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

[Audio Gap] Day one of the RBC TIMT Tech Conference. Super excited to once again welcome back DoubleVerify. We have CEO, Mark Zagorski; and CFO, Nicola Allais. Heading into 2025, big investment year for DoubleVerify is what we were talking about all through last Q4. I mean, looking back at the year, what are the achievements that were maybe the most impactful to the future of the company? And how did you feel like you're leaving this year better positioned in the current environment than where you entered?

Yes. So when we kind of came in to '25 sought as a year of kind of transition and evolution and we had 2 main things that we wanted to focus on. First, extending our core value proposition, beyond just verification. And around midyear, we launched what we call the AdVantage Platform, which expanded our business not only to -- just to do more verification, but expanded into optimization. So algorithmic-based bidding compression and through performance measurement. So basically, this idea that we can verify an ad transaction, optimize or reduce the cost of that transaction and then prove whether or not those ads worked. So we expanded the value proposition. Now that was one of our core tenets for the year. The second was to take our core value prop of verification and move that into entirely new spaces and evolve those spaces as well and specifically social CTV and the emerging AI advertising universe. And I think we've made some great strides there with the launch of our Meta pre-screening products, which obviously is social. The launch of Authentic AdVantage a few weeks ago, which is a social quality and optimization solution first for YouTube and eventually, we'll launch that across other social platforms and our CTV solutions that we recently launched, Verified Streaming TV and our automated Do Not Air lists, which are just a first of kind of many solutions we'll have around CTV. That plus the launch of our AI verification tools, I think were really investments that we've made that are going to set us up for a different kind of business moving forward. One which is less concentrated on verifying transactions in the OpenWeb, one which provides different value beyond just verification and one which is poised to take advantage of what's going on with AI, not just how it's affecting advertising but how advertiser -- advertisers are actually leveraging it to do what they're doing better and easier.

So Nicola, heading into 2025, you talked about at least 10% revenue growth. Most recently, you guided the full year number to 14%, what went better than expected? Obviously, we just talked about this big year that we were focused on the investment side, but we're now seeing some other momentum building into 2026 that has shown up in numbers, right? .

Yes. So what we were positively surprised by in '25 is 2 things. One is our recurring base, which is the majority of our revenue every year kept spending within an environment that's fairly uncertain in the first half going into the second or the third quarter and our advertisers, our clients kept spending get upselling into new products and kept seeing the value of what we provided regardless of what was happening in the macro. And that was one of the benefits that we saw for the first 3 quarters where we've grown 16% just in the first 3 quarters of the year. So that's one, which is the value of our product remains really powerful regardless of what's happening in the macro. The second part is that the uptick of our new products has been very, very positive. It's not yet shown in the numbers. But we're entering 2026, knowing that we've invested into products that now have clients testing them and getting us into a solid runway into 2026. So those 2 things were the positives. We started the year expecting the second part of my answer which is we thought we would have good traction. We did get that. And on top of that, we had recurring spend that was even stronger than we expected.

Yes. No, that's helpful. I mean, maybe building out on that -- can you guys give us an idea of how revenue visibility has changed over these past few years? And maybe how your guidance philosophy has adapted to that?

Yes. So the revenue -- so we -- our philosophy is to be able to verify wherever the advertisers are spending. And to the extent that if you look back in the past few years, a lot of spend has moved to programmatic and activation. And that is an environment that's very transactional, where advertisers don't need to necessarily commit ad campaigns in the long term, right? So they're able to make decisions pretty quickly in terms of where they want their dollars to be coming -- to come at play. That has reduced visibility because essentially, we don't control the ad spend and we don't control where they're going to spend. So within that environment, the visibility is reduced. Against that, what we have is a recurring base that is becoming stronger with larger enterprise clients. And so to the extent that we can enrich the top of the funnel, the top 100 were larger brands. That allows us to offset maybe quarter-on-quarter while variability that we would have on specific clients. So last year, we gained clients like Microsoft and Google and P&G. And those will, of course, be in our top 10 even clients pretty quickly which will offset variability that we might have from other clients.

And if I could add a little bit, too, is part of the philosophy coming into the year with the expansion of value prop as well as the expansion into new sectors, was to ease some of the variability or reliance strictly on programmatic buying in the OpenWeb, right? So commitments in social tend to be a little bit more structured, a little bit more sticky so, a, leaning into social, I think, has helped us on that front. The second is, as Nicola noted, buying just about any type of media now has become much more fluid. But if that media works, it becomes a recurring buy over time. And you'll hear that from other companies up here is that, yes, their revenue may be not totally baked in. But if it works, advertisers keep spending it over and over. When we expanded our solution set, the idea was let's tie ourselves to helping drive performance and helping measure performance so that we become more part of the machine that stays sticky, right? Because if you can show that performance is working, then you're helping underwrite a long-term spend with your company. And I think that's where we've kind of leaned in with our solutions like Authentic AdVantage with what we've done with some of the side bids, custom bidding algos, those have become very sticky because advertisers know when they use those tools, they're driving performance, and there's no reason for them to pull back on spend if they can show results.

Yes. And that kind of builds naturally into this next question. So Nicola, looking out to next year, you gave us kind of like a, I would call like a foundational baseline growth rate of 10%. Can you give us kind of what gives you confidence around that core number? And then maybe what are some of the levers or layers that may come in over top of that?

That's exactly how we laid out our [indiscernible] foundation for earnings based of our revenue at a 10% rate. And the way to think of that is that net revenue retention was 112% for the first 3 quarters, 16% [indiscernible] said that 1/3 of that can decline if you pull that out, you are already at 11% or 12% [indiscernible] that's the foundation of existing clients product. So the building blocks off of that are existing clients upselling products, which we offer to new clients [indiscernible] . And then more importantly, for '26 will be new products, we feel like we're at a point where the next phase of growth for us is product led, we look back a few years ago, we had a launched a [indiscernible] product that drove a lot of the growth that we saw in the last 5-year cycle. We're now launching several products, not just one. And we're looking at growth coming from those products we introduced in the market and having new clients and existing clients. So [indiscernible] the foundation. It's based on NRR and [indiscernible] date. Then on top of that, you have new products and upsell.

I guess maybe thinking about those new products, Mark, you have expanded the product portfolio following this year of investment. But we've seen traditionally the majority of revenue came from the installed base. So how do your customers influence your product road map? And what do you think they're currently looking for or one more of from DV?

Yes. So regarding products, we've talked a lot about new stuff. We've launched more new products in the last 5 months than we have in the last 5 years. It's a lot, and there's a lot of acronyms were thrown out there and trademarks. That's the fun part. But customers are intimately involved when we develop solutions. I mean they drive the solutions based on their needs. And the things that we started hearing from that are lack of transparency in the marketplace and a concern for continued performance acceleration. On the transparency side, I mean, this touches everything. Everyone has heard about the large walled garden saying, look, we've got these amazing AI-based black box advertising solutions. You just give us your money, we'll give you results, right? That's great if you're the person who's taking the money and measuring the results, right? So you kind of have all the things on your side. But if you're the advertiser, how do you trust what's going on there, right? How do you break open that black box? So as we started leaning more into the walled gardens, it was clear that advertisers wanted more transparency. They wanted more granularity with that transparency, and they wanted solutions from third parties that they could trust to do that. So in the social media universe, we leaned into platforms like Meta and TikTok and YouTube where our measurement solutions provide more transparency as to what's going on. We actually saw in those black box solutions, are attach rates for verification, we're actually 3x higher than when advertisers who weren't using those solutions. So it's clear they want more transparency. Same thing is starting to happen in CTV environment. So we launched a series of CTV tools where we've got questions all the time, like why do people need DoubleVerify on CTV. They're buying quality impressions on big screens in someone's living room. And most of those are what's called PMPs, which are private marketplace packages, which we kind of know what's going on with. Well, the reality is, just like a box of cereal that looks relatively healthy. When you look at the ingredients, you kind of don't know what's going on there. And a lot of these PMPs are the same way. There's not a lot of transparency. There's reselling that goes on, then an advertiser thinks they're getting a quality show but they're actually getting a video impression on Solitaire app someplace. And this happens. We believe it's about 15% of all streaming TV impressions actually end up in places where they shouldn't be. So we launched Verified Streaming TV. And again, this was driven by advertisers coming to us and saying, we know that something smells wrong, and we need your help in digging it out. So our road map is driven by customer demands, the drive towards greater transparency and a feeling that they want third parties to help them determine what performance really looks like. And whether that performance is driving an outcome or measuring attention or just driving down the cost of reach. They are looking for a trusted third party to be that partner for them to do so.

And maybe this will stitch together a few of the things we talked about with social and CTV. But you recently said over the medium term, expanding social CTV and AI from under 30% of revenue to over 50%. And could you just talk, I guess, about the investments you have to make, to make that a reality. And then I guess the benefits DoubleVerify could see. Maybe 2 things like that revenue visibility that we talked about over time. .

I'll start with the investment. So investment side, we've been investing for a long time. We're always investing to the financial profile that we have. We've already invested [indiscernible]. We are now investing in [indiscernible] launch products, AI is the next generation of our event. We're going to continue to invest. What's interesting for us is that the way we invest has evolved with AI. So we're able to be more efficient would have taken a lot of people. Now we can rely on machine to help us most of the way there, that inherently unlocks cost savings that can be invested to other areas of [indiscernible]. And so we said this year we're not intending to hire same clip as we had in the past few years because AI is helping us fill the gap a little bit. The market has changed quite dramatically recently. We've also announced that the equity grants that we'll get, the value of those grants will be less than [ 1.5 ] you won't see it on the stock-based comp line straight away, it will take time to flush through. But the actual value is there. So we're able to do things more efficiently, more quickly. We arte continuing to invest, CapEx is the last part where we might see some investments there as we go with AI tools, but it shouldn't go higher than [ 5% ] of the revenue so it's more nimble in the way we invest and we're very excited.

Right. And maybe just to lean a little bit there on the AI investments and kind of what we've done there. As Nicola noted, if you think about what our core value prop is, we're just a giant contextualization engine, right? We take in tons of content and tons of interactions, and then we analyze them. We label them and then we analyze them and put them in buckets so that advertisers can use them to make decisions based on. And a lot of that used to be machines learning from humans. So humans labeling, machines taking those labels, then building models around them and then expanding and scaling. Now we're using machines to do the labeling to feed a machine to actually scale itself. As Nicola noted, we're getting 4x more productivity per labeling engagement [ that allows the client ] more speed in actually doing the labeling, which allows us to scale massively into these new environments like social, where the volumes are huge. It allows us to scale into areas like CTV, where the content is very detailed and very granular with regard to what happens in the scene. It allows us to do this cost effectively and efficiently. If you look at our -- this is a company that runs on 80% plus gross margins that runs on EBITDA margins of over 30%, right? It still scales and still is handled trillions. And that's with the T, trillions of transactions every year. This is a massive undertaking. And we're doing this incredibly efficiently with almost no headcount growth this year with the exception of an acquisition we made and leaning into even more efficiencies going into next year. So AI is underscoring not only our efficiencies but one of the things that we haven't talked about on the product side, it's creating tons of new opportunities for us too as well. We're building -- we launched AI verification tools to not only suss out AI content that advertisers aren't super comfortable being around but also starting to understand and engage with agents, right? So there's a lot of discussion of what's going on with agents out there. We have the ability because we see billions of agents every month, right, on our sites. And those agents are doing stuff that's usually good, sometimes not. But we can help advertisers determine what that engagement should be with that agent. And I think that's a huge opportunity that's coming down the road. If you think of the growth of independent commerce agents, so me sending a shopping agent out, or chatbot agents that are continuing to grow and do things. Those right now have very little interactions with advertisers. Advertisers, as a matter of fact, currently, the current standard is if I'm running an ad on a page, and a chatbot engages me, don't serve the ad. It's called general and valid traffic for the most part, don't serve the ad, don't pay for the ad. But think of a world where, wait a minute, I absolutely want to serve this ad because I want to talk to that agent and I want to give them some information. Maybe I want to give them a coupon. Maybe I'm going to give them a discount, maybe I want to give them more information about how do they make a decision like that is a universe where we are smack dab in the middle of it because we're seeing so many of those ads out there. I think that's a huge exciting opportunity for us that we -- Nicola certainly hasn't baked into his growth plans for '26, but we're just starting to lean into the investment around.

Yes. No, that's super interesting. And I think we've seen when these newer disruptive formats or companies come out, they do lean quicker into DoubleVerify than maybe the -- like we saw how much faster TikTok adopted you guys, let you in relative to Meta because you actually bring them validity.

I mean if you think about folks like Netflix right, who weren't going to do advertising forever, right? He'd sat on stages like this and said, "We will never advertising" and then do an earnings call and they say, "oh, we're going to do advertising next month," right? And then the amazing thing around that was they said, "We're going to do advertising", and then within 2 weeks, they called us and said, we need to work with you guys because we call a couple of agencies, and we tried to sell them. We said, hey, you're interested [indiscernible] , yes, but we need third-party measurement and verification. So they called us. They called Nielsen, they called another company. And within 90 days, we had a solution up and running for them so they could run. Companies like Reddit, who went public and said, we're going to lean heavily into advertising. This is going to be our future. And they've had an amazing run. I mean think of what Reddit has done. They work with DV as their verification provider, giving them credibility. So we see the same types of opportunities as the AI tools who've said, we're not thinking about advertising, but they will, when they start to emerge, we think there's a great opportunity for us, again, to be independently involved in verifying what happens with advertising on those properties.

Speaking to one of those opportunities that's become a little more tangible here. The DV Authentic AdVantage, you said you closed an $8 million ACV deal in the first few weeks. Can you help size the opportunity into Q4 and next year? And how we should think about the potential ramp given some of the bundling strategies?

Yes. So as far as kind of -- it will have very little impact on Q4, just to be clear. But we see this as one of our real growth driver running into '26, especially the latter half of '26. Authentic AdVantage for the first platform we've launched it across is YouTube. And what Authentic AdVantage does, it combines what we call prescreen filtering, so quality filtering, plus Scibids powered or AI-powered bidding optimization and measurement, all into one package, which allows you to find quality impressions at the lowest price possible and then drive reach. And our initial test that we've run and we've run with some of the biggest CPG companies out there. We've seen 25% to 35% decreases in CPMs with 30% to 50% increases in reach at higher or comparable brand quality or quality and suitability. That's massive. So we mentioned that we've got -- just out of the gate in the first couple of weeks, we had $8 million in ACV. We're testing this now with the largest CPG customers. We believe this is a solution that can be as large as ABS is for us someday. ABS right now is a $200 million-plus product. I think the opportunity with, Authentic AdVantage at some point can be as large as that. We've scoped out at our Innovation Day that we feel this is anywhere from $100 million to $150 million over the next 3 to 4 years and I think we're well on our way of getting there. If you just think about it this way, this is a product which offer a percentage of media billing opportunity because since we're compressing costs, expanding reach, taking a percentage of that win. And for -- we basically have shown that for every dollar someone spends, there's like a $4 return. Taking a piece of that makes total sense for us. And if we think we have clients, individual clients that spend over $1 billion a year on YouTube on one platform, this is a massive opportunity for us. If we can just get our attach rates to some even small percent of that spend, I think there's a big upside for us.

Another piece that I feel like comes up every year is the partnership with Meta is always in focus. Can you just talk about, especially with some of the new products moving into pre-bid, how things are tracking versus expectations? And then when do you think you'll start to see maybe kind of that inflection point from a growth perspective?

Yes. So Meta is right out as a measurement customer. It's around $40 million a year for us. So it's sizable. We launched prebid and prescreen earlier this year in V1 and there was a lot of excitement around it. But like all products, it takes time to evolve and V2 -- or V 1.1 and probably closer. It was launched this summer, which we expanded the number of block lists that we were able to do expanded the speed at which we are able to translate, violations into blocks. So that product has gotten better over time. And between Q2 and Q3, we went from 26 customers to 56 customers. We are ending the year at an ACV, we should end up around $7 million. We think that product is -- we can be as big as our measurement, which is around $40 million on the prescreen size and that will continue to grow. Adoption has been great. We've not lost a single customer since launch. So every customer that's tested is now a current paying customer. And now we're starting to see the scale around that as well. So it is a value prop that I think is -- takes time to prove out because you need to start with the baseline of quality and safety measurement and then see how you're improving that but we're showing marked improvements in quality when someone uses the prescreen. And as Meta has changed some of its internal policies around content moderation and their role, for example, they pulled themselves out of brand safety accreditation from MRC, basically said we're looking for third parties to take the helm here. So I think this is a great opportunity for us. It will grow over time as we test it out, continue to build a base of customers that are looking to expand on this. And it's a powerful growth engine for us. That and Authentic AdVantage, I think, will be 2 key growth drivers going into the second half of '26.

And then Nicola, not to ever oversimplify this, but MTM and MTF, right, the 2 variable models are driving your revenue. Looking out to 2026, like how should we think about each of these? And then what should we kind of keep into consideration looking at those growth rates?

Yes. So the model is -- can be summarized as the media transactions that we measure time, a fee that we charge per transaction that we measure and we said in the past few years that it's been -- our revenue model has been driven by transitions that we measure, right? We measure more and more transactions as advertisers are advertising new verticals and we're able to verify there. So that's -- and MTF has kind of hovered moved mainly because of the product mix. We do have premium-priced products versus base products. And as the shift -- as the mix shift changes, MTF changes. If we think about 2026, it is still going to be MTM driven more and more impressions that we will be able to verify now that we have a new product. The MTF part has always been an output. I think there are drivers into 2026 that should start to help MTF, right? So the products that we're launching are premium priced, the CTV products that we mentioned on our earnings call around Do Not Air lists, et cetera. These will be premium priced products that will be closer to ABS pricing as opposed to basic brand in fraud. And so I think over time, as those products scale into our mix, it will have a positive impact on MTF. But going into '26, we're still looking very much on MTM. I'll add one other point, which is percent of media is something that we are now considering for some of our products. We're allowing advertisers to kind of think about whether they would prefer to percent of media versus a fixed fee. And that's also going to start to play a bigger part of the model.

When we think about competition, there's clearly been some changes in the pure-play landscape over the last couple of years. One potential, and then one, obviously, we've spent quite a bit of time talking about. When you expand your product portfolio, how should we think about the way that you compete fo dollars as you get more into performance, is it a new slew of competitors that you're aimed at? Or is it more just we compete with ourselves around ROAS and the dollars will follow?

I mean, look, I think for any company, when you expand your product suite, you're going to start to touch on other folks and I think optimization is one in which there are lots of people involved in trying to drive better results from buys. But I think we play a unique role in the fact that we don't own media, right? And we never have ownership of the media. So our drive to compress costs is intrinsically connected to one goal only, that drive value for the advertiser, not increase margin for ourselves in any way. So I think that plus the fact that we're doing so from a base of proprietary and unique data that we see in the marketplace. So we see data across every major platform. Social, CTV, mobile, OpenWeb and that puts us in a differentiated position to help drive better optimization. So it means, yes, our competitive set is expanded. But because we're approaching it in a different way from a different data set and with different motivations. I think it's created a unique carve-out for us in that universe. So I think ending on one note on competition, our space has always been one in which there's been only a handful of players, and that handful is getting smaller which means I think we had talked about this being a winner takes most scenario for years, I think that's really starting to play out now. We're $150 million largest than our next closest competitor, who was the same size we were a few years ago. Another competitor has kind of fallen off the map. So I think we are well on our way to being that winner who will take most.

That's great. We could have gone a lot longer. I completely forgot it up for questions. So I apologize to anyone in the room who had some. DoubleVerify, thank you guys so much for spending time with us.

We're here all day for [indiscernible] if you have questions. Thank you. Thanks, Matt.