DoubleVerify Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022. The unaudited consolidated statements are prepared under U.S. GAAP. DoubleVerify operates as one reportable segment, providing digital media measurement and analytics.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $122.6 million | $96.7 million | Up 27% |
| Operating income / margin | $15.2 million / 12% | $2.9 million / 3% | Up $12.3 million |
| Net income / margin | $12.2 million / 10% | $4.6 million / 5% | Up 166% |
| Diluted EPS | $0.07 | $0.03 | Up $0.04 |
| Adjusted EBITDA / margin (non-GAAP) | $35.9 million / 29% | $24.7 million / 26% | Up 45% |
| Cash from operating activities | $21.4 million | $(2.2) million | Improved $23.7 million |
Revenue by category was $69.9 million from Activation (up 32%), $41.4 million from Measurement (up 22%), and $11.3 million from supply-side customers (up 15%). Advertiser customers generated 91% of revenue, versus 90% a year earlier. Management attributed advertiser revenue growth chiefly to 25% more Media Transactions Measured and a 3% increase in Measured Transaction Fees. Gross revenue retention for advertiser customers exceeded 95%.
Cost of revenue rose 42% to $24.0 million, faster than revenue, reflecting higher revenue-sharing partner costs and cloud-service investment. Product development expense increased 32% to $28.6 million; sales, marketing and customer support expense decreased 4% to $25.7 million. Stock-based compensation was $11.8 million, compared with $11.0 million.
At March 31, 2023, cash and cash equivalents were $285.7 million, current assets were $476.7 million, current liabilities were $76.0 million, and management reported net working capital of $114.9 million using its stated definition (current assets excluding cash less current liabilities). Total liabilities were $161.7 million. There was no debt outstanding on the $150 million revolving credit facility at quarter-end; the company borrowed and repaid $50 million during the quarter. Finance lease obligations totaled $2.1 million, and operating lease liabilities totaled $82.1 million.
Material changes and notable items
- Operating cash flow improved from a use of $2.2 million to a source of $21.4 million. Investing cash use was $4.1 million, principally for property, equipment and capitalized software; financing provided $0.5 million. Cash and cash equivalents increased by $17.9 million during the quarter.
- Other income was $2.7 million, primarily interest earned on interest-bearing monetary assets, compared with less than $0.1 million of other expense in Q1 2022. This contributed to the improvement in pretax income.
- Income tax expense was $5.5 million, versus a $2.0 million tax benefit in Q1 2022. The 2023 effective tax rate was 31.1%; management cited higher pretax income and permanent book-to-tax adjustments.
- On March 29, 2023, the revolving credit facility was amended to replace its LIBOR-based rate with a SOFR-based rate. The company reported compliance with its credit covenants at quarter-end.
- Goodwill was $343.9 million and net intangible assets were $129.4 million at quarter-end. No impairment was identified in the quarter.
Outlook, risks and contingencies
The filing gives no specific numerical revenue or earnings guidance. Management stated that existing cash, expected operating cash generation and the undrawn $150 million facility should be sufficient for working capital and capital expenditures for at least the next 12 months. This assessment is subject to business needs and the risks and uncertainties described in the company’s 2022 Form 10-K.
- The filing adds a risk concerning cash deposits above FDIC or comparable insurance limits. Bank failures or liquidity pressures could affect the company’s liquidity, customers’ demand for its services, or receivable collectability.
- DoubleVerify discontinued relationships with Russia-based customers following Russia’s invasion of Ukraine. Management said the impact to date was not material; the company recorded a $1.0 million increase in bad-debt reserves in Q1 2022 related to the situation.
- The company reports ordinary-course legal proceedings and claims, but management does not believe they will have a material effect. No material legal proceeding was identified.
- Forward-looking statements are subject to risks, and actual results may differ. The filing points investors to the risk factors in the 2022 Form 10-K.
Important facts for investors to verify
- Whether Activation growth and advertiser transaction volumes remain strong, and whether the increase in cost of revenue and product development spending affects future margins.
- How much of reported earnings growth is supported by recurring operations versus interest income, tax-rate changes and non-GAAP adjustments; review the Adjusted EBITDA reconciliation and its limitations.
- Whether operating cash flow remains positive as receivables, prepaid assets and collections fluctuate; trade receivables were $174.3 million, including $48.8 million of unbilled receivables.
- Cash concentration across financial institutions, uninsured balances, and any impact of financial-institution stress on the company or its customers.
- Revolving-facility terms, SOFR-linked borrowing costs, covenant compliance and long-term lease commitments.