DoubleVerify Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; financial statements are unaudited. DoubleVerify provides digital advertising measurement and analytics through a single reportable segment.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $133.7 million (+22%) | $109.8 million | $256.3 million (+24%) | $206.5 million |
| Operating income | $14.6 million (+11%) | $13.2 million | $29.8 million (+86%) | $16.0 million |
| Net income | $12.8 million (+25%) | $10.3 million | $25.0 million (+68%) | $14.9 million |
| Diluted EPS | $0.07 | $0.06 | $0.15 | $0.09 |
| Operating margin | 11% | 12% | 12% | 8% |
| Adjusted EBITDA margin | 30% | 31% | 30% | 28% |
Q2 revenue growth was led by Activation, up 29% to $77.9 million; Measurement rose 16% to $45.0 million, and supply-side revenue rose 4% to $10.8 million. For the first half, these categories grew 30%, 19%, and 9%, respectively. Management attributed advertiser revenue growth primarily to more media transactions measured, adoption of Authentic Brand Suitability, new programmatic customers, and expanded social measurement.
Q2 cost of revenue increased 39% to $26.2 million, faster than revenue, largely due to revenue-sharing partner costs and cloud investment. Product development expense rose 38% to $31.9 million, while sales, marketing and customer support rose 28% to $31.5 million. Cost of revenue was 20% of revenue versus 17% a year earlier. Operating income grew more slowly than revenue in Q2; first-half operating margin improved year over year. Adjusted EBITDA is a non-GAAP measure; the filing cautions it excludes, among other items, taxes, capital expenditures, working-capital needs and stock-based compensation.
Cash, liquidity and obligations
- Cash and cash equivalents were $295.4 million at June 30, 2023, versus $267.8 million at December 31, 2022. Net working capital, defined by the company as current assets excluding cash less current liabilities, was $130.5 million.
- First-half operating cash flow was $32.2 million, compared with $26.5 million in 2022. Capital spending was $7.7 million, versus $13.6 million; cash and restricted cash increased $27.6 million.
- No revolving-credit debt was outstanding at quarter-end; the $150 million facility was undrawn. The company borrowed and repaid $50 million in March. It reported compliance with facility covenants and said cash, operating cash flow and available credit should cover working capital and capital expenditures for at least 12 months.
- Total liabilities were $148.4 million, including operating lease liabilities of $82.2 million and finance lease obligations of $7.1 million. These lease obligations are distinct from revolving-credit debt.
Changes, outlook and notable items
- Revenue accelerated across advertiser services, while Q2 operating margin decreased to 11% from 12%, reflecting expense growth and investment. First-half net income benefited from higher operating income and $5.2 million of other income, primarily interest income, compared with $0.2 million of other expense in the prior-year period.
- Income tax expense was $4.0 million in Q2 and $9.5 million in the first half; the respective effective tax rates were 23.1% and 27.2%. First-half cash taxes paid were $41.3 million, compared with $1.2 million in the prior-year period. The filing identifies tax audits in Israel for 2016–2018 and Massachusetts for 2019–2020; potential adjustments are not quantified.
- MediaMath Holdings, an activation partner, filed for Chapter 11 bankruptcy on June 30, 2023. The company increased bad-debt expense and established a reserve for amounts owed by the partner, but the filing does not provide a clear amount for that specific reserve.
- Stock-based compensation was $27.0 million in the first half, up from $20.3 million; unrecognized compensation expense was $139.4 million, expected to be recognized over a weighted-average 1.5 years.
- After quarter-end, on July 31, the company announced a pending acquisition of Scibids Technology for $125 million, subject to customary adjustments: approximately $66 million cash and the remainder in DoubleVerify stock, plus possible milestone consideration. The acquisition is not reflected in June 30 balances.
- No quantitative financial guidance is provided in the supplied filing text. Management reported gross revenue retention above 95% for Q2. It said risk factors were not materially changed from prior filings, reported no material legal proceedings, and concluded disclosure controls were effective at June 30.
Important facts for investors to verify
- Whether revenue growth and advertiser transaction volumes remain strong, particularly in Activation, and whether growth translates into sustained operating-margin improvement.
- The amount and eventual recovery of MediaMath-related receivables and any further effects of its bankruptcy on partner costs or service delivery.
- Cash conversion, receivables and collections, including the large year-over-year increase in cash taxes paid and the timing of future tax payments.
- The final Scibids purchase price, milestone terms, financing mix, integration plans and impact on share count and cash resources.
- How ongoing stock-based compensation and the associated potential dilution affect per-share results; the filing reports substantial outstanding and antidilutive awards.