DoubleVerify Holdings, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2021. DoubleVerify provides digital-ad measurement, verification, data and analytics software, operating as one reportable segment. The company completed its IPO on April 23, 2021.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $83.1 million | $61.0 million | $227.2 million | $165.3 million |
| Operating income | $11.8 million | $5.8 million | $10.7 million | $17.6 million |
| Operating margin | 14% | 9% | 5% | 11% |
| Net income | $7.9 million | $5.8 million | $1.0 million | $12.3 million |
| Diluted EPS | $0.05 | $0.04 | $0.01 | $0.08 |
| Adjusted EBITDA (non-GAAP) | $26.4 million | $14.5 million | $69.3 million | $45.6 million |
| Adjusted EBITDA margin (non-GAAP) | 32% | 24% | 31% | 28% |
Revenue grew 36% in Q3 and 37% for the nine-month period. Advertiser programmatic revenue rose 49% and 50%, respectively; advertiser direct revenue rose 23% and 27%; supply-side revenue rose 32% and 28%. Advertisers generated 91% of Q3 revenue. The filing attributes growth to programmatic adoption of Authentic Brand Suitability, increased CTV and social measurement, and greater supply-side uptake.
For the nine months, operating cash flow was $58.4 million, investing cash flow was $(29.8) million, and financing cash flow was $258.0 million. Cash, cash equivalents and restricted cash ended at $319.9 million. Cash was $319.8 million; management reported net working capital, defined as current assets excluding cash less current liabilities, of $67.2 million. Long-term debt was zero, with $150 million available under the revolving credit facility; capital lease obligations totaled $5.2 million.
Material changes and notable items
- IPO and concurrent private placement generated approximately $282.2 million in net proceeds. The company repaid $22.0 million of revolver borrowings and used $24.3 million net cash to acquire Meetrics, a European ad-verification provider.
- Nine-month GAAP net income fell to $1.0 million from $12.3 million. General and administrative expense included $21.8 million of IPO offering costs; the nine-month tax provision was $8.4 million, including $5.6 million of discrete items, primarily transaction-cost tax treatment and state tax refunds. These items materially affect year-over-year comparisons.
- Q3 operating margin improved year over year, while nine-month operating income declined as expenses grew. Nine-month general and administrative expense nearly doubled, mainly reflecting IPO costs, higher compensation and stock-based compensation.
- Stock-based compensation was $12.1 million for the nine months, versus $3.6 million a year earlier. Adjusted EBITDA excludes stock compensation, IPO-related costs and other specified items; it is a non-GAAP measure and should be considered alongside GAAP results.
Outlook, risks and contingencies
- Management said cash, operating cash generation, IPO proceeds and the undrawn revolver should fund working capital and capital needs for at least the next 12 months. The filing does not provide numerical revenue or earnings guidance.
- Management reported gross revenue retention above 95% for Q3 and said COVID-19 had not significantly affected results to date. It cautioned that lower digital-ad demand could hurt results; Q3 advertising spend in some categories, including consumer packaged goods and auto, was affected in part by supply-chain disruptions.
- The company was in compliance with its credit-facility covenants at quarter-end. The facility is secured by substantially all of specified company assets and includes operating and financial restrictions.
- For potential Zentrick acquisition payments, the company recorded about $2.8 million and said an early-termination payment between $2.8 million and $5.5 million was possible, with no amount in the range a better estimate than the recorded amount. The Israeli subsidiary was under tax audit for 2016–2018.
- After quarter-end, on November 9, 2021, the company announced an agreement to acquire OpenSlate for $150 million: $125 million cash and $25 million in DoubleVerify stock.
- Management concluded disclosure controls were not effective at September 30, 2021 because of material weaknesses in internal control over financial reporting, including insufficient management review and technical accounting resources. Remediation was underway; effectiveness had not yet been established.
Important facts for investors to verify
- Whether revenue growth and customer retention persist, particularly across programmatic, social and CTV measurement.
- How much recurring profitability and cash generation remain after excluding IPO costs and other Adjusted EBITDA adjustments.
- The final Meetrics purchase-price allocation and the integration and financial impact of the announced OpenSlate acquisition.
- The resolution and ultimate payment for Zentrick obligations, and the outcome of the Israeli tax audit.
- Progress in remediating the material weaknesses and the timing of effective internal controls.
- Whether COVID-related ad-market and supply-chain pressures, or other risks described in the prospectus, materially affect demand.