DoubleVerify Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited, consolidated U.S. GAAP results. DoubleVerify operates one reportable segment, providing digital advertising measurement and analytics.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $112.3 million | $83.1 million | $318.8 million | $227.2 million |
| Income from operations | $14.4 million | $11.8 million | $30.4 million | $10.7 million |
| Net income | $10.3 million | $7.9 million | $25.2 million | $1.0 million |
| Diluted EPS | $0.06 | $0.05 | $0.15 | $0.01 |
| Adjusted EBITDA, non-GAAP | $34.0 million | $26.4 million | $92.7 million | $69.3 million |
| Adjusted EBITDA margin, non-GAAP | 30% | 32% | 29% | 31% |
Q3 revenue grew 35% year over year; nine-month revenue grew 40%. Q3 operating margin was approximately 13% versus 14%, and net margin approximately 9% versus 10%. Nine-month operating margin was approximately 10% versus 5%, and net margin approximately 8% versus less than 1%.
- Revenue mix: Q3 Measurement revenue was $38.8 million (+14%), Activation $62.2 million (+48%), and supply-side $11.2 million (+57%). For nine months, these were $111.6 million (+20%), $175.7 million (+55%), and $31.5 million (+56%), respectively. Advertisers accounted for 90% of revenue, compared with 91% a year earlier.
- Cash flow: Nine-month operating cash flow was $58.4 million, essentially unchanged from $58.4 million in 2021. Investing used $27.7 million, mainly for property, equipment and software; financing used $8.5 million. Cash, cash equivalents and restricted cash increased $21.1 million to $242.8 million.
- Liquidity and debt: Cash and cash equivalents were $242.7 million; net working capital, defined by the company as current assets excluding cash less current liabilities, was $104.8 million. No borrowings were outstanding under the $150 million revolving facility, and the company reported covenant compliance. Finance lease obligations totaled $3.3 million; operating lease liabilities totaled $81.2 million.
- Balance sheet: Total assets were $1.00 billion, total liabilities $161.4 million, and stockholders’ equity $840.0 million at September 30, 2022.
Changes versus the prior comparable period
- Growth was led by Activation, reflecting adoption of Authentic Brand Suitability, new programmatic customers, OpenSlate offerings and enhanced integration pricing. Management attributed advertiser revenue growth also to increased measured transaction volumes and fees.
- Operating expenses rose with growth: Q3 cost of revenue increased 44%, product development 46%, and sales, marketing and customer support 39%. Stock-based compensation was $11.0 million in Q3 and $31.2 million year to date, materially above the prior-year periods.
- Q3 GAAP net income increased 30%; nine-month net income rose to $25.2 million from $1.0 million. The nine-month comparison reflects lower tax expense and the prior-year period’s substantial IPO-related costs; 2021 also included IPO and private-placement proceeds in financing cash flow.
- Cash flow from operations remained broadly flat despite higher net income, with receivables, prepaid and other assets using cash, principally due to collection timing.
Outlook, commentary and risks
- No specific revenue, earnings or margin guidance is provided in the filing. Management says cash, operating cash generation and the undrawn credit facility are expected to meet working-capital and capital-expenditure needs for at least the next 12 months.
- Management reported gross revenue retention above 95% for Q3 and said the pandemic had not significantly affected results to date. It cautioned that a decline in digital advertising demand or a prolonged economic slowdown could adversely affect results.
- The company discontinued services to Russia-based customers following Russia’s invasion of Ukraine; management said the business impact was not material. It recorded a $1.0 million increase in bad-debt reserves in Q1 2022 related to the situation.
- Unusual or notable items include a $1.5 million impairment of an operating lease right-of-use asset following an office sublease; $1.4 million of year-to-date losses on disposal of fixed assets; and a $5.6 million payment in February 2022 to settle remaining Zentrick contingent-payment obligations. The company adopted lease accounting standard ASC 842 in 2022, recognizing operating lease assets and liabilities.
- An Israeli tax authority audit covers the company’s subsidiary for tax years 2016–2018. Management does not believe ordinary-course legal proceedings or claims will have a material effect. The filing reports effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether strong Activation growth and customer retention persist, and how much growth reflects acquisitions, pricing and underlying activity.
- Whether revenue growth translates into improved GAAP margins and cash generation, given higher operating costs and stock-based compensation.
- Receivables, collections and bad-debt reserves, including the timing-related working-capital cash use.
- Capital spending and long-term lease commitments, including the new headquarters lease and the effect of subleasing the prior office.
- Potential exposure from the Israeli tax audit, foreign exchange movements and changes in digital-advertising demand.