DoubleVerify Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited; amounts below are in U.S. dollars.
Business context
DoubleVerify provides digital advertising measurement and analytics, including brand suitability, fraud, viewability and geography metrics. It operates as one reportable segment. Revenue is primarily tied to the volume of advertiser media transactions measured; supply-side revenue comes from contractual guarantees and overages. Advertiser customers generated 92% of revenue in both the quarter and nine-month period. Gross revenue retention for advertiser customers was over 95% in Q3.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $144.0 million | $112.3 million | $400.3 million | $318.8 million |
| Operating income | $18.2 million | $14.4 million | $48.1 million | $30.4 million |
| Net income | $13.3 million | $10.3 million | $38.4 million | $25.2 million |
| Diluted EPS | $0.08 | $0.06 | $0.22 | $0.15 |
| Adjusted EBITDA (non-GAAP) | $45.7 million | $34.0 million | $121.6 million | $92.7 million |
| Adjusted EBITDA margin (non-GAAP) | 32% | 30% | 30% | 29% |
GAAP operating margin was 13% in Q3 2023 and 13% in Q3 2022; for the nine-month periods it was 12% and 10%. Net margin was 9% in both Q3 periods and 10% versus 8% for the nine-month periods.
For the first nine months, operating cash flow was $67.7 million, investing cash outflow was $79.5 million, and financing cash flow was $3.6 million. Cash and cash equivalents were $259.2 million at September 30, 2023; cash, cash equivalents and restricted cash totaled $259.3 million. Management reported $135.4 million of net working capital, defined as current assets excluding cash less current liabilities.
Total liabilities were $163.9 million, including $81.9 million of operating lease liabilities and $6.5 million of finance lease obligations. No amount was outstanding under the $150 million revolving credit facility at quarter-end; the company had drawn and repaid $50 million during March. It was in compliance with facility covenants.
Changes versus prior comparable periods
- Q3 revenue rose 28% year over year; nine-month revenue rose 26%. Advertiser revenue increased 32% in Q3 and 28% for the nine months.
- Activation revenue grew 31% in both comparison periods, while Measurement revenue rose 32% in Q3 and 23% for the nine months. Management cited adoption of brand suitability and programmatic solutions, and growth in social measurement.
- Q3 supply-side revenue declined 2%, which the company attributed to industry consolidation; nine-month supply-side revenue increased 5%.
- Net income increased 29% in Q3 and 52% for the nine months. Nine-month operating income increased 58%.
- Operating cash flow increased from $58.4 million to $67.7 million for the nine months, while investing outflows increased from $27.7 million to $79.5 million, principally due to the Scibids acquisition.
Outlook, commentary and notable items
- No specific revenue or earnings guidance is provided in the filing. Management said cash on hand, cash generated from operations and the undrawn revolver should be sufficient for working capital and capital expenditure needs for at least the next 12 months.
- On August 14, 2023, DoubleVerify acquired Scibids Technology SAS, an AI-based digital campaign optimization company, for total consideration of $121.4 million: $67.2 million cash net of cash acquired, $52.9 million in stock and $1.2 million of estimated contingent consideration. Purchase accounting remains preliminary; acquired goodwill was $92.1 million.
- Nine-month stock-based compensation was $42.8 million, up from $31.2 million. Unrecognized compensation expense was $134.9 million, expected to be recognized over a weighted-average 1.4 years.
- General and administrative expense included increased bad debt expense, including a reserve for amounts owed by activation partner MediaMath Holdings, which filed for Chapter 11 bankruptcy in June 2023. The filing does not quantify the MediaMath-specific reserve.
- Nine-month effective tax rate was 29.1%, versus 14.1% a year earlier. The company cited higher pre-tax income and permanent book-to-tax adjustments. Its Israeli subsidiary is under tax audit for 2016–2018 and its U.S. subsidiary is under Massachusetts audit for 2019–2020.
- The company reported no material changes to previously disclosed risk factors, no legal proceedings expected to have a material adverse effect, and effective disclosure controls as of September 30, 2023.
Most important facts for investors to verify
- Whether advertiser transaction volumes, Activation adoption and social Measurement growth persist, and whether supply-side consolidation continues.
- The collectability and ultimate loss, if any, on amounts owed by MediaMath.
- Scibids’ integration and contribution to growth, and any changes to preliminary purchase-price allocations or contingent consideration.
- The cash-flow and margin impact of higher platform, cloud, personnel and stock-based compensation costs.
- Whether the company maintains liquidity and compliance with revolving-credit covenants, and the outcomes of the disclosed tax audits.