisher and buyer relationships, our diversified omnichannel platform, and our owned and operated infrastructure. We have built an effective land and expand go-to-market organization and our pipeline continues to build in 2023. We focus on expanding publisher relationships and drive healthy multi-year net dollar retention rates. On a trailing 12-month basis, publisher net dollar retention was 108%, representing a robust balance between new and existing publishers. Turning to our buyers, our supply path optimization efforts over the last several years have resulted in increased overall ad spend and greater spend retention. Similar to our publisher strategy, once we land new SPO relationships, we successfully ramp them across formats and geographies. Viewed through the same retention lens as publishers, the net spend retention rate for SPO buyers with at least three years of spending has been about 124% each year. Since we pioneered SPO four years ago, we have retained nearly 100% of SPO ad buyers, highlighting the stickiness of our platform and the increased value we bring to them. The diversity of our platform is a key strength. Our omnichannel video revenues span across desktop, mobile, and CTV devices, and was 34% of revenues in Q4, up from 22% of revenues in Q1 2021. From a device perspective, mobile advertising revenues, across all formats, increased to 57% of revenues in Q4 2022, up from 53% of revenues in Q1 2021. We are also well diversified across ad verticals, which contributes to our resiliency. For example, in Q4 we saw Automotive and Food & Drink both grow 25% year-over-year. This growth helped offset weakness in Shopping, Technology, and Personal Finance, which in aggregate declined 13% year-over-year. Overall, our top 10 ad verticals were flat in the fourth quarter compared to last year. Another source of strength is our geographic diversity. In Q4, EMEA revenues increased 11.5% year-over-year partially offsetting a decline in the U.S. Earlier in the year, Americas growth helped balance softness in EMEA and APAC. For the full year, all regions expanded revenues by double digits. Now turning to our operational strength which gives us several significant levers in our business that allow us to maintain 30% plus annual adjusted EBITDA margins, generate healthy cash flows and invest for continued long-term growth in an expanding addressable market. First, by owning and operating our infrastructure, we have significant leverage and operational control, a key competitive differentiator for us. Since 2019, we have invested approximately $90 million to expand our impression capacity and platform capabilities. This has allowed us to grow our market share. For example, over the last three years, we increased the number of impressions we processed by over 400% to capitalize on our expanded publisher relationships. In 2023, our focus is on leveraging prior investments and driving increased optimization through the software and hardware layers. These efforts will further increase capacity while reducing our CapEx by more than 50%. We anticipate seeing the margin benefits in the second half. We also expect our optimization efforts will lead to further margin expansion next year. Second, we operate a highly efficient and productive development organization in India. We estimate that we are saving over $30 million per year building software using our India team versus deploying those resources onshore. Over 80% of our tech hiring in 2022 was in India which rolled out 30% more product releases last year. And third, with our long-term focus on profitability, we take a nimble approach to managing our business. In the second half of 2022, we moved quickly to adjust our expense structure and investment plans once it became clear that overall ad spending growth was trending down. These actions contributed about $10 million to our bottom-line by the end of 2022. Our operating plans for 2023 call for significant reduction in the pace of hiring as compared to 2022. Q4 GAAP OpEx was $34.8 million or a 13% increase year-over-year. Excluding stock-based compensation costs and acquisition-related costs, operating expense growth was 4%. Full year GAAP OpEx was $134.3 million or 22% increase year-over-year. Excluding stock-based compensation costs and acquisition-related costs, operating expense growth was 16%. Q4 marked our 15th straight quarter of GAAP net income and was $12.8 million or 17% net margin. Full year net income was $28.7 million or an 11% net margin. Q4 non-GAAP net income, which adjusts for unrealized gain or loss on equity investments, stock-based compensation expense, acquisition-related and other expenses, and related adjustments for income taxes, was $18.7 million or 25% of revenue. Full year non-GAAP net income was $52.2 million or a 20% margin. Q4 diluted EPS was $0.22 and non-GAAP diluted EPS was $0.33. 2022 diluted EPS was $0.50 and non-GAAP diluted EPS was $0.92. Turning to cash, since our IPO 26 months ago, we have generated more than $180 million in cash from operations. We have used this cash for working capital, investments in long-term organic growth and the acquisition of Martin. At the end of 2022, we had $174 million in cash and marketable securities and no debt. Our priority is to drive shareholder value. There is no shortage of opportunities in our huge industry with years of growth ahead, and you will see us continue to drive growth and gain market share, both organically and from time to time via M&A. In addition, our board of directors has approved the repurchase of up to $75 million of our Class A common stock, through the end of 2024. Now turning to our 2023 outlook. There is considerable uncertainty about the trajectory for digital ad spend this year due to the pronounced December weakness and persistent overhang of macro headwinds across the globe. Display, in particular, continues to see pressure. These trends and challenging conditions have led to a wide range of industry forecasts for 2023. Given these circumstances, we have built our investment plan assuming a low to mid single-digit rate of growth for digital advertising in 2023. We anticipate continued softness in the first half followed by tempered improvement in the second half. Overall, the plan we have in place is expected to deliver three important outcomes: One, generate similar free cash flow as we did in 2022; two, position us for revenue acceleration when ad spend stabilizes; and three, establish a new level of efficiency in our cost structure that will lead to margin expansion by the end of 2023 and beyond. For Q1 2023, we anticipate revenue to be in the range of $50 million to $52 million. December weakness continued into January, with display revenue down 13% year-over-year. Online video also started the year off slowly and was down in January year-over-year. CTV continued its strong trajectory and grew double digits. Overall, omnichannel video grew year-over-year. From a regional perspective, EMEA thus far has grown double digits year-over-year, while both the Americas and APAC were down. Over the last several weeks, we have seen trends improve sequentially over January. If these trends continue, we anticipate that Q2 revenues will sequentially increase by approximately 10%, in line with our historical 10-year average. In light of this, we have taken actions to drive our incremental productivity across every aspect of our business. We expect to reduce CapEx by over 50% compared to 2022 and reduce our discretionary spend plans. In addition, we have reorganized our go-to-market and technology teams to apply incremental resources towards the fastest growing areas in video, including CTV, supply path optimization, and retail media. GAAP cost of revenue in Q1 will grow sequentially from Q4 by approximately $1.4 million due to the full quarter impact of year-end 2022 CapEx and inflation cost increases passed through by our colo providers that took effect in January. Over the coming quarters, as a function of proactive steps on productivity and cost-saving measures, we anticipate keeping sequential cost increases in the low single digits. We expect Q1 GAAP OpEx to increase approximately $7 million versus Q4. This increase absorbs the Q4 run rate of expense, incremental Martin expense plus an additional cost related to our January global sales conference. We anticipate Q2 OpEx will be lower than Q1 by about $1 million with sequential increases in the low single digits thereafter. Excluding stock-based compensation and Martin acquisition related costs, Q1 non-GAAP OpEx will be $4 million higher versus Q4. Given our revenue guidance and our cost structure which is largely fixed in the near term by design, we expect our Q1 adjusted EBITDA to be between $4 million and $6 million or approximately 10% margin at the midpoint. As a reminder, historically our first quarter is impacted by prior year investments carried forward during a period of low seasonal ad spend. We expect profitability to improve as the year progresses driven by the full effect of our cost reductions, optimizations, and typical seasonal increases in ad spend. We anticipate Q3 and Q4 adjusted EBITDA margin levels to be above 30%. For the full year, we expect adjusted EBITDA margin to be over 30%. We expect CapEx to be $13 million to $16 million for the full year, more than 50% lower than 2022. As I mentioned earlier, we have built our plan assuming low to mid single-digit growth in digital ad spend this year. As a leading technology platform, we expect to continue to outpace the market rate of growth and gain share as a result. Accordingly, to the extent that industry growth rates are higher than our current assumption, we would expect to grow faster. In addition, the recently announced closure of several sell-side platforms gives us even greater opportunity for incremental share gains over time, which are not included in our current 2023 expectations. We have strong publisher and buyer relationships, a diversified omnichannel platform, and a durable business model. We anticipate that the work we are doing now to increase productivity and leverage prior investments will result in margin expansion and increased cash flows later this year and well into 2024.

Thank you, Steve. I’ll start the queue off with Jason Helfstein, Oppenheimer. Please go ahead, Jason.

Thanks. I’m just going to ask one. Can you elaborate on your deal with Roku that you mentioned in the release? Does this cover all of their owned inventory such as the Roku channel? How fast can this ramp, and just broad thoughts because it would unlock a significant amount of inventory for you? Thanks.

Yes. Hey, Jason. This is Rajeev, so I can take that. So, I can’t go into too many details on the specific aspects of what you’re asking. But we see an opportunity to work with Roku across a wide variety of inventory, whether it’s their own inventory on the Roku channel or inventory they own on other channels, in addition to already working with other content owners' channels, inventory that flows through Roku. So, I think all multiple aspects are open, and we think it can be a really significant relationship in 2023.

And our next question comes from Justin Patterson with KeyBanc. Please go ahead, Justin.

Great, thank you very much and good afternoon. I guess it came up toward the end of your comments, Steve, but would love to hear your thoughts and Rajeev just around opportunities around vendor consolidation. Obviously, there have been some bankruptcies. We are seeing publishers like Yahoo shut down the SSP side of the business. I think that was about 13% of your revenue last year. So, I’d love to hear how you’re thinking about just vendor consolidation as an opportunity over the course of the year. Thank you.

Yes, I can kick that off, and Steve, feel free to add anything. So as you mentioned, Yahoo announced that they plan to close their own SSP, and on the same day, we also saw EMX, a much smaller player declare bankruptcy, and those are obviously two items that grabbed headlines, but there are plenty of other consolidation stories happening in the background. Specifically as it relates to Yahoo, there are two parts to Yahoo’s SSP. There’s owned and operated inventory, and then there’s third-party inventory. As it relates to the third-party publisher inventory, we analyze their publisher base, and there’s a very high degree of overlap with publishers that we already work with. So, Yahoo’s SSP eventual closure will eliminate a path for buyers to those publishers via the Yahoo SSP, and we expect ad spend that runs through that path will be redistributed to other SSPs, and we would expect to gain share as a result. The other piece is the Yahoo owned and operated inventory, which is the bigger share. We’ve consistently been a strong monetization partner for Yahoo, and Yahoo has publicly said that they will rely more on third-party SSPs going forward. I would expect that their closure will open up more opportunity for us to work with Yahoo could be in wrapper solutions, data solutions, or PMP platform. Their owned and operated inventory is primarily mobile web and mobile app, which are two areas of strength for us. Just keep in mind, though, that Yahoo’s not planning to shut this down until the end of the year. In both cases, we expect share gains that are not built into our expectations for 2023. More broadly, I think what we see very clearly is whether it’s via SPO or some of these recent SSP closures, the industry is consolidating down to fewer bigger platforms. We certainly see ourselves as a winner in that process, as recognized by our historical share gains and what we expect to see in the future. I think this kind of economic environment will really only accelerate the consolidation that we’ve all felt should be happening in the sell-side of the ecosystem and has already occurred in the buy side.

Thank you, Rajeev. Our next question comes from Shweta Khajuria at Evercore. Please go ahead, Shweta.

Okay, thanks, Stacy. Let me try two, please. One is Rajeev, could you talk about more specifics around the investments you’re doing for SPO as well as Retail Media? So you did talk about several topics, but what specifically are you investing towards and what are you doing there? And then for Steve, for Q4 was political any meaningful impact at all, I know it’s not that big for you, but could you quantify that? And second, how do you think about margin expansion, key leverage areas and sustainable margins going forward beyond 2023? Thank you.

Sure. So yes, Shweta, let me start with your question around investments in SPO and Retail Media. As we mentioned in the prepared remarks, given the macroeconomic environment we are getting more focused in terms of our innovation investments, and these are two specific areas. As it relates to SPO, building on the prior question from Justin, we just see more opportunity for spend consolidation to happen on fewer bigger SSPs. We have obviously been driving that trend with SPO and plan to continue to drive that. What we’re focused on is what are the high-value and high-growth ad formats, things like online video and CTV, where we can better connect the publisher and the buyer. That can be through bringing the seller and the buyer closer together, less latency, fewer hops of inventory, better measurement and verification of what a buyer type of inventory they're buying, and their ability to curate specific audience sets or media sets on our platform, so that they know exactly what they're buying and the price that they're paying for. We see just a whole slew of innovation opportunities to help us get closer or help the publisher and the buyer get closer together and remove friction from the transaction process. Now, as it relates to retail media, there is both an on-site and an off-site focus that we have. With on-site, obviously, there are many retailers that are running ads on their websites, both display or video ads as well as sponsored listings. From an off-site perspective, they usually want to extend those audiences off-site, and we see opportunity to play in all of those areas, in addition to data management, and identity management, which is an area that we've been building in over the last couple of years. We think some of the use cases are becoming clearer, specifically in the retail media space.

Great. Shweta, nice to reconnect. So with respect to the first question around political spend, you're right, it doesn't amount to a lot on our platform in the fourth quarter; it was a couple of million dollars. I would describe it as slightly below our expectations, but we had not assumed a significant uptick in any case, relatively de minimis. As I shared in my comments, the big driver of our Q4 results was display, and really December was a big step down from a trend perspective and largely driven by lower CPMs. Some of you'd expect when it's a demand-driven challenge with lower bidding activity, lower prices, et cetera. Now stepping back, we have been very proactive over the last couple of quarters in anticipation of the trends that we saw emerging, and we took steps in 2022 to reduce costs in key areas. We feel really good about the progress we've made there. We've also commented on the significant reduction in CapEx in 2023 that we're planning, which will be a long-term driver of our margin. When you step back and think about where we are as a company and the industry, we've been through multiple economic cycles like this. What we've learned is that ad spending from a programmatic perspective always comes back bigger and becomes a more significant part of the future of digital ad spending. We are taking this time right now to selectively invest in areas that we think will have long-term growth potential, as well as make those adjustments to the model. I fully expect over time we'll be able to expand our gross margin, getting more productivity out of our infrastructure; number two, the related changes we made around prioritization of head count will have some benefit over the next couple of quarters. But ultimately, the opportunity ahead of us is significant. We anticipate a challenging next couple of quarters, but we're laying the groundwork for margin expansion later this year and into 2024 along a variety of parameters.

Okay, thank you, Rajeev. Thanks, Steve.

Thanks, Shweta.

Our next question comes from Matt Swanson, RBC.

Yes, thanks guys for taking my questions here. I think maybe I'll try to focus on the secular growth drivers. It seems like macro is kind of anybody's guess still. So on the CTV side, it's been great to see the expansion of publishers throughout the year. But could you maybe give us some color on what that revenue distribution looks like within that number? Is it 90% from 10 publishers or evenly distributed between just kind of some dynamics of how we should be thinking about that number?

Yes, sure. It's not – it's definitely not evenly distributed. And I think, as you know well, in the media industry, there tends to be a degree of concentration. But I would say that our strategy has been to go after a programmatic approach to CTV. What that's meant is that some of the smaller publishers are the first to embrace that, publishers that are not incumbents that don't have big TV businesses or legacy sales forces. It's pretty well distributed. Over time, particularly in this economic environment, we see a much bigger embrace of programmatic monetization among some of the leading broadcasters. Their revenues are coming under pressure, and they're thinking about what they can do differently. Time and again, programmatic has proven to be more efficient, it's more transparent, and it delivers more ROI to advertisers. I think we'll see an acceleration towards programmatic this year and next year, and that will in part be with some of the biggest players. I would expect that concentration might move up over time among some of those bigger media players, but we're approaching it from a perspective of bringing quite broadly diversified.

Yes. No, that's really helpful context, especially into 2023, that maybe the absolute number becomes a little less important in some of the qualitative context around the size of the new ads. I guess on the other side, thinking about some of the secular growth drivers, we've done our SPO, but I think that expansion rate was super helpful though Rajeev or Steve, I don't know who wants to take it, but if there any color you can give us on kind of the specific drivers of that number? Like is it just volume-based? And how do you kind of more broadly think that number trends over time?

Yes. We are very excited about that metric, and a couple of things that are very positive about it, one, the metric that we shared regarding the retention. Once we've signed up an SPO buyer, we have close to 100% retention over multiple years. That really underscores the value exchange. It conveys the stickiness of the efforts that we’re doing with SPO buyers. The metric we shared was around spend, so it's dollar-based and it's positive in that we're seeing consistent upticks from those SPO buyers over time. That's one factor. The other factor is that we're constantly adding new buyers into the SPO initiative. As we’ve shared in the past, SPO is absolutely a strategic imperative for us. We were a pioneer, and now when we can look back at those metrics and see that our assessment and the investments we’ve made are paying off gives us confidence that this will continue to be a long-term tailwind for us. It was terrific to see that the share of overall spend was over 30% for full-year 2022, and we expect that to grow in 2023.

And our next question comes from James Heney at Jefferies.

Great. Thanks for taking the questions. Just a couple on guidance. Really appreciate the commentary on January and February trends, but curious if the Q1 guide assumes conditions remain relatively stable or continue to improve sequentially. Then as it relates to the rest of the year, you’re saying you’re expecting to grow to outgrow the industry’s low- to mid-single digits. So does that imply we’re just going to see a big step up in the second half, and what gives you the conviction that plays out? Thank you.

Sure. Well, nice to reconnect, James. From our perspective, we’re taking a look at the trends for January, February, and they have stabilized, as I shared in my comments, February improved versus January. Our expectation is that advertisers have already locked and loaded their plans for the quarter. The guidance we gave doesn’t assume any further acceleration or improvement, nor deceleration. So, we’re feeling like we’re representing what we think is going to happen. Stepping back and looking at the full year, clearly there are different data points out there, different participants, different forecasts. We built a plan predicated on an assumption around single- to mid-digit growth. We anticipate in the first half there will be challenging conditions, and there will be some incremental improvements in the second half. The improvements we believe will be a part of advertisers getting more comfortable with the macro environment and understanding where they’re getting return on dollars. Historically, programmatic advertising delivers high ROI, and I think you’ll start to see advertisers recognize that and deploy dollars. You’ll also see more dollars move from social over into digital and into our area of open internet. We don’t expect like a huge inflection point, but some temperate improvement in the second half, which overlays with the normal seasonality that just exists in our industry where you have higher second half seasonal spending.

Thank you. Great.

Thanks, Steve. Our next question comes from Andrew Boone at JMP.

Hi guys. I’ll keep it a one. Thanks for taking my question. Can you talk a little bit about the underlying take rates for the business? Understood that SPO is going to be a headwind there thought on more of a like-for-like basis. Are you guys seeing any change in the actual economics as it relates to the business? Thanks so much.

The great news, Andrew, is that we are not. I mean when I signed contracts, I've been reflecting on this over the last nine to twelve months, the revenue share rates that we are achieving are on par, if not better than prior trends. We feel really good about the value that we are delivering. From our perspective, the investments that we’re making in terms of valuable formats around omnichannel video, focusing on working with the big head of the market publishers, and establishing these deep relationships with buyers is really underpinning our ability to continue to maintain the economics that we’ve had for some period of time.

And our next question comes from Andrew Marok at Raymond James.

Hi, thanks for taking my questions. I’d like to drill down a little bit on the geographic revenue trends. Given that EMEA actually grew double digits year-over-year in 4Q, despite still experiencing what I think are fairly similar macro headwinds to the rest of the world. Anything really to call out there as to why that fared better than the U.S. and APAC particularly?

Sure. A couple of things. First, we’ve been investing in our EMEA business for some time. Rajeev commented on a couple new markets that we entered in that region, and it’s an environment where they’ve faced a lot of challenges, let’s call it the end of 2021, early 2022. They’ve been really figuring out how to operate successfully in that market. So that’s sort of on a macro level. But on a specific level, one of the things that we saw is that, frankly, display did not get as impacted as it did in the Americas. That sort of wasn’t the drag that it was. Just as a frame of reference, when we last spoke in early November at our last earnings call, at that point we had assumed that display was going to be slightly worse than what we saw in October and November for the balance of the quarter. What actually occurred was minus 15% in December, while EMEA bucked that trend, and that’s a function, I believe, of just in terms of timing but also establishing some new relationships in the market. Overall, what really is important is that we have a global business that in any one period of time where there are challenges, in a particular area, there is the possibility of an offset. That’s exactly what we saw in the fourth quarter of 2022 and what we’re seeing right now in the first quarter of 2023. EMEA is doing very well right now on a year-over-year basis. Of course, there’s the other component of the typical rollout of incremental products on a global basis. We have a confluence of factors, again, underpinning our approach and the reasons that we are confident in our ability to deliver the kinds of financial targets that we have for ourselves in the long run.

Great. That’s really helpful. And then one more quick one if I could. Kind of on the commentary around the trajectory of revenue growth trends as we walk through 2023, obviously retail media is an investment area likely to be a focus investment area, at least in the first half of the year. But how much of that easing of revenue growth trajectories and things like that in the second half of the year, does retail media contribute to?

So we very much see retail media as an emerging area. We have not baked in significant incremental revenues from retail media. To the extent to which that accelerates, that will be an upside.

And our next question comes from Eric Martinuzzi from Lake Street. Please go ahead, Eric.

Yes. Wanted to dive into the uses of capital, first on the buyback, just to if I could better understand the logic behind the $75 million number. Is that just kind of a spitballing on two years' worth of free cash flow? And then had a follow-up question on the CapEx?

No, I mean, we obviously went through a very judicious discipline effort to come up with the number in consultation with our Board. I mean, at the end of the day, our job is to be good stewards of the capital that we have and to deliver shareholder value. We took a look at our ability to generate cash, our ability to grow and still invest and not miss out on opportunities. We looked at this as a multi-year plan. We found that this number of $75 million was a good balance to accomplish that. At the end of the day, we are trying to figure out the right mechanics, and we feel really good about our ability to grow. Our cash position allowed us to deliver value to our shareholders as well via this repurchase program.

Okay. And then on the CapEx I think last year, 2022, $36 million this year, you’re talking $13 million to $16 million. What do we miss out on with such a dramatic pullback in the capital?

Yes. It’s a great question. And the answer is we don’t believe we’re missing out on anything. Over the last couple of years, we’ve been as a function of growth and the opportunity that we saw ahead, we were very aggressive in terms of building out our infrastructure to the tune of close to 80 plus million over a number of years. We now have infrastructure to handle all the opportunities that we have ahead of us and then room to grow. We decided to continue to leverage those prior investments through various optimizations on the software side and the hardware side. We will have incremental capacity as a result of that without the large price tag of just using hardware. We’re going to see how it goes, and if it’s something that goes well for us, we’ll emulate that and continue to do that in the future. What you see is a company that is very successful in owning and operating its own infrastructure and taking more opportunities to pull levers. There's a huge opportunity that will have a clear path to revenue in 2024 and beyond that would involve some CapEx, but we’ll take a hard look at that. Right now, we’re feeling good about the incremental capacity that we have in our system, the optimizations that we can do to deliver more upside opportunity today. This goes to the point about our margin expansion. If this is successful, we’ll be able to continue to get more and more impact from our existing infrastructure.

Great. Thanks, Steve. At this time, we’re coming up to the top of the hour. I am going to turn the call back over to Rajeev for closing remarks.

Thank you, Stacie. We are energized by our ongoing market share gains. Ad spend growth will inevitably accelerate, and our strategy is to make measured investments that will best position us for outsized growth when that happens. We’re focused on deepening our relationships with existing customers while adding new ones and making focused product investments in supply path optimization, including CTV as well as retail media. The plan we have in place is expected to deliver three important outcomes: generate similar free cash flow as we did in 2022, position us for revenue acceleration when ad spend stabilizes, and establish a new level of efficiency in our cost structure that will lead to margin expansion by the end of 2023 and beyond. Thank you to our analysts and investors for your continued support. We look forward to seeing many of you at our upcoming investor events, including the JMP Securities Technology Conference in San Francisco on March 7, the KeyBank Emerging Technology Conference in SF on March 8, and the Lake Street Virtual NDR on March 15. Feel free to reach out directly to those firms or through Stacie and Kiernan with investor relations. Thank you all for joining us today.