DoubleVerify Holdings, Inc. Q1 FY2023 earnings

DoubleVerify opened fiscal 2023 with a sharp acceleration in profitability. First quarter revenue reached $122.6 million, up 26.7% year over year. Operating income climbed 431.8% to $15.2 million. Net income rose 165.9% to $12.2 million, and diluted EPS came in at $0.07, up 133.3%. Operating margin reached 12.4%, up 9.4 percentage points. Adjusted EBITDA was $35.9 million, a 29% margin. Operating cash flow swung to $21.4 million, up 1052.7% year over year, while capital expenditures were $4.1 million, down 13.9%. The company generated these results on strong demand for its measurement and activation products.

Operationally, the quarter showed broad strength across product lines and geographies. Activation revenue grew 32%, Measurement revenue grew 22%, and Supply-side revenue grew 15%. Media Transactions Measured for CTV rose 39%, and Social rose 33%. International measurement revenue increased 26%, with EMEA growth of 23% and APAC growth of 31%. Total Advertiser revenue grew 28%, driven by a 25% increase in MTM and a 3% increase in Measured Transaction Fee. Gross revenue retention remained above 95%. Premium-priced Authentic Brand Suitability revenue rose 56%. The company added enterprise customers such as Swarovski, Daikin, Mattress Firm, Evoke Health and NY Presbyterian, and expanded work with Merck, Amazon and AirBnB. It launched Netflix verification coverage in 12 markets, became a badged Measurement Partner in the TikTok Marketing Partner Program, partnered with Roku on fraud use cases, and worked with Publicis Media and brands including Kraft Heinz, Reckitt and Comcast on brand safety research.

Guidance points to continued growth, though at a slower rate than the first quarter. For the second quarter of 2023, management guided to a 21% year-over-year revenue increase at the midpoint and a 29% Adjusted EBITDA margin at the midpoint. For the full year 2023, the raised outlook calls for a 24% revenue increase at the midpoint and a 31% Adjusted EBITDA margin at the midpoint. Management tied the higher outlook to strong first quarter results and an improved view of the rest of the year. The company did not reconcile Adjusted EBITDA guidance to GAAP net income because it cannot quantify stock-based compensation, depreciation and amortization, acquisition-related costs, interest income, and income taxes without unreasonable effort.

The quarter also carried familiar risks. DoubleVerify competes in a market defined by rapid technological change and evolving industry standards. The company cites potential system failures, security breaches, cyberattacks, natural disasters, economic downturns, unstable market conditions, difficulty collecting payments, data privacy legislation and regulation, public criticism of digital advertising technology, challenges from international operations, reliance on open source software, and a limited operating history. Revenue and results can fluctuate. The war in Ukraine remains a background issue. DoubleVerify voluntarily discontinued relationships with Russia-based customers, and management said the impact on the business to date is not material, though it booked a $1.0 million increase in bad debt reserves in the prior-year period because of the conflict. Cost of revenue rose at a faster pace than revenue because of partner costs tied to Activation growth and accelerated cloud investments. Product development spending increased, while sales, marketing and customer support expenses declined. The company ended the quarter with no outstanding debt under its New Revolving Credit Facility and said existing cash plus the undrawn facility should cover working capital and capital expenditure needs for at least the next 12 months.