DoubleVerify Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; filed July 29, 2021. DoubleVerify provides digital advertising measurement, data and analytics software. It operates as one reportable segment. The company completed its IPO on April 23, 2021.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $76.5 million | $53.0 million | $144.1 million | $104.2 million |
| Operating income (loss) | ($9.9 million) | $7.2 million | ($1.1 million) | $11.8 million |
| Net income (loss) | ($12.6 million) | $4.1 million | ($6.9 million) | $6.5 million |
| Operating margin | (13%) | 14% | (1%) | 11% |
| Net margin | (16%) | 8% | (5%) | 6% |
| Adjusted EBITDA (non-GAAP) | $21.2 million; 28% margin | $15.7 million; 30% margin | $42.9 million; 30% margin | $31.0 million; 30% margin |
For the six months ended June 30, operating cash flow was $42.2 million, investing cash outflow was $3.5 million, and financing cash inflow was $258.3 million. Capital expenditures and capitalized software spending are reflected in investing cash flow. Cash and cash equivalents were $330.4 million at June 30, versus $33.4 million at December 31, 2020. Management reported net working capital, excluding cash, of $63.6 million.
Long-term debt was zero at June 30, down from $22.0 million at year-end; the company repaid the balance in April. It had $150 million available under its revolving credit facility, subject to facility terms and covenants. Capital lease obligations totaled $5.6 million, including current and long-term portions.
Changes and drivers versus prior periods
- Revenue increased 44% in Q2 and 38% in the first half. Advertiser programmatic revenue grew 57% in Q2 and 50% in the first half, primarily due to adoption of Authentic Brand Safety. Advertiser direct revenue rose 34% and 29%, respectively; management cited growth in CTV and social measurement. Supply-side revenue increased 35% and 27%.
- Expenses grew faster than revenue in key areas: cost of revenue rose 61% in Q2 and 50% in the first half; sales, marketing and customer support rose 53% and 40%. Management attributed cost-of-revenue growth mainly to partner revenue shares and technology costs, and operating-expense growth to hiring and expansion.
- General and administrative expense increased to $32.0 million in Q2 and $43.9 million in the first half, including IPO-related costs and higher compensation and stock-based compensation. The filing attributes $18.7 million of Q2 and $21.8 million of first-half offering costs to the income statement; management separately cites higher transaction costs of $18.3 million and $19.9 million in its year-over-year expense analysis.
- Stock-based compensation was $4.7 million in Q2 and $7.3 million in the first half, compared with $1.1 million and $1.9 million in the corresponding 2020 periods. The filing cites IPO-triggered award acceleration, more eligible employees and the higher share value.
Outlook, risks and notable items
- Outlook: No specific revenue or earnings guidance is provided. Management said cash, operating cash generation, IPO/private-placement proceeds and undrawn revolver capacity should cover working capital and capital expenditure needs for at least 12 months.
- COVID-19: Management reported limited operational disruption and no significant impact on results to date, but warned that lower digital advertising demand or a prolonged economic slowdown could materially harm results and financial condition. Gross revenue retention exceeded 95% for Q2, as defined by the company.
- IPO and capital: The company received $253.2 million net from the IPO and $29.0 million net from a concurrent private placement. IPO proceeds helped repay the $22.0 million revolver balance. Existing shareholders also sold shares in the IPO; the company received no proceeds from those sales.
- Taxes: Q2 income tax expense was $2.3 million despite a pretax loss; the company cited discrete items, primarily transaction costs and state tax refunds, and reported a Q2 effective tax rate of (22.4%). Its Israeli subsidiary is under tax audit for 2016–2018.
- Controls: Management concluded disclosure controls were not effective as of June 30 because of material weaknesses involving management review controls and insufficient technical accounting resources. Remediation is underway but not complete; management stated the financial statements fairly present the reported periods in all material respects.
- Other matters: The company said ordinary-course legal proceedings are not expected to have a material effect. It reported no material changes to previously disclosed risk factors or market risks. No goodwill or intangible-asset impairment was identified in the first half.
Important facts for investors to verify
- Whether revenue growth—especially programmatic, CTV and social measurement—continues and translates into improved GAAP operating margins.
- How much IPO-related, stock-based compensation and other unusual expense persists after the IPO period, and how these items affect comparisons with non-GAAP Adjusted EBITDA.
- Progress in remediating the disclosed material weaknesses and whether controls are validated as effective over subsequent reporting periods.
- Future cash generation, capital spending, and compliance with revolving-credit covenants; the facility is secured by substantially all of specified borrower-group assets and includes restrictive covenants.
- Potential outcome of the Israeli tax audit and the effect of any tax adjustments or discrete tax items.