DoubleVerify Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. DoubleVerify provides digital advertising measurement and analytics software, serving advertisers and supply-side customers in one reportable segment.
Financial results and liquidity
Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $96.7 | $67.6 | +43% |
| Income from operations | $2.9 | $8.8 | -67% |
| Operating margin | 3% | 13% | -10 percentage points |
| Net income | $4.6 | $5.6 | -19% |
| Net margin | 5% | 8% | -3 percentage points |
| Adjusted EBITDA (non-GAAP) | $24.7 | $21.7 | +14% |
| Adjusted EBITDA margin (non-GAAP) | 26% | 32% | -6 percentage points |
| Cash flow from operations | -$2.2 | +$19.5 | -$21.7 |
| Capital expenditures and capitalized software | $4.8 | $1.9 | Increased |
- Revenue mix: Measurement revenue was $33.8 million, up 23%; Activation was $53.0 million, up 56%; supply-side revenue was $9.9 million, up 61%. Advertisers generated 90% of revenue.
- Costs and profitability: Cost of revenue rose 65% to $16.9 million; product development rose 52% to $21.6 million; sales, marketing and customer support rose 72% to $26.7 million; and general and administrative expense rose 66% to $19.7 million. Stock-based compensation was $11.0 million versus $2.5 million a year earlier.
- Tax: The company recorded a $2.0 million income tax benefit versus $2.8 million expense in Q1 2021. The 2022 benefit included a $2.9 million discrete tax benefit related to share-based compensation; reported effective tax rate was -77.4%.
- Cash and balance sheet: Cash and cash equivalents were $211.6 million at March 31, versus $221.6 million at December 31, 2021. Total assets were $965.7 million and total liabilities $152.0 million. Net working capital, defined by the company as current assets excluding cash less current liabilities, was $114.3 million.
- Debt and leases: No borrowings were outstanding under the $150 million revolving credit facility; the company reported covenant compliance and full facility availability. Finance lease obligations totaled $4.1 million. Adoption of lease accounting added $79.2 million of operating lease liabilities at quarter-end, current and non-current combined.
Material changes and management commentary
- Revenue growth reflected a 27% increase in media transactions measured and a 7% increase in measured transaction fees, as well as OpenSlate acquisition contributions. Management cited adoption of its Authentic Brand Suitability solution, new programmatic customers and expansions among existing customers.
- Operating income declined despite strong revenue growth as expenses increased, including partner revenue-sharing and technology costs, hiring and compensation, and public-company insurance. Depreciation and amortization also rose, primarily due to acquired OpenSlate intangibles.
- Operating cash flow turned negative, mainly due to a $12.2 million increase in trade receivables and a $13.8 million decline in accrued expenses and other liabilities. Management attributed working-capital movements partly to collection timing and payroll-related liabilities.
- Management said existing cash, operating cash generation and the undrawn revolver should cover working capital and capital expenditure needs for at least the next 12 months. No specific revenue or earnings guidance is provided in the filing.
- Gross revenue retention for advertiser customers exceeded 95% in the quarter. Management said COVID-19 had not significantly affected results to date, but warned that lower digital ad demand could adversely affect the business. Certain ad categories, including consumer packaged goods and auto, remained affected by supply-chain disruptions.
Risks, contingencies and unusual items
- The company discontinued services to Russia-based clients following Russia’s invasion of Ukraine and reported that the business impact was not material; it increased bad-debt reserves by $1.0 million. Management stated that the situation remained under monitoring.
- In February 2022, the company paid $5.6 million to settle remaining contingent payments related to the Zentrick acquisition. The cash-flow statement reports $3.2 million of contingent-consideration payments during the quarter.
- The company adopted ASC 842 lease accounting on January 1, 2022, recognizing operating lease right-of-use assets and liabilities without an impact to opening retained earnings. A New York office lease running through July 2038 is expected to become the company’s headquarters in the second half of 2022.
- An Israeli subsidiary is under tax audit for tax years 2016–2018. The company said routine legal proceedings and claims were not expected to have a material effect; it reported no material changes to previously disclosed risk factors.
- Management reported effective disclosure controls as of March 31, 2022. It cautioned that forward-looking statements are subject to risks and actual results may differ.
Important facts for investors to verify
- Whether high revenue growth translates into improved operating margins as partner costs, hiring, and stock-based compensation affect expenses.
- Whether the Q1 operating cash outflow reflects temporary working-capital timing or persists, particularly as receivables grow.
- The contribution of OpenSlate and other acquisitions to reported growth, and whether acquisition-related integration costs or purchase-price adjustments continue.
- The scale and duration of the Russia-related bad-debt exposure and any further effect of the Ukraine conflict on customers or revenue.
- The cash-flow and financial impact of the long-term New York office lease and other operating lease commitments.
- Potential outcomes of the Israeli tax audit and the sustainability of the quarter’s unusually favorable tax benefit.