DoubleVerify Holdings, Inc. (DV) Earnings Call Transcript & Summary

All right. I think we're good to go. Awesome. All right. Well, thanks, everybody, for joining us today at the Baird Consumer Technology and Services Conference. Very excited to be hosting the event. Those of you who don't know me, my name is Vik Kesavabhotla. I'm one of our senior research analyst here, and I lead our coverage of the Internet and digital services sector. Pleased to welcome the team from DoubleVerify to the stage today. Joining me from the company is the CEO, Mark Zagorski and the CFO, Nicola Allais. We have about 30 minutes scheduled for this fireside chat, certainly no shortage of topics to talk about. So we'll dive right into it. But Mark and Nicola, thanks for being here. Maybe just for the benefit of those who are not as familiar with the company, if you want to start off, just giving a brief overview of DoubleVerify and the value proposition that you offer to your customers.

Yes. So DoubleVerify works in the digital ad ecosystem. We are a platform that ensures the quality of an ad transaction between a buyer and seller. We ensure that the ads that the buyer buys are viewable, they're in a brand suitable environment, there's no fraud involved. And increasingly, we're taking that quality metric and actually compressing the cost of the media that's high quality and ensuring that the media actually performs. And we do this across both the open web, mobile applications and the walled gardens. So we're partnered with everybody from Meta and Snap to TikTok, YouTube, et cetera.

Maybe to start off, it would be great to get your perspective on the macro backdrop right now. Obviously, a lot of puts and takes out there. How are advertisers reacting to this environment? And what are you observing in your conversations right now?

Yes. I think what we've fallen into is a level of stable instability, right, where advertisers are used to shocks. We've been through like multiple shocks over the last few years, whether it was COVID or war in Ukraine or general upheavals. So they've gotten relatively used to these kind of dynamics in the broader market. What that's meant is they become incredibly agile with their ad spend, but pretty resilient. And so far this year, we've not seen a degradation overall in ad spend, and that's not just us but others in the space. But we've seen much more agility when it comes to how they deploy that spend. So focused on tools like programmatic advertising, where they can move dollars in and out very easily, things that are very highly measurable or performance driven. So what we see in the macro is advertisers are relatively cautious, relatively wary, but still spending, just doing so with an eye to agility and looking at things that could be measured for performance.

Maybe we can spend some time talking about each of the different business segments that you have and the drivers there. So maybe to start off on the activation piece. The revenue growth in that segment, I think, accelerated to 20% in the first quarter. It'd be great if you could talk about some of the drivers supporting that segment right now and kind of how you're thinking about that through the rest of this year?

Yes. So broadly speaking, we've got 3 segments of how we measure revenue in our business. The first is we call activation. And that's what was considered pre-bid. So it's when we filter out bad or low-quality impressions before an advertiser buys them. And we do that either through programmatic channels or through other tools that we have that allow us to filter out the buy before. The second segment of our business is measurement, which is after someone's already bought an impression, we're able to measure where that impression ended up, whether it was actually delivered. And in many cases, we can block the delivery if it doesn't align with their quality -- qualifications. The third bucket is what we call supply side. And that's where we actually sell those quality and qualification solutions to the platforms themselves so they can clean up their inventory before they offer it for sale. The first one you mentioned is our activation business. We had a strong Q1 in activation driven by 2 main buckets of solutions. One is ABS, which is authentic brand suitability. It's a dynamic product that we have. ABS grew around 16%, which is the strongest growth rate we've seen in several quarters. That was driven predominantly by some great new logos that we launched. So folks like Kenvue and Microsoft and Kellogg's, all came on board with ABS. And then we also saw strong growth from upsells to current clients and volume increases to current clients as well. So folks like Lilly and others really drove increased volume on ABS. ABS is our premium priced product. It drives a lot of the growth across activation. So it was a big factor in that strong Q1 that we have.

And maybe just shifting gears to the measurement side. Nicola, maybe this is a good one for you. A lot has involved in that segment. You've obviously done -- now have more applicable on the social channels. It'd be great to get an update on just how you're thinking about the drivers of growth for that segment right now and both in the near term and the long term.

Yes. So you have it right. The driver of the growth there in measurement right now is going to be social where we finally this year have the full suite of products the same way as we have for the open web, we have measurement and now activation, especially around Meta, the product on the activation side is available as at the beginning of this year. And that's going to drive adoption, both for clients that were already using measurement, but only 60% of our top 100 were using the Meta product on measurement, waiting for the activation product. So now that, that product is available, first of all, those clients are going to start to use the product and then clients that were waiting for the activation product to start are also going to start to use the activation that goes along with measurement. You have to have measurement to have the activation product working. So that's going to be the main driver of the measurement sector that we have. The rest of that segment is tag and one of the large drivers of that growth is CTV. We have strong adoption, very strong growth for us on the CTV side of measurement as well. But really social is what's going to make that drive growth in the rest of this year.

I want to go back to talk about some of the products that you guys mentioned. But maybe first, maybe if we can also just touch on the supply side business. It seems like that's been a strong area of growth for you as well in the past few quarters. Maybe you could refresh us on the drivers supporting that part of the business right now as well.

Yes. So supply side is about 10% of our revenue mix. So it's a smaller part of our business. The growth is generally in step function. This is a SaaS model. So basically, we get a monthly fee based on certain levels of volume. And then when the platform hits a new level, then we get an upside on the revenue side. What you've seen specifically over the last few quarters is 2 main drivers, one that is at one point in time and one that is more of a continuing one. First off, Moat quite a few platform clients that we were able to win once Moat shut down, and that created a onetime kind of a step-up in the revenue, and now we have that base to continue to see SaaS revenue from there. And then the second one is retail media network. So retail media network in the first quarter grew 34%, which basically matched the growth of that segment altogether for us. And that's the ability for our data to be used not just on the owned and operated networks or say, Amazon, but also for all the other networks that come from the Amazon network. And that we anticipate to continue to be a strong growth for us.

So I want to touch on a few of the things you mentioned as we kind of went through those segments, but maybe a good place to start is the Meta pre-bid product. You guys announced that in February this year. Can you talk about just the demand that you're seeing for that so far? And for the customers that have activated that at this point, what's been the feedback at this stage?

Yes. We've seen really great uptake in that. We've got several dozen customers already launched and live on the pre-bid product, and the feedback has been exceptional. We've seen as much of 9 percentage points of increase in brand suitability when you use the pre-bid solution and the post-bid solution together. So that's significant. If you think about someone who's running hundreds of millions of impressions, 9% of those now are much more aligned with your brand suitability criteria than before. That's a big win. So the feedback has been solid. We've got nice uptake as far as number of customers, and we're actually ahead of expectations with regard to revenue generation on that solution as well.

And one of the other things you mentioned in one of your earlier responses was the customers that you won from Oracle earlier last year. Maybe if you can talk about how those integrations are going so far and what your latest thoughts are with the opportunity from that base?

Yes. So that is going well for us. These are sophisticated large brand advertisers that were used to a product that was a bit more basic with Moat and we were able to acquire those customers, first and foremost, at the same level of products, right? So we acquired them in the middle of last year, and we had an anticipation of being able to upsell them to our premium price solutions. That's going well for some customers actually going faster than we expected. And the good opportunity for us is that now that social activation is available, we are able to go after those large brands with those new products as well. So the motion is really upselling to the products that we're not even able to have from Moat and it's going well. It's going faster than we expected. We had anticipated it would take 12 to 18 months to educate them on the products and to start to see some motion and it's going faster than that.

Okay. I want to shift gears, maybe talk a few things about the numbers and kind of the guidance this year. Maybe if we go back to when you reported first quarter results, it was to maintain the guidance for fiscal '25. Despite just all the things that are happening in the world right now, maybe if you can elaborate on that decision and kind of what you're assuming for the rest of this year for the business.

Yes. So we chose to do what the vast majority of companies did based on where we were at the time we reported, which was not touched the rest of the year and wait to see how the macro would play out. We had a very strong first quarter. We grew 17% versus a full year guidance that was at 10%. And the 17% was really very broad-based like we beat on both the existing client base coming back to more normalized spend patterns versus what we had seen in Q4 of last year. Moat clients upselling at a fast clip, initial signs of very good uptake on social activation. So it was a broad-based beat over our own expectation. That was really January, February, March into April. And we haven't seen any change in those patterns as we're into the middle of the second quarter.

And if I go back to the fourth quarter last year, you guys had called out one large customer that had cut their spend, I think, largely due to commodity prices and you called that out as a headwind this year. Just would be great to get an update there on -- are you seeing any signs that, that could be a broader-based pattern? Or I guess, what gives you the confidence that, that might have been an isolated incident? And any latest commentary would be great.

Yes. So we have not seen this for other clients at all. This was a very acute and isolated situation for one client. What we can control is basically speaking with their clients and making sure that we're able to provide more and more services so that it's not just about verification, but also optimization and performance is tied to the Scibids and the Rockerbox acquisition. So this stickier we kick our relationship with the client, the less likely it is that they'll have to make an acute decision the way this one customer did, and we don't -- we haven't seen that happen to other clients.

So you mentioned a couple of times in there, just Scibids and Rockerbox. It'd be great to talk about those things. So maybe just first on Scibids. You made that acquisition a little while ago. Just give us an update on where that indigen stands, how that's enhanced the value proposition and the latest there?

Yes. So we've been really happy with the Scibids acquisition almost 2 years ago now. The thesis behind that is going back to where we started is if we -- if our core is about finding high-quality media for advertisers, that aligns with their brand suitability criteria and their safety and viewability criteria. The challenge has always been when they do that, they see the cost of media going up, right? Junk food is a lot cheaper than good food. And what the thesis behind Scibids was, well, what if we can find really good stuff at a much lower price. And we do that by doing what we call algorithmic bidding optimization. So they go into bidding platforms like Trade Desk, like Google's DV360 and go in and actually look to compress the bid, find the same stuff, but find it cheaper, find those ingredients of high-quality media. It's been incredibly successful. So that business grew over 40% Q1 this year. When we acquired them, we said that we were heading towards -- we wanted to have a 5-year plan to get that business to $100 million. I think we're well on our way to do that. And interestingly enough, beyond just the revenue from that product, it's done a couple of other things. The first thing is being a real differentiator for our product suite. And we'll talk about Rockerbox, how it fits into that as well, but it is something that our competitors don't have that they can approach customers to. And more importantly, the second aspect is, we've been able to bundle it with our core solution to basically go to customers and say, "We will save you enough money on your media doing bid compression and using this custom algos to actually pay for our core quality services", and we will show them. We will go into a pitch. We did this -- we've done this numerous times, we'll say, use Scibids on your impressions, we'll save you enough money because for every dollars spent on Scibids we generally kick back $4 in savings to actually pay for our media quality services. So our fraud detection, our viewability detection and all of that stuff. It's been a resounding success on that front. And I think one of the things we'll talk about Innovation Day next week is how we're not just selling them together as a bundle, but we're actually integrating the products together into 1 seamless suite, which I think has been an extraordinary differentiator for us.

And probably a good segue just to talk about Rockerbox as well. You mentioned that, that was a more recent acquisition. Just what was the rationale behind that piece and what that brings to the table?

Yes. I think Rockerbox closes the circle for us, right? It's the holy trinity of value propositions to CMO, which is we can find you great media, we'll help you find it cheaper and then we'll tell you if it actually worked, right? If there's 2 things that keep CMOs up at night is I have to keep the integrity of my brand staying solid. And I need to not get fired by the CFO for spending money wastefully online, right? So I have to prove that it actually sold product. Rockerbox does that. They're media mix modeling and multitouch attribution company. So for those of you who don't know what those are, those are ways of looking at how I spend my money to the most effective spots, right? If I'm a marketer, I spend on Facebook and I spent on YouTube and I spent on Linear TV and I spent on outdoor. How do I allocate that spend and how do I determine what works. Rockerbox is -- it's a really appropriate name. It's a box, it's a data box where advertisers put in all of their first-party data, their transaction data, their cost data, any transaction data that they have. And we help them analyze what actually move the needle. So if you think about it now, with Rockerbox, we're able to go in and say this impression was a high-quality impression, we can help you get it cheaper, and then we can actually show you whether or not it's helped you sell something. And I think if we can do that in an independent, transparent way, outside of the media transaction. So DoubleVerify does not buy or sell media. We work outside of the media transaction. And we do so across open web and walled garden applications and CTV and mobile web applications. It puts us in a very unique spot. And I think that's the thesis around the Rockerbox part of it, which is it closes the loop for us and it gives us this integrated value prop that really nobody else in the space has.

Yes. So between those 2 acquisitions and some of the new products that you've launched, a lot that has happened at the company over the last couple of years. Just as we think about the product road map going forward and partnerships that maybe are on the horizon, just what else can you share about kind of what investors should be looking forward to and how the business is going to evolve from here?

I think the first is integrating the solutions, right, bringing together the data that we get from Rockerbox and being able to dynamically put that into Scibids. So before we even bought Rockerbox, we're working on those types of tests. So taking transaction data and then having advertisers optimize against that. So find me, for example, somebody who signs up for a weight loss program, we could see you do that and then push that into my media plan so I can optimize my bids and my impressions against those transactions. Doing that in a more dynamic way and linking all of these products together in a seamless solution is probably our biggest product lift right now. So we have components, we're bundling them together. We're selling them together. The next stage is actually to integrate the data together. That's piece one. The second thing on the product road map is just covering more ground. So we've got lots of products, but getting them into more places. So launching attention across social, for example. Enhancing our connected television, our CTV product. So it provides greater transparency and more granularity. So just more of the same because we've got huge upsell opportunities. A majority of our customers still use a minority of our products. That means we can upsell them. We're still underscaled outside of the U.S., right? Still 30% of our measurement business or so, whereas half of digital ad spend is outside the U.S. So we've got more platforms to cover with our products. We've got more markets to cover. And then we've got this integration of a broader platform that gives us a very unique selling opportunity against anybody else in the space.

You mentioned the Innovation Day a couple of times when you were commenting before, it might be a good opportunity for a plug on what we can expect that Innovation Day next week and what you guys have in store?

Yes. So please join us. We'd love to have you. It's next week at the stock exchange. We're going to talk a lot about product road map, the vision of the integrated platform and the advantages that brings us. We're going to talk about AI and how that plays a role in both the core of what we do, and the top level of how AI agents are going to change how our customers interact with us as well. I'm sure you've all heard a lot about Agentic AI and what agents are going to do, and I think there's a great opportunity for that to work with our system. But all of that stands on a very unique data set, right? So we'll talk a little bit about how that data has helped power real results for our customers, how it's created very sticky and unique relationships with platforms like TikTok, like Meta and others. And how we bring all of those tools together to a value prop that, for example, we'll have executive level officers from our customers say, this is why I'm working with TV because this is something unique to them.

Yes. Maybe just to elaborate on the AI piece of that. It's obviously been a big theme at the conference this week. I think there's a lot of interest in understanding how AI is affecting different industries and companies. And it'd be great to get your higher-level thoughts on how that's affecting your business and the industry you operate in and how you see that evolving from here?

Yes. I mean beyond the noise and buzz and every other word is AI and it's going to change the world and all those things, I mean, it is having a real impact, both internally at DoubleVerify and externally in the ad ecosystem. Internally, as you would all expect, the efficiencies that we're starting to get out by using AI tools are pretty substantial. It's helping us write code faster anywhere from 20% to 30% faster and more code that our teams are able to use, which means we can hire less people, that's a good thing. It's helping us classify content in what we call labeling. So when we look at content in context to determine what it's all about, that takes a combination of modeling but also some humans involved in that, too, to help build those models. We've now found by using AI tools, we can label content 1,000x faster. So at the same time, it would take us to label one thing, we can label 1,000 things using AI. That's a huge benefit for us. And even in things like doing -- using AI to do predictive modeling for video. Again, we look at tons of video particularly across short-form applications like TikTok. It would be financially infeasible for us to look at every frame of a short-form video across TikTok. I mean there's billions and billions and billions of hours of video there. So what we do is we've now used AI to do predictive modeling. So we don't look at 1 frame -- we don't look at every frame in a video, which in 1 second of high-definition video can maybe anywhere from 40 to 60 frames, we look at 1 frame, and we predict what comes next. That's allowed us to keep our cost down to have better gross margins than others in this space. So that's been, again, another efficiency that we've gotten from AI. On the outside, it's created challenges and opportunities. We go out and we look to measure and stamp out fraud. Fraudsters have become much more sophisticated using AI, right? So we have to use AI to battle AI. It's like criminals get bigger guns. We have to get bigger gun. The idea around content farms, what it's called made for advertising content. It used to be, hey, how many low-cost employees can we find to bang out and make these fake sites that run ads against? Now you don't even need those low-cost employees in some backroom some place, you can use AI to generate literally thousands of websites a day that are filled with garbage content or taking 1 piece of garbage content and just replicating it thousands of times, which makes it much more hazardous for advertisers to try to navigate this universe. So internally, it's created efficiencies. Externally, it's created challenges but also opportunities for us to be seen as more valuable to our customers and saying, the world gets even scarier out there. You need a partner like us to help you navigate that tough context, the fraud that's being generated and all the challenges that are out there.

Yes. And maybe that's a good segue for a question for Nicola. You guys have obviously already built a very robust portfolio, but as Mark has talked about, it's a lot of opportunities still ahead, a lot changing in the industry. What are the biggest areas of investments for you right now? And where are you kind of focusing your resources?

Yes. So our investment right now is all on innovation, which means it's all in R&D. We sort of have the base that we need on G&A. We sort of have the base that we need on sales and marketing. We are in the markets that we want to be in. It doesn't mean that we may not go in opportunistically in a country in APAC. But the investment level there is pretty small. So it's really all about R&D on the basis that AI is actually helping you to invest very efficiently. That's the core focus. What you're hearing here is a situation where we can maintain strong margins, be able to reinvest in areas of growth very efficiently. But our strategy still remains to continue to invest. We're showing strong top line growth, we're showing margins over 30%, and we're managing to that margin level because we know we have other opportunities to innovate for, but it is becoming easier to innovate. And as Mark said, you can sort of see that it won't require as many hiring as we've had in the past just because AI helps you do things more efficiently.

Yes. And maybe also we can touch on capital allocation as part of that. You're obviously a very profitable business. How are you thinking about cash and uses of that right now?

Yes. So we -- as you say, we're very profitable. We had almost $200 million on the balance sheet at the end of the first quarter, and that's after paying for Rockerbox and doing buybacks at pretty high levels. On the buyback side, we did $120-plus million last year. We did $80 million to date. And so the way we think about capital allocation is what's going to create superior growth on the top line. We are now becoming a larger player in the market as compared to the single point solutions and other companies that compete with us. And so if we can show superior top line growth, we'll continue to invest, and that means that could be M&A, right? If we find something that either expands us geographically or accelerates our road map or gives us an investment into an adjacent product, which is where we'll discuss exactly at Innovation Day, just all of that altogether, we'll continue to look for M&A opportunities if they make sense. And again, even after all that activity, we saw $200 million on the balance sheet.

Yes. I should have masked this before when we're talking about Rockerbox, but what does the customer reception been like at this point to that acquisition? And how are you going about the process of just educating customers about how much the portfolio has evolved here in the last couple of years?

Yes. I mean well, so first on Rockerbox, the -- we had a significant response from our customers. They were very excited. And the reason why, and this is going to sound counterintuitive while you buy something, is that there aren't a lot of big MTA or market mix modeling companies out there. A lot of them tend to be bespoke consulting firms, and they're like, wow, so we can actually have now a large organization who has an MTA or MM solution that can pull data across our solutions. This makes a ton of sense. So we had a lot of inbounds from our current customers. We're testing with many of our current customers right now. So it was very, very strong positive response on Rockerbox. And I think that, that business, we're still evaluating overall how we can integrate it directly into all of our other solutions, because the value prop is not just selling Rockerbox separately as another solution, it's how we can bundle it into a broader platform that just makes us very sticky with our customers. So it's been a great reception to date on Rockerbox and I think overall, customers are leaning into it.

Yes. We're coming up on a couple of minutes here. I want to kind of wrap this up, maybe talking from a higher level. You guys do a lot of these presentations. You're in a lot of conversations with investors. Is there an aspect of the company or the story that you think is misunderstood by investors? And maybe if you can also just tie that in with as parting words for audience, just if there's certain messages you really want to emphasize here that people take away?

Well, I can start it. I think as the ecosystem evolves, one thing that is remaining consistent with us is our independence and the fact that we measure and provide products across both open web and the walled gardens. And as dollars shift from one to the next, and as providers in the space create their own solutions that are specific to their platforms, having somebody that can look across the entire ecosystem and remain independent and not being grading your own homework is really important to the large brands. I think that's a value prop that's very hard to replicate even for a start-up. It will be very difficult to replicate what we do.

Yes. I think that's a great point, which is the scale of our business is pretty massive. We see trillions of ad transactions every year, and that just makes us smarter. And it builds a moat that it becomes very hard for others to fill in. But I think it comes back down to the core value proposition of the business is still to be an independent arbiter of ad transaction quality. And that value prop has not wavered one bit since we've IPO-ed the company and continues to be strong. As dollars shift from platform to platform, we become even more important as advertisers start spending into less transparent entities like the social platforms in which dollars go in and they guarantee a response and nothing else. So I think we've got a core strong value proposition and our move into performance and performance measurement is not because the core isn't strong, it's because it's a natural evolution of that core, which is when you take garbage out of the system, what's left performs better. And now we're taking that -- what performs and making that even more refined. So it's a natural evolution of the company. Our relationships with our customers remains incredibly strong. And the business fundamentals are, I would challenge you to find better business fundamentals, highly profitable, continue to grow strong cash flow, and we're in a good spot.

Great. Well, it's a good place for us to wrap it up. Mark and Nicola thank you both for being here today we are hosting a breakout session in the Rockefeller Foyer, if you want to follow up and meet the team, and we'll leave it there. Thanks, everyone.

Thank you.