DoubleVerify Holdings, Inc. Q1 FY2021 earnings

DoubleVerify reported first quarter revenue of $67.6 million, up 32% from $51.2 million in the prior-year quarter, in its first earnings release as a public company. Growth was broad. Advertiser Programmatic revenue rose 42%, Advertiser Direct revenue rose 24%, and Supply-Side revenue rose 18%. Management tied the direct business to roughly 75% growth in media transactions measured for both CTV and social channels, and the programmatic line to adoption of the premium-priced Authentic Brand Safety solution. Gross revenue retention held above 95%. The quarter brought new business from Unilever, UPS, the UK Government through Omnicom UK, Fujifilm Japan and Arnott's Australia. DoubleVerify also won additional Media Rating Council accreditation in CTV for display and video rendered impression measurement, expanded brand safety coverage on Facebook video, and launched DV Authentic Attention, a privacy-friendly product for impression-level campaign insights.

Profitability scaled faster than the top line. Operating income was $8.78 million, up 89.6% year over year, and operating margin rose to 13.0% from 9.0%. Net income was $5.64 million, up 131.3% from $2.44 million, and diluted earnings per share was $0.04, up from $0.02. Adjusted EBITDA, a non-GAAP measure, reached $21.7 million, up 41%, equal to 32% of revenue. Costs grew alongside the business. Cost of revenue rose 40% on higher software and technology spending and partner revenue-sharing payments, product development rose 37% on hiring, and sales, marketing and customer support rose 26% on personnel costs.

Cash generation improved. Operating cash flow was $19.46 million, up 53.2% year over year, helped by a $9.6 million decrease in trade receivables and prepaid assets that was partly offset by a $6.5 million decrease in accrued expenses. Capital expenditures were $1.92 million, down 37.2%. The company ended March 31, 2021 with $49.8 million in cash and $22.0 million outstanding under its New Revolving Credit Facility. It repaid that balance in full on April 30, 2021 using IPO proceeds. The IPO and a concurrent private placement delivered aggregate net proceeds of $282 million, which management said would fund global expansion and the technology roadmap.

Guidance points to continued momentum. For the second quarter of 2021, management guided to a year-over-year revenue increase of 38% at the midpoint along with Adjusted EBITDA of $20 million to $22 million, an improvement of 34% at the midpoint. For the full year 2021, the company guided to a revenue increase of 33% at the midpoint and Adjusted EBITDA of $103 million to $105 million, up 42% at the midpoint. DoubleVerify did not reconcile the Adjusted EBITDA guidance to GAAP net income, saying it cannot forecast stock-based compensation, depreciation and amortization, acquisition-related costs, interest income and income taxes without unreasonable effort.

Risks remain. Management warned that a decline in digital advertising demand tied to the COVID-19 pandemic could materially hurt results, even though the pandemic has caused limited disruption so far. The prior-year quarter carried costs tied to the departure of the former chief executive and to investigating and remediating IT and cybersecurity matters from March 2020. The New Revolving Credit Facility is secured by substantially all of the company's assets and carries covenants limiting fundamental transactions, additional debt, liens, dividends and affiliate deals. DoubleVerify said it was in compliance with all covenants as of March 31, 2021.