Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2022

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 June 30, 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.

Stock-based Compensation

The Company recognizes and measures compensation expense for all stock-based payment awards granted to employees, directors, and nonemployees, including stock options, restricted stock units (“RSUs”), and the employee stock purchase plan (the “ESPP”) based on the fair value of the awards on the date of grant. The fair value of stock options and shares of common stock to be issued under the ESPP is estimated using the Black Scholes option pricing model. The grant date fair value of RSUs is based on the closing market price of the Company’s Class A common stock on the date of grant. The Black Scholes option pricing model is impacted by the fair value of the Company’s common stock, as well as changes in assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected common stock price volatility over the term of the stock options, the expected term of the stock options, risk-free interest rates, and the expected dividend yield.

For additional information regarding stock-based compensation and the assumptions used for determining the fair value of stock options and ESPP awards, refer to Note 8 — “Stockholders’ Equity and Stock Option Plans.”

Concentration of Revenue and Accounts Receivable

The Company defines its revenue concentration based on revenue recognized from individual publishers. For the three months ended June 30, 2022 and 2021, one publisher represented 12% and 17%, respectively, and 13% and 18% for the six months ended June 30, 2022 and 2021, respectively, of the Company’s revenue. As of June 30, 2022, two buyers accounted for 32% and 16%, 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 June 30, 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 August 11, 2021. The standard did not affect the Company’s consolidated statements of operations, comprehensive income, and stockholders’ equity for the three and six months ended June 30, 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 six months ended June 30, 2021.

Select condensed consolidated cash flow items, which reflects the adoption of the new standard as reported for the six months ended June 30, 2021, are as follows (in thousands):


	Six Months Ended June 30, 2021
			Balances without adoption of Topic 842		Effect of Change
	As reported		(As previously reported in the prior year 10-Q)		Higher (Lower)
Non-cash operating lease expense	$	915	$	—	$	915
Operating lease liabilities	$	(1,044)	$	—	$	(1,044)
Accrued expenses	$	(146)	$	(275)	$	129
Net cash provided by operating activities	$	33,763	$	33,763	$	—