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

Okay. I think in the interest of time, we're going to keep the train moving along the track. It's my pleasure to introduce the team from DoubleVerify and have them be part of the conference this year. Nicola, thanks so much for being here at the conference.

Thank you for having us.

Okay. Always enjoy a chance to catch up with you. You've been a regular participant, so we always appreciate when you want to come and be part of the conference. I always do like to start by just kicking off for those that are new to the story. There's so many moving pieces with respect to DoubleVerify. You've been on this journey as a company over the last couple of years. Why don't you level set with the journey you've been on and sort of where the company is right now in its evolution?

Sure. Sure. So DoubleVerify is a technology company that helps advertiser making sure that the advertiser is placed in an environment that's brand safe, that's viewed by humans, and it's fraud-free. That is basically where the company started. It started as an insurance for advertisers to make sure that their ads were placed in an environment that was the quality they wanted with the context that was intended to be for them. The company has now evolved and is evolving, and we'll talk about it, I'm sure, from verification to performance and to outcome. So specifically in the last few years, we have acquired some companies that allow us to move not just to tell the advertiser whether we can verify the quality of the ad, but also to tell them where they can optimize their spend. And then more recently, now we bought a company that will allow us to prove the outcome of that ad placement. The 2 companies that we bought are Scibids for the optimization part and then Rockerbox for the outcome. We're still early stages. Most of our business is still the verification, but we now have all the pieces together to create a much broader proposition for the advertisers that moves away from just saying, hey, keep me away from the bad stuff, use DV to also tell you what's good for you and show me that it actually was good for you.

And how should investors think about that framework scaling in the years ahead. So obviously, you've now put all these pieces in place. You had a really insightful Investor Day just a couple of months ago. How should investors think about the narrative building and its momentum as the execution meets the strategy?

Right. So it will take time, of course, to set it up in place. It's a framework. It's really an integration of 3 discrete products that already exist. The very first step will be around optimization. This is a company Scibids that we bought over 2 years ago. It's already in market. It already has clients, and it's already integrating most of the DSPs that we want to be integrated with. There's still work to be done. So that will be the first part of the journey, and that we'll talk, I'm sure, about it, which is the authentic advantage solution. And then the proof point really will come a little bit later. That is really early on. Right now, we're just integrating the company into DV.

Okay. I will need to ask about sort of just the current ad environment role operating in. I think this has been a big debate point over the first 1.5 days or so of the conference. Level set for us what you as a company are seeing in the current operating environment. And how that might be distinction out there between types of advertisers, types of advertising solutions where you might see some nuance in the operating environment?

Yes. So the operating environment is uncertain. It is volatile for sure. The year started with a lot of uncertainty around tariffs and the impact that it would have on ad spend. The first half of the year, actually, we saw a lot of resilience around advertisers continue to spend into the uncertainty. But we're now in the second half where the impact of tariffs is actually starting to be felt in the market. We have some clients, and this is all public, what they've said is some are saying we're going to continue to spend through this. Some are saying we're not going to spend through it. Over half of our revenue comes from programmatic, which is a very transactional part of the business, right? Advertisers are able to push in and out, spend very, very quickly, and we're subject to that, right? So the sentiment -- if the sentiment turns, we will feel it. The third quarter, in particular, is very heavy weighted on September. And so that is happening as we speak. Our 2 largest verticals are CPG and retail, which are also susceptible to quick decisions, right, that can be made around programmatic to full spend or not full spend. So it is -- it has always been variable. Advertisers now don't have to plan campaigns for 6 months or 12 months ahead. But I think the environment right now is even more unpredictable. So we'll have to see. Now what we are focused on is what we're controlling, which is just continue to develop the products. Despite the cyclicality of the space we're in, we have a plan to continue to develop our product, and that's what we can be focused on despite the cyclicality.

Yes. Understood. In your control versus out of your control, very clear. Now turning to some of the building blocks of the business, let's go in that direction. Social media activation, especially pre-bid solutions. I think there's an area that gets a lot of focus from investors. Talk a little bit about the current landscape in that business, but more importantly, how you see it evolving and scaling in the years ahead?

Yes. So when we were talking last year, pre-bid was not a solution for social. So now pre-bid is available for Meta, TikTok and YouTube. It is in the early stages because it's available, but clients need to understand exactly how to use it and to be able to compare to what they have available on the OpenWeb. Part of having these solutions in the market is it allows the advertisers to benchmark how their spend is working in different environments. But that takes time, and you need to test it and make sure that the lists that we're using for exclusion are actually giving them the results that they want. It is available. It is scaling. Those are new dollars that the advertisers need to find as well, right? So going back to the macro environment, there is a little bit of a friction there in terms of adoption rate, but it's available. What's very unique to us is that Scibids, right, is also now available on YouTube. And that product allows you to do not just the basic pre-bid tooling that everybody will have access to because the platforms will give access to the data to all the providers that they want to, right? They're not going to be exclusive to DV. Scibids, the optimization part is exclusive to DV. And that allows the advertiser to not only do pre-bid filtering, but also then say, okay, I'm going to use Scibids to optimize my spend that we feel is very different. There really isn't another integrated solution in the market that does that. So we think that the power of those 2 tools together is really going to make a difference.

Okay. Understood on the differentiation. Let's talk about 2 of the bigger growth areas in advertising at large are our CTV and retail media, your relative exposure level to those engines of growth in the broader digital advertising landscape and how you see the evolution of your mix or exposure to that in years ahead?

Sure. So CTV has spoken about more than it's actually yet sort of a channel, right? So it's 11% of our measurement impressions. It's about that in terms of total ad spend in digital, right, that goes through CTV. But it's an area that's growing very fast and a lot of dollars are going to move to CTV from linear TV. So it's an area of very high focus for us. It's 11% of our measurement revenue, but it grew 45% last quarter. So a lot of dollars are moving there. What we're focused on there is, again, product differentiation. So we can measure, we can do what we can do in all other environments on CTV. But what we're going to be launching in the next few quarters are products that are specific to the environment. One of the things that we see in CTV is there's a difference between saying, I'm on a big screen, and it is CTV. And I'm actually buying CTV, but it's actually going to an extension of those ad networks. It's nothing wrong with being in an extension, right? It expands the TAM and it expands the reach that you can have with you're ads, but it's not the same as being on a large screen. And so we're looking at products that are going to allow you to basically see if you were really on a full episode, right? Or if you were kind of partially on episode and then went to sort of an extension. We're thinking about do not air categories on the pre-bid side that will be tied to our authentic brand safety tool, which is our premium product. So we're creating products that are specific to the challenges that are around CTV, which is it's not just a big screen, it's also extensions to allow the advertisers to really know where their ads are showing. That's the key for us. So we're spending quite a bit of time thinking about those kind of product development for next year.

Okay. And with respect to retail media in particular as well.

Yes, retail media -- the beauty of retail media for us is that it is exactly that extension, right? So it has allowed us to work with clients that wouldn't otherwise be direct clients for DV. Smaller advertisers that do have ad spend dollars, but wouldn't necessarily be a client that we have a direct relationship with. So it's expanded the availability of our data to more clients. We have very strong relationships there. I mean retail media -- the growth of retail media network surpassed the growth that we saw in the supply side line in our financials in Q2. So it's really a strong growth. And the same products that work for brands work for retail media.

Okay. We're at technology conference. We have to talk about AI. Talk to me a little bit, and you alluded to a little bit in your first answer, but I want to go a little bit deeper in terms of how you guys are thinking about aligning AI with solving and providing solutions to what advertisers are trying to get out of their decision-making process?

Right. So AI for us -- we've been using AI in large language models to do what we do, which is classified content for many years. Of course, now it's accelerated, right? The ability for us to use AI has accelerated as it has for a lot of companies. Now the difference is there are AI tools, which are available for everybody, but not everybody has the data that DV has, right? So the combination of those 2 allows us to do a finer job in classification. So this is a cost -- this is an efficiency play first and foremost for us, right? It allows us to classify faster. It allows us to create categories that are specific to AI. Some brand advertisers do not want to be near AI-generated content. Some advertisers do. There's -- so it's a tool that's allowed us to do our job more efficiently and faster. You always need humans anyway. And again, as I said, the DV data tied to AI is really what makes a big difference in terms of what we can do versus, say, an upstart company that says, we're going to use AI to do brand safety. Brand safety is based on knowing what's out there and the years of us having been able to do that creates a much better model for AI. So that's sort of step one. Step two is the efficiency that we can gain with AI are obvious, right? So we can -- we're able to do things faster, we're able to do them more efficiently. I'm sure we'll get -- at some point, we'll get on a question around margins, but it basically has freed up resources within our own cost structure, which is a very interesting play as well. So it's part of what we've always done. It's just accelerated it. And I think it creates a differentiation from companies that say, yes, we're just going to use AI to do brand safety. You do need a base of data that we have that others don't.

So building on the concept of the data advantages you have and the client focus you have, talk a little bit about DV Authentic Advantage feeding off of that strategy and how you think about that scaling as well?

So DV Authentic Advantage is of the 3 pieces that we discussed, right, verification, optimization and then proof. The DV Authentic Advantage is a platform framework solution that allows the clients to do all these 3 things kind of seamlessly, right? So right now, we have 3 pieces that kind of patch together. This will allow to be a workflow that really creates an ability for an advertiser to see what was measured and then quickly decide what to do on the filtration side and then what to do on the optimization side. It's a workflow that puts it all together in a way that the advertisers really will like it because they'll be integrated into their own workflow. It's again something that others don't really have. The optimization part, if you think about what verification does is takes you away from the bad stuff. It also filters out if you're doing it on a pre-bid side, right? It filters out inventory where we're saying, don't bid there because it's not going to be good for you. But if you do that, you're kind of limiting the inventory that you're going to bid on, which has an impact on price because you're going to pay more because you have less inventory that you're bidding on. Scibids within that framework, which is a good one, allows you to really optimize where you're going to be putting your dollars at play. One of the things that we're able to do now with Scibids, which the advertisers really like is go into an RFP or talk to a client. And the conversation always starts the same way, which is what can you give me for verification? It's a price conversation. How cheaply can you give me verification? We're now able to have a conversation that says, if you use Scibids, we will optimize your spend so that we can save you dollars on the media side that will actually cover the cost of verification. So it's a totally different conversation. It's no longer just a cost conversation, it's an efficiency conversation on media -- on their media spend that actually even covers the cost of verification. And that conversation is very interesting to the advertisers.

Okay. Understood. At Innovation Day, you did talk about Agentic AI as well and the rise of Agentic AI, the role that might play in the broader advertising ecosystem going forward. For those who weren't able to tune in, tease that out a little bit in terms of what did you introduce and how should we be thinking about that becoming a component of your offering in the years ahead as well?

Yes. So Agentic AI for -- so we talked about AI as a cost component, right? Agentic AI is going to be a different part of the ecosystem. It's always going to be everywhere, right? And we're kind of using it to, again, first and foremost, on efficiencies, right? But also, it's creating a new environment where ads are going to be showing up, right? So there is ChatGPT and all those providers at some point will be ad supported. And that will create a new opportunity for us to kind of see more dollars. It's a different environment. It kind of feels like search, but it is not really search. You could see brands not wanting to be next to certain results that AI gives you, right? So it kind of opens up the space to more dollars. It's a whole new category of ad spend. And I think we're well positioned to be talking to the advertisers as soon as that becomes available.

So, not to tease this out, but it is a debate I've had with some investors at the conference this week. What are the challenges around brand safety that's tied to human-created content versus brand safety tied to computer-created content. Because I think the element of not wanting to show up next to hallucination, but you don't know that the hallucination even exists yet. How does that present both an opportunity and a challenge when you think about Agentic AI?

I mean the challenge is that there is so much content that's created so fast, right? And so for us, it's a matter of just remaining really embedded in where the categories of content are created. We can tell what is the AI generated or not. Of course, there are extreme cases of hallucination and those kind of cases we can see as well. I think the sophistication will be around cases that are partially AI or not partially AI. Right now, just to give a basic example, most recipe sites are kind of AI generated, right? Even the person that you see on the side that says this is my grandmother's recipe, probably isn't a person. It probably is just kind of generated. And some advertisers are okay with it, some advertisers don't want to be okay. For us, the purpose of our solution is to be able to tell the advertiser, if it is or isn't AI and then the client will decide. There are some clients that will be very happy to be next to that kind of content and some clients that will not be happy to be next to that content. It's interesting. Obviously, at some point, there will be a lot more inventory that needs to be verified because it is more than not likely to be ad supported at some point.

Got it. I want to turn next to the continued runway for ABS and how you think about the opportunity set there continuing to evolve in the years ahead.

Yes. So ABS is our premium solution. It grew 23% last quarter, which was a very strong quarter after a few quarters where we even ourselves were thinking maybe we've tapped out on the product, it is premium price, it is already pretty deep into our top 100, and it keeps getting sold into our top 200 and top 500. So it's a product that has more runway than we expected. And when we say -- when I say we expected it not to have as much runway because it is, again, premium price and we thought that it was really for brands that were very sophisticated and really wanted to understand brand safety at a deep level. It continues to have a runway about 80% of what we saw last quarter in terms of growth came from existing clients kind of upselling and using the solution even more, right? And so it has runway. I think I've already mentioned the fact that we're trying to apply new categories to the ABS product are specific to CTV, which will allow us to continue to see that product being utilized on more than just regular pre-bid. So it continues to have a lot of runway. I mean it's a testament to the power of the product because it's 6 years old now, and it continues to be something that's very appealing.

Just to double-click on that, because we do get this question from investors. When you think about how that product has surprised to the upside. What have been the key learnings as to the why it's surprised to the upside? I know we typically try to talk more going forward than going back. I think investors do ask that question a fair bit.

I think, again, we thought it's 2 to 3x more expensive than regular brand safety. And so I think the efficacy of the product, we knew existed and we knew it would work for large brands. I think we're surprised that even as you keep going down the list of our clients, and we have a lot of clients that spent over $200,000 a year with us, but still it becomes an expensive proposition versus regular brand safety. I think the integration in their workflow, ABS basically takes all the information you have on the measurement side and seamlessly puts it through ABS and it's used for pre-bid. I think the power of how we did that and the power of the ease of use of the product is one where advertisers understood the value of it and the ease of use of it. And this is why I think it continues to be used. Now there's also a sales motion here, which is not every client uses it on every impression on day 1, right? So they'll use it on some brands and then continue to go down the funnel within their own brands. But I think it's a testament to how good the product is and how unique it is. They're not -- there really isn't something in the market that is so uniquely integrated between measurement and pre-bid. There are other solutions you can kind of patch together. But the workflow is really something very powerful. And I would say this is why Authentic Advantage and even what we're trying to do with measurement optimization and an outcome, the integration of the workflow is really what's appealing to the advertisers.

Got it. Coming out of Innovation Day, and we've been talking about DV Media Advantage with large and sort of the pillars of the strategy. If you play this out to its end state, what's the market opportunity you think it opens up for you in terms of either scale of advertisers or scale of advertiser activity, however you want to measure it versus the size of the business today?

Yes. So the -- if we think about what the business looks like today, there's few benchmarks that I think will make it clear that we're not yet fully penetrated, right? So social is not even 20% of our business. right? Outside of the U.S., it's not even 1/3 of our measurement business. The ratio of pre-bid to measurement on the OpenWeb, which is where most of our business comes from today is about 3:1, right? So for measurement dollars that we have, ABS and core activation on the pre-bid is 3:1, partially because price but also partly because people really want to be on the pre-bid side. That ratio today on social, which is still only 20% of our business is much, much smaller, right? We just launched the pre-bid solutions. So in terms of opportunity, the way we think about it operationally, the way we think about it tactically is well, we should be able to replicate that on social and social should be a lot more than 20% of our business. So I'm not answering the question from a TAM perspective, I'm answering more in terms of how we penetrate and where we see the opportunity right in front of us. I think if we can replicate what we have on the OpenWeb for social and then for CTV, which is a 3:1 activation to measurement ratio. And then if we can raise social to be a lot more than 20%, if over 60% of all dollars are already going to social and if we now have the solutions available, we should be able to raise that and look more like how the advertisers spend. So you get a sense there that there's a lot of percentages there to keep growing the business.

Okay. Understood. No, very, very clear and interesting dynamic to play out over multiple years. So we've talked so far about the growth engines, the market opportunities, where the product is going, bring us back to funding all of these growth investments but then continuing to deliver on operating efficiencies and margins and all the things investors want. Investors always seem to want the growth and the margin, talk about striking that balance going forward.

Yes. So our strategy hasn't -- our approach hasn't changed. We're very much focused on the top line growth of the company and not so much just to deliver top line growth, but also to show the scaling of the solution, right? There is a point where if you become almost a de facto currency in the market, everybody will all know that DV measurement and DV pre-bid is what you want. We're not there yet. There are plenty of players in the market, right? But if you go -- if you compare us to our peers that are also publicly traded, the gap that we've been able to build between us and other companies in terms of top line, just scale, how many clients we work with and how much larger we are, that's working out for us, right? Like we're able to continue to scale on the top and that's really our main operating focus. Now with that in mind, we are also over 30% margin, and we're able to continue to show that top line growth staying at a 30-plus percent margin. We like that balance. What's changed in the last few quarters is that AI has allowed us to free up a lot of dollars even within that 30% margin. So even maintaining that allows us to actually free up quite a lot of resources to continue to invest, right? So in other environment, you might have seen margin degradation for us to invest in Authentic Advantage, the MAP, CTV and social. We're not seeing that because AI actually frees up a lot of dollars. So top line growth remains our primary focus. Over 30% margin remains a number that we want to keep our eyes on. And we're able to continue to innovate within those thresholds.

Okay. So moving from margins and sort of further down the output of the business, what are the priorities for capital generated by the business. Obviously, one of them, as you talked about, is investing back into the business, whether that's savings or degrading margins, which you have not had to do more recently. But think about what excess capital the business generates and what your key priorities are for that excess capital?

Yes. So we're -- I mean, the company has a very strong balance sheet, right? So we generate a lot of cash, we don't have any debt. The priorities are, first, innovating the business right? And so make sure we can fund what we know we need to do on CTV, social, et cetera. Second is to use M&A to differentiate our product. And I think the acquisition of Scibids and Rockerbox are precisely examples of that, right? We're able to create something that's very different than just verification. And we were able to do those acquisitions with cash on hand, right? And so those are acquisitions that accelerate the product road map or gets us into an adjacent product that broadens the product portfolio that we have. And we've been able to do that and integrate them and again, not show necessarily margin degradation even though those businesses were basically breakeven when we bought them. And then the third piece is, obviously, share buybacks. We've done quite a bit last year. We're already done in the first half of -- in the first quarter of this year, we've done as well. It's still available. It's the third prong. We want to make sure we keep -- again, keep an eye on the top line. But we're in a fortunate position that we generate enough cash that's actually on the table. We have $140 million that's already approved by the Board, and we'll look into it for sure.

Okay. Great. Understood. So we have a few minutes left, but I think I wanted to end on a bigger-picture topic. So this year, you guys, as a team, have framed it as a transition year, right? You're trying to get the company aligned with the strategy for the medium to long term and then these externalities on the advertising side that are sort of generally out of your control. When you think about positioning the business for moving past 2025 and into 2026 and beyond, talk a little bit about what those strategic priorities are? And how investors should be thinking about those priorities sort of setting the business up for those future years?

So we talked a lot of -- we talked about many strategic priorities, right? So this is a year of transition because of the fact that we're launching the products that are going to allow us to do pre-bid on social, are going to allow us to essentially replicate what we have on the OpenWeb into the social environment and then into CTV. So it truly is a transition in terms of making sure that those products are tested and then scaled. This is why we started the year saying it was a transition because the products are available, but we do need to upsell them and the clients need to try them. And so that hasn't changed, right? So we had a very strong first half, right, well ahead of where we expected. The upside came from OpenWeb tools, which is great and off the power of ABS, which we talked about, which is unique in the market. But it doesn't take away from the fact that it's still a transition year because we need the social tools and then the CTV tools to kind of scale so that our mix of OpenWeb to non-OpenWeb is not what it is today, right? So right now, CTV and social is about 30% of our business. We like OpenWeb. We're clearly very successful in it, but we do need that mix to switch that is a transition that will take some time, right, before we are at a 50-50 split between OpenWeb and social TV. It will take time just because of OpenWeb is such a large business for us. So the -- what we saw in the first half doesn't take away from the fact that it is a transition year. The market is choppy. So as you said to me, can we work through the cyclicality of the business, it is the reality of the business, right? So that will have an impact on the business that's outside of what we can control, which is continuing into the transition into '26 when those products actually start to scale.

Yes. Maybe just one quick follow-up because I do think this is a central issue. You're trying to get to where advertiser budgets and user times are today in terms of the mix of the business. What are the biggest unlocks that we should be looking for from the outside in, in terms of the execution path on that? Again, not to say it's a negative comment about the OpenWeb, but there's user behavior and the technological dynamics going on that the OpenWeb will be what social is today? And how do you align against that?

Yes. I think the signs of the transition is happening will be around adoption of the pre-bid products, right? How much more of our business CTV represents, right? The launch of the CTV products and the adoption of that will tell you that it's working. And I think that the -- especially the optimization part of our business, the Scibids component of the business is something that you're going to start to see work also in social, also in CTV. And then you'll have an idea that we're no longer just verification and you're seeing it. So I think the measurement of whether it's working will be around adoption really, you'll be able to see it. And then ultimately, if you do see less of our business on the OpenWeb because we've been able to grow the other side of the business, that's really when you'll see that the transition is happening.

Okay. Well, I would appreciate the opportunity to have a conversation. Thanks so much for sharing all the insights into the business and what's going on. We're looking forward to 2026 and beyond.

Thanks for having us.

So please join me in thanking DoubleVerify for being part of the conference this year.

Yes. Thank you.