PubMatic, Inc.PUBM
PubMatic, Inc. Income Taxes Disclosure
Income Taxes
The domestic and foreign components of income before provision for (benefit from) income taxes were as follows (in thousands):
| December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (21,895) | $ | 9,737 | $ | 5,371 | |||||||||||
| Foreign | 5,941 | 8,037 | 5,134 | ||||||||||||||
Income before provision for (benefit from) income taxes | $ | (15,954) | $ | 17,774 | $ | 10,505 | |||||||||||
The provision for (benefit from) income taxes consisted of the following (in thousands):
| December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current provisions for income taxes: | |||||||||||||||||
| Federal | $ | 730 | $ | 10,561 | $ | 11,059 | |||||||||||
| State | 1,292 | 3,199 | 2,026 | ||||||||||||||
| Foreign | 2,608 | 2,494 | 1,947 | ||||||||||||||
| Total current tax expense | 4,630 | 16,254 | 15,032 | ||||||||||||||
Deferred tax expense (benefit): | |||||||||||||||||
| Federal | (4,693) | (8,731) | (11,825) | ||||||||||||||
| State | (1,300) | (1,960) | (1,391) | ||||||||||||||
| Foreign | (129) | (293) | (192) | ||||||||||||||
Total deferred tax benefit | (6,122) | (10,984) | (13,408) | ||||||||||||||
Total provision for (benefit from) income taxes | $ | (1,492) | $ | 5,270 | $ | 1,624 | |||||||||||
Beginning in 2025 annual reporting, we adopted ASU 2023-09 prospectively. See Note 1 — Summary of Significant Accounting Policies – Recently Adopted Accounting Pronouncements for additional details on the adoption of ASU 2023-09. The following table presents a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 (in thousands, except percentages):
Year Ended December 31, 2025 | ||||||||||||||
| Amount | Percentage | |||||||||||||
| U.S. federal statutory rate | $ | (3,340) | 21.0 | % | ||||||||||
State and local income taxes, net of federal effect1 | (279) | 1.8 | ||||||||||||
| Foreign tax effects | ||||||||||||||
| India | 562 | (3.5) | ||||||||||||
| Singapore | 445 | (2.8) | ||||||||||||
| Other foreign jurisdictions | 115 | (0.7) | ||||||||||||
| Changes in tax laws or rates in the current period | — | — | ||||||||||||
| Cross border tax laws | ||||||||||||||
Foreign derived intangible income | (404) | 2.5 | ||||||||||||
| Tax credits | ||||||||||||||
Research and development credits | (2,993) | 18.8 | ||||||||||||
| Changes in valuation allowance | — | — | ||||||||||||
| Nontaxable or nondeductible Items | ||||||||||||||
Tax effects of share-based compensation2 | 1,896 | (11.9) | ||||||||||||
Non-deductible officer compensation | 705 | (4.4) | ||||||||||||
| Acquisition related cost | 826 | (5.2) | ||||||||||||
| Other | 282 | (1.8) | ||||||||||||
| Changes in unrecognized tax benefits | 693 | (4.4) | ||||||||||||
| Effective Tax Rate | $ | (1,492) | 9.4 | % | ||||||||||
_______________
(1)During the year ended December 31, 2025, New York state and city made up the majority (greater than 50 percent) of the tax effect in this category.
(2)Includes amounts related to non-taxable and non-deductible share-based compensation, in addition to excess tax benefits or shortfalls from share-based compensation. Our income tax benefit includes $0.7 million of tax shortfalls from share-based compensation for 2025.
The following table presents a reconciliation of the provision for income taxes to the amount computed by applying the 21% U.S. federal statutory income tax rate to the income before taxes prior to the adoption of ASU 2023-09 for the periods presented (in percentages):
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory income tax rate | 21.00 | % | 21.00 | % | |||||||
| State after-tax rate | 3.60 | 2.82 | |||||||||
| Stock options | 1.23 | 19.25 | |||||||||
| Research credit | (6.33) | (10.20) | |||||||||
| Transfer pricing reserve | (0.77) | 1.54 | |||||||||
| Foreign rate differential | 1.32 | 4.64 | |||||||||
GILTI | — | (11.62) | |||||||||
| Foreign derived intangible income | (11.52) | (22.57) | |||||||||
| Section 162(m) limitation | 14.15 | 7.18 | |||||||||
Acquisition-related costs | 5.56 | 1.22 | |||||||||
| Change in valuation allowance | 0.61 | — | |||||||||
| Other | 0.79 | 2.18 | |||||||||
| Effective tax rate | 29.64 | % | 15.44 | % | |||||||
Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Accruals and allowances | 6,740 | 3,244 | |||||||||
| Tax credits | 2,664 | 1,987 | |||||||||
| Stock-based compensation | 11,441 | 9,155 | |||||||||
| Intangibles assets | 451 | 583 | |||||||||
| Lease obligation | 9,039 | 9,658 | |||||||||
R&D capitalization | 22,502 | 21,950 | |||||||||
| Other | 1,203 | 1,283 | |||||||||
| Total deferred tax assets | 54,040 | 47,860 | |||||||||
| Valuation allowance | (2,675) | (2,118) | |||||||||
| Total deferred tax assets, net of valuation allowance | 51,365 | 45,742 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property, equipment, and software | (8,988) | (8,569) | |||||||||
| Goodwill | (1,037) | (945) | |||||||||
| Prepaid expense | (1,508) | (832) | |||||||||
| Right-of-use asset | (8,160) | (9,445) | |||||||||
| Acquired intangibles | (686) | (1,087) | |||||||||
| Total deferred tax liabilities | (20,379) | (20,878) | |||||||||
| Net deferred income tax asset (liabilities) | $ | 30,986 | $ | 24,864 | |||||||
As of December 31, 2025, the Company had federal and state research and development credit carryforwards of $0.2 million and $5.7 million, respectively. If not utilized, the federal credits will begin to expire in 2045. The state credits can be carried forward indefinitely.
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (“Code”), the Company’s ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if the Company experiences an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of the Company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three year period. Similar rules may apply under state tax laws. Net operating loss carryforwards and other tax attributes generated are currently not subject to limitation by Section 382, but subsequent changes in the Company’s stock ownership as well as other changes that may be outside of the Company’s control, could result in additional ownership changes under Section 382 of the Code.
On July 4, 2025, the U.S. enacted a budget reconciliation package commonly referred to as the One Big Beautiful Bill Act of 2025 (“OBBBA”), which contains a broad range of tax reform provisions affecting businesses from 2025 through 2027, including the permanent reinstatement of bonus depreciation on qualified property and full expensing of domestic research and experimental expenditures. The Company has recognized the effects of the OBBBA provisions in its consolidated financial statements to the extent they are applicable for the year ended December 31, 2025. The Company will continue to evaluate the impact of these legislative changes on its future consolidated financial statements as additional guidance becomes available.
Deferred Tax Valuation Allowance
A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets. Management has determined that there is sufficient positive evidence that a valuation allowance against deferred tax assets is not required as of December 31, 2025 and 2024, except for unrealized losses on equity investment and state research credit carryforwards, starting in 2021, for which realization is not deemed more likely than not given insufficient future capital gains to offset the investment’s worth and the Company expects to generate more credits in future than can be utilized against projected taxable income.
The Company has not provided for U.S. deferred taxes on the cumulative earnings of non-U.S. affiliates that have been reinvested indefinitely. The Company will continue to maintain its policy of indefinite reinvestment to the extent that the repatriation of foreign earnings is restricted by local laws, accounting rules, substantial incremental costs associated with repatriating the foreign earnings, or other business requirements.
Uncertain Tax Positions
The activity related to the unrecognized income tax benefits is as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Gross unrecognized income tax benefits — beginning balance | $ | 4,695 | $ | 4,381 | $ | 4,303 | |||||||||||
| Increases related to tax positions taken during the current year | 1,475 | 1,091 | 1,104 | ||||||||||||||
| Increases related to tax positions taken during the prior years | 324 | 10 | — | ||||||||||||||
| Decreases related to tax positions taken during the prior years | (783) | (787) | (1,026) | ||||||||||||||
| Gross unrecognized income tax benefits — ending balance | $ | 5,711 | $ | 4,695 | $ | 4,381 | |||||||||||
The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision. As of December 31, 2025 and 2024, the Company had approximately $0.5 million and $0.3 million, respectively, of accrued interest related to uncertain tax positions.
As of December 31, 2025, the Company had gross unrecognized tax benefits of approximately $5.7 million, of which $3.2 million would impact the effective tax rate, if recognized.
The Company files U.S., state and foreign income tax returns with varying statutes of limitations. The federal, state, and foreign returns statute of limitations remains open for tax years from 2015 and thereafter. There are currently no income tax audits involving the IRS, any U.S. states or foreign tax jurisdictions.
Income Taxes Paid
Income taxes paid (net of refunds) are as follows (in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Federal | $ | 4,554 | ||||||||||||||||||
| State and Local | ||||||||||||||||||||
| New York state | 710 | |||||||||||||||||||
| New York City | 905 | |||||||||||||||||||
| Other | 417 | |||||||||||||||||||
| Foreign | ||||||||||||||||||||
| India | 1,391 | |||||||||||||||||||
| Other | 633 | |||||||||||||||||||
| Total income taxes paid (net of refunds) | $ | 8,610 | ||||||||||||||||||
| Total cash paid for income taxes (prior to ASU 2023-09 adoption) | $ | 14,176 | $15,631 | |||||||||||||||||
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Mar 1, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.