DoubleVerify Holdings, Inc. Q1 FY2022 earnings

DoubleVerify opened fiscal 2022 with strong top-line momentum but weaker bottom-line leverage. First quarter revenue reached $96.7 million, up 43.1% from the prior-year quarter. Net income was $4.6 million, down 18.9%. Diluted EPS was $0.03, down $0.01. Operating income fell 67.4% to $2.9 million, and operating margin was 3.0%, down 10.0 percentage points. Adjusted EBITDA, a non-GAAP measure, rose 14% to $24.7 million and represented a 26% margin, down from 32% in the prior-year quarter. The company described the quarter as strong, with CEO Mark Zagorski citing product innovation, accreditations in programmatic and CTV, and a broader international footprint. CFO Nicola Allais pointed to a strong cash position and continued investment in hiring and product development.

Growth came from broad demand across the platform. Activation revenue increased 56%, measurement revenue increased 23%, and supply-side revenue increased 61%. Total advertiser revenue rose 41% year over year on a 27% increase in Media Transactions Measured and a 7% increase in Measured Transaction Fees. Gross revenue retention held above 95%. Revenue from Authentic Brand Suitability grew about 52%, helped by nearly 100 more clients using the solution than in the prior-year period. International revenue increased 40%, with EMEA up 41% and APAC up 38%. CTV Media Transactions Measured rose 55% and social Media Transactions Measured rose 22%. New logo wins included Best Buy, Subway, KFC, Travelers, Norwegian Cruise Lines, and Oppo. DoubleVerify also closed an enterprise deal with Best Buy and earned Media Rating Council accreditation for third-party YouTube video viewability calculations.

Profitability faced pressure from a heavier cost base. Operating expenses grew faster than revenue across cost of revenue, product development, sales and marketing, and general and administrative lines. Stock-based compensation and hiring investments weighed on operating income, while depreciation and amortization also rose. Operating cash flow was negative $2.25 million, down 111.6% from the prior-year quarter. Capital expenditures were $4.76 million, up 148.5%, reflecting purchases of property, plant and equipment and capitalized software development costs. The cash swing reflected an increase in trade receivables and prepaid assets and a decrease in accrued expenses and other liabilities. The company attributed the cash use to timing of collections and payroll tax liabilities.

Management raised its full-year outlook. For the second quarter, guidance calls for revenue growth of 33% at the midpoint over the prior-year period and adjusted EBITDA of $27 to $29 million, a 27% margin at the midpoint. For full-year 2022, the company guides revenue growth of 33% at the midpoint and adjusted EBITDA of $131 to $137 million, a 30% margin at the midpoint. The company does not reconcile adjusted EBITDA guidance to GAAP net income because it cannot quantify certain items without unreasonable efforts.

Risks remain visible. Management noted that ad spend in certain categories, including consumer packaged goods and auto, continued to be affected by global supply chain disruptions. The war in Ukraine led DoubleVerify to discontinue services with Russia-based clients, and the company recorded a $1.0 million increase in bad debt reserves. Other disclosed risks include economic downturns, unstable market conditions, competition, system failures, security breaches, data privacy legislation, public criticism of digital advertising technology, international operations, open source software, and ability to collect payments. The pandemic also remains a source of uncertainty for digital ad demand.