DoubleVerify Holdings, Inc. Q3 FY2021 earnings

DoubleVerify reported fiscal 2021 third quarter revenue of $83.1 million, up 36.1% year over year. For the nine months ended September 30, 2021, revenue was $227.2 million, up 37.5%. The quarterly gain came as advertiser programmatic, CTV, social and international revenue expanded. Adjusted EBITDA reached $26.4 million, up 82%, and the adjusted EBITDA margin was 32%. Net income was $7.9 million, up 36.5%. Operating income was $11.8 million, up 104.7%. Diluted EPS was $0.05, up $0.01. Operating margin was 14.2%, up 4.8 percentage points.

The quarter's profitability stood in contrast to the year-to-date picture. For the nine months ended September 30, 2021, operating income was $10.7 million, down 39.5%. Net income was $1.0 million, down 91.9%. Diluted EPS was $0.01, down $0.07. Operating margin was 4.7%, down 6.0 percentage points. The company pointed to higher transaction costs tied to its IPO, though those costs are not part of the reported GAAP figures above.

Cash generation improved. Current quarter operating cash flow was $16.2 million, up 4256.5%. Year-to-date operating cash flow was $58.4 million, up 227.6%. Capital expenditures were $2.0 million in the quarter, flat. Year-to-date capital expenditures were $5.5 million, down 16.0%. The company ended the quarter with a debt-free balance sheet after repaying its revolver, and it funded the Meetrics acquisition with cash.

Operational highlights were broad. Media Transactions Measured rose 83% for social and 41% for CTV. Gross revenue retention was over 95% for the quarter. New wins included Facebook, Sony Japan, Disney Studios, TJX, American Family Insurance, Dropbox, Afterpay ANZ, Peloton Global, Burberry, Patek Philippe, John Lewis and HRA Pharma. DoubleVerify partnered with TikTok on viewability, fraud and in-geo measurement, expanded its Innovid partnership, and neutralized the Smokescreen CTV fraud scheme. The company also said premium-priced Authentic Brand Suitability revenue grew, driven by adoption on Google's DV360 and The Trade Desk.

The company completed the acquisition of Meetrics GmbH on August 31, 2021, for an aggregate net cash purchase price of $24.3 million. It also agreed to acquire OpenSlate for $150 million, with about $125 million in cash and $25 million in stock. OpenSlate brings pre-campaign contextual targeting across social video and CTV, and the deal is expected to close this quarter. Management said the combination would create an end-to-end brand safety and suitability platform and expand EMEA opportunities through Meetrics.

Guidance points to slower fourth quarter growth. For the fourth quarter of 2021, DoubleVerify expects revenue of $98 million to $103 million, about 28% higher year over year at the midpoint. It expects adjusted EBITDA of $34 million to $36 million, about 27% higher at the midpoint. For full-year 2021, revenue guidance is $325 million to $330 million, about 34% growth at the midpoint, unchanged from the range provided on July 29, 2021. Full-year adjusted EBITDA guidance is $103 million to $105 million, about 42% growth at the midpoint, also unchanged. The CFO said the fourth quarter outlook reflects prudence because of supply chain issues some customers face, and the MD&A noted that ad spend in consumer packaged goods and auto categories was pressured in the third quarter. COVID-19 remains a risk, though the company said its operations have seen limited disruption so far.