DoubleVerify Holdings, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. DoubleVerify provides digital advertising measurement and analytics through a single reportable segment. This unaudited quarterly report covers the three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $109.8 million | $76.5 million | $206.5 million | $144.1 million |
| Operating income (loss) | $13.2 million | $(9.9) million | $16.0 million | $(1.1) million |
| Net income (loss) | $10.3 million | $(12.6) million | $14.9 million | $(6.9) million |
| Diluted EPS | $0.06 | $(0.08) | $0.09 | $(0.05) |
| Adjusted EBITDA (non-GAAP) | $34.0 million | $21.2 million | $58.7 million | $42.9 million |
| Adjusted EBITDA margin (non-GAAP) | 31% | 28% | 28% | 30% |
Revenue increased 43% in both the quarter and first half. Q2 operating margin was 12% and net margin was 9%; first-half operating margin was 8% and net margin was 7%. The filing does not present a separate gross profit or gross margin measure.
Revenue mix in Q2: Activation $60.5 million (+60%), Measurement $38.9 million (+23%) and supply-side $10.4 million (+49%). Advertisers represented 91% of quarterly revenue. Management attributed advertiser growth to higher measured transaction volumes and fees, adoption of Authentic Brand Suitability, new customers and expansions, OpenSlate contributions, and enhanced programmatic integrations.
Cash flow and liquidity. First-half operating cash flow was $26.5 million, versus $42.2 million a year earlier. Investing cash outflow was $13.6 million, primarily capital expenditures, including new-headquarters improvements and capitalized software; operating cash flow less property and equipment purchases was approximately $12.9 million. Financing cash outflow was $10.1 million, mainly employee tax-withholding share repurchases. Cash and equivalents were $223.7 million at June 30, 2022, and management reported $114.8 million of net working capital under its stated definition.
Debt and leases. No borrowings were outstanding under the $150 million revolving credit facility, which was fully available; the company reported compliance with its covenants. Finance lease obligations totaled $3.6 million. Adoption of lease accounting added $75.6 million of operating lease liabilities at quarter-end. The company also disclosed long-term lease commitments associated with its New York headquarters.
Material changes versus the prior comparable periods
- Revenue growth translated into a return to GAAP operating and net profitability from losses in the 2021 comparison periods.
- Q2 general and administrative expense fell 33%, primarily because 2021 included IPO and offering costs. Cost of revenue, product development, and sales and marketing expenses increased with partner costs, technology use, hiring, and stock-based compensation.
- First-half operating cash flow declined despite higher net income, principally reflecting a $21.9 million increase in receivables and timing-related working-capital uses. Capital expenditures also rose to $13.6 million from $3.5 million.
- First-half stock-based compensation increased to $20.3 million from $7.3 million. Adjusted EBITDA improved, but its margin was lower for the first half year over year.
Outlook, risks, contingencies and unusual items
- No quantified revenue, earnings or margin guidance is provided in the supplied filing text. Management said existing cash, operating cash generation and the undrawn revolver should fund working capital and capital expenditures for at least the next 12 months.
- Management said COVID-19 had not materially affected results to date, while cautioning that a decline in digital advertising demand could adversely affect performance. The company discontinued services to Russia-based customers; management said the impact was not material, but recorded a $1.0 million increase in bad-debt reserves in Q1 2022.
- Q2 included $1.5 million of impairment on an operating lease right-of-use asset related to subleasing former office space, and a $0.9 million loss on fixed-asset disposals. First-half costs also included expenses related to departures of former senior executives and office-space changes.
- The company settled remaining Zentrick contingent payments for $5.6 million in February 2022; first-half financing cash flows include a $3.2 million contingent-consideration payment. OpenSlate purchase-price allocation remained subject to finalization.
- An Israeli tax-authority audit covering 2016–2018 was ongoing. Management did not expect ordinary-course legal proceedings or claims to have a material effect. The filing reported no material change in previously disclosed risk factors.
- Disclosure controls were assessed as effective at June 30, 2022; no material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Whether strong revenue growth, especially in Activation, is sustained and continues to convert into GAAP earnings and cash flow.
- Receivables, collections, bad-debt reserves and working-capital trends, given the increase in receivables and the Russia-related reserve.
- The effect of rising stock-based compensation and share issuance on per-share results and dilution.
- Capital spending, headquarters lease commitments, and the company’s ability to maintain liquidity while meeting long-term lease obligations.
- Final purchase-accounting adjustments for OpenSlate and any outcome or tax exposure arising from the Israeli audit.