DoubleVerify Holdings, Inc. Q3 FY2023 earnings

DoubleVerify reported third quarter revenue of $144.0 million, up 28.3% from a year earlier. The advertiser base did the heavy lifting. Advertiser revenue grew 32%, supported by a 27% rise in Media Transactions Measured and a 2% increase in the Measured Transaction Fee, while supply-side revenue slipped 2% as industry consolidation removed platform revenue. Net income reached $13.3 million, up 29.2%, and diluted EPS was $0.08, up 33.3%. On a non-GAAP basis, adjusted EBITDA was $45.7 million, a 32% margin, up from a 30% margin a year earlier.

The mix kept tilting toward the growth engines. Activation revenue rose 31% and Measurement revenue rose 32%. Media Transactions Measured for Social jumped 61% and for CTV rose 29%. International measurement revenue climbed 62%, with EMEA up 75% and APAC up 46%. Revenue from Authentic Brand Suitability, which carries premium pricing, grew 40%. Gross revenue retention stayed above 95%. Management pointed to expansions at Uber and Colgate and new enterprise wins such as Total Energie, Miele, Mizkan, Riyadh Expo and Saudi Coffee Company. The company plans to test third-party brand suitability verification for Facebook and Instagram Feed, plus Instagram and Facebook Reels, in the fourth quarter, and it extended coverage on Twitch, Instacart and Amazon custom audiences.

Costs built with the business. Operating income was $18.2 million, up 26.7%, while operating margin of 12.7% was down 0.2 percentage points year over year. Cost of revenue rose 37% and product development rose 35%, both reflecting heavier cloud capacity and personnel spending. Stock-based compensation reached $15.8 million in the quarter. Sales, marketing and customer support rose 22%, general and administrative rose 20%, and depreciation and amortization rose 32%, partly from Scibids intangibles and the new headquarters. On a nine-month basis, revenue reached $400.3 million, up 25.6%, operating margin of 12.0% was up 2.5 percentage points, and net income was $38.4 million, up 52.2%.

Cash generation improved. Operating cash flow was $35.5 million for the quarter, up 11.7%, and $67.7 million for the nine months. Capital expenditures fell 67.1% to $4.6 million in the quarter and were down 55.6% to $12.3 million for the nine months, as the headquarters build wound down. The company held $259.2 million of cash and cash equivalents at September 30, 2023, with no borrowings outstanding under its revolver and $150.0 million undrawn. The quarter closed the Scibids acquisition, an AI-powered optimization platform funded with $67.2 million of cash and $52.9 million of stock, which lifted goodwill and intangible assets and drove a nine-month investing outflow of $79.5 million.

Fourth quarter guidance puts the top line at $170 million to $174 million, a 29% increase at the midpoint, and adjusted EBITDA at $57 million to $61 million, a 34% margin at the midpoint. For the full fiscal year, management raised the outlook to $570 million to $574 million, up 27% at the midpoint, with adjusted EBITDA of $179 million to $183 million, a 32% margin at the midpoint. The company does not reconcile the adjusted EBITDA outlook to GAAP net income, citing the difficulty of forecasting depreciation, amortization, acquisition costs, interest income and taxes.

Several risks sit under the surface. A reserve tied to MediaMath's Chapter 11 filing pushed bad debt expense higher in the nine-month period by $3.3 million. Foreign currency translation cut $6.4 million from other comprehensive income in the quarter, leaving an accumulated loss of $11.9 million at September 30, 2023. Supply-side revenue is shrinking as platforms consolidate. The company also lists competition amid rapid technological change, data privacy regulation, system failures and security breaches, payment collection, and dependence on international operations among the factors that could derail its outlook.