DoubleVerify Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 7, 2024. DoubleVerify operates a single reportable segment, providing digital advertising measurement and activation services. Revenue is primarily tied to the volume of ads measured.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $140.8 million | $122.6 million | +15% |
| Income from operations | $6.9 million | $15.2 million | -55% |
| Operating margin | 5% | 12% | Down 7 percentage points |
| Net income | $7.2 million | $12.2 million | -41% |
| Diluted EPS | $0.04 | $0.07 | Down |
| Adjusted EBITDA (non-GAAP) | $38.1 million | $35.9 million | +6% |
| Adjusted EBITDA margin (non-GAAP) | 27% | 29% | Down 2 percentage points |
| Cash from operations | $31.8 million | $21.4 million | +$10.3 million |
Gross margin, calculated as revenue less cost of revenue before depreciation and amortization, was approximately 81% versus 80% in Q1 2023. The decline in GAAP operating profit reflected operating expense growth that outpaced revenue. Stock-based compensation expense rose to $20.2 million from $11.8 million.
Revenue and material changes
- Activation revenue increased 13% to $79.3 million, driven by adoption of Authentic Brand Suitability and core programmatic solutions, including Scibids.
- Measurement revenue increased 19% to $49.3 million, primarily from greater adoption of social measurement solutions.
- Supply-side revenue increased 8% to $12.2 million. Advertisers contributed 91% of revenue, unchanged from the comparable period.
- Advertiser revenue grew 16%, supported by an 18% increase in measured media transactions, partly offset by a 2% decrease in measured transaction fees. Gross revenue retention exceeded 95%.
- Product development expense increased 27%; sales, marketing and customer support expense increased 47%. Management cited personnel costs, including stock-based compensation, among the principal drivers.
- Depreciation and amortization rose 22%, primarily due to intangible assets from the Scibids acquisition.
Cash, liquidity and debt
- At March 31, 2024, cash and cash equivalents were $302.0 million and short-term investments were $32.3 million. Cash, cash equivalents and restricted cash decreased $8.1 million during the quarter.
- Operating cash flow was $31.8 million. Investing activities used $38.6 million, including $32.2 million for short-term investments and $6.4 million for property, equipment and capitalized software. Financing activities used $0.9 million.
- Net working capital, defined by the company as current assets excluding cash less current liabilities, was $172.9 million.
- No borrowings were outstanding under the $150 million revolving credit facility; the full amount was undrawn. The company reported compliance with its credit-facility covenants. Lease liabilities are reported separately and should not be confused with revolver debt.
- Management stated that existing cash, operating cash generation and the undrawn facility should cover short- and long-term working capital and capital expenditure needs.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or margin guidance.
- The Scibids acquisition purchase-price allocation remained subject to finalization of working capital adjustments. The company reported no goodwill or intangible-asset impairment in the quarter.
- Other income was $2.3 million, down from $2.7 million, as higher foreign-exchange losses partly offset increased interest income. Foreign currency translation reduced other comprehensive income by $4.6 million.
- The effective tax rate was 19.9%, versus 31.1% in Q1 2023. The Israeli subsidiary is under audit for 2021 and later tax years, and the company is under Massachusetts audit for 2019 and 2020.
- Management said no pending legal matter was expected to have a material adverse effect and reported no material changes to the risk factors in the 2023 Form 10-K. Disclosure controls were assessed as effective.
- Key business exposures include dependence on digital ad transaction volumes and customer/platform relationships. The filing also notes that actual results may differ from forward-looking statements and that estimates, including tax and acquisition-related judgments, involve uncertainty.
Important facts for investors to verify
- Whether measured transaction growth can continue and whether pricing pressure, reflected in the 2% fee decline, persists.
- Whether expense growth, particularly sales and marketing, product development and stock-based compensation, moderates relative to revenue growth.
- How Scibids contributes to adoption, revenue and profitability, and whether its purchase-price allocation is finalized without material adjustment.
- Cash conversion and working-capital trends, as well as the distinction between cash, short-term investments, lease obligations and available revolver capacity.
- Developments in the Israeli and Massachusetts tax audits, foreign-exchange effects, and risks described in the company’s 2023 Form 10-K.