DoubleVerify Holdings, Inc. - Quarter Report: 2023 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40349

DoubleVerify Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

82-2714562

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

462 Broadway

New York, NY, 10013

(Address of Principal Executive Offices)

(212) 631-2111

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading symbol	Name of Exchange on which registered
Common Stock, par value $0.001 per share	DV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 1, 2023, there were 166,288,277 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

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DoubleVerify Holdings, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2023

TABLE OF CONTENTS

0
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Part I FINANCIAL INFORMATION (Unaudited)

		Page

Item 1.	Condensed Consolidated Financial Statements	4

	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	4

	Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2023 and 2022	5

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2023 and 2022	6

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

Part II OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

Signatures		30

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included in this Quarterly Report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs, savings and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “plan,” “anticipate,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct.

You should read the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of our Annual Report on Form 10-K, for the year ended December 31, 2022 and filed with the Securities and Exchange Commission (“SEC”), on March 1, 2023, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this report. There may be other factors not presently known to us or which we currently consider to be immaterial that may cause our actual results to differ materially from the forward-looking statements.

All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report and in the Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

“DoubleVerify,” “the DV Authentic Ad,” “Authentic Brand Suitability,” “DV Pinnacle” and other trademarks of ours appearing in this report are our property and we deem them particularly important to the marketing activities conducted by each of our businesses. Solely for convenience, the trademarks, service marks and trade names referred to in this report are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies' trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

Unless the context otherwise requires, the terms “DoubleVerify,” ‘‘we,’’ ‘‘us,’’ ‘‘our,’’ and the ‘‘Company,’’ as used in this report refer to DoubleVerify Holdings, Inc. and its consolidated subsidiaries.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DoubleVerify Holdings, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	As of		As of
(in thousands, except per share data)	March 31, 2023		December 31, 2022
Assets:
Current assets
Cash and cash equivalents	$	285,738	$	267,813
Trade receivables, net of allowances for doubtful accounts of $9,883 and $8,893 as of March 31, 2023 and December 31, 2022, respectively		174,262		167,122
Prepaid expenses and other current assets		16,695		10,161
Total current assets		476,695		445,096
Property, plant and equipment, net		48,842		47,034
Operating lease right-of-use assets, net		64,381		64,692
Goodwill		343,859		343,011
Intangible assets, net		129,352		135,429
Deferred tax assets		35		35
Other non-current assets		1,701		1,731
Total assets	$	1,064,865	$	1,037,028
Liabilities and Stockholders' Equity:
Current liabilities
Trade payables	$	10,672	$	6,675
Accrued expenses		25,485		33,085
Operating lease liabilities, current		7,852		7,041
Income tax liabilities		22,801		11,953
Current portion of finance lease obligations		1,615		1,846
Other current liabilities		7,585		8,310
Total current liabilities		76,010		68,910
Operating lease liabilities, non-current		74,218		74,086
Finance lease obligations		497		779
Deferred tax liabilities		7,527		12,890
Other non-current liabilities		3,415		3,504
Total liabilities		161,667		160,169
Commitments and contingencies (Note 13)
Stockholders’ equity
Common stock, $0.001 par value, 1,000,000 shares authorized, 166,157 shares issued and 166,131 outstanding as of March 31, 2023; 1,000,000 shares authorized, 165,448 shares issued and 165,417 outstanding as of December 31, 2022		166		165
Additional paid-in capital		769,142		756,299
Treasury stock, at cost, 26 shares and 31 shares as of March 31, 2023 and December 31, 2022, respectively		(669)		(796)
Retained earnings		139,692		127,517
Accumulated other comprehensive loss, net of income taxes		(5,133)		(6,326)
Total stockholders’ equity		903,198		876,859
Total liabilities and stockholders' equity	$	1,064,865	$	1,037,028

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

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DoubleVerify Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended March 31,
(in thousands, except per share data)	2023		2022
Revenue	$	122,594	$	96,723
Cost of revenue (exclusive of depreciation and amortization shown separately below)		23,952		16,877
Product development		28,555		21,588
Sales, marketing and customer support		25,712		26,684
General and administrative		20,188		19,675
Depreciation and amortization		8,983		9,040
Income from operations		15,204		2,859
Interest expense		256		232
Other (income) expense, net		(2,734)		46
Income before income taxes		17,682		2,581
Income tax expense (benefit)		5,507		(1,998)
Net income	$	12,175	$	4,579
Earnings per share:
Basic	$	0.07	$	0.03
Diluted	$	0.07	$	0.03
Weighted-average common stock outstanding:
Basic		165,631		162,612
Diluted		171,657		170,439
Comprehensive income:
Net income	$	12,175	$	4,579
Other comprehensive income:
Foreign currency cumulative translation adjustment		1,193		(1,570)
Total comprehensive income	$	13,368	$	3,009

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

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DoubleVerify Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


											Accumulated
											Other
											Comprehensive
							Additional				Income (Loss)		Total
	Common Stock			Treasury Stock			Paid-in		Retained		Net of		Stockholders’
(in thousands)	Shares	Amount		Shares	Amount		Capital		Earnings		Income Taxes		Equity
Balance as of January 1, 2023	165,448	$	165	31	$	(796)	$	756,299	$	127,517	$	(6,326)	$	876,859
Foreign currency translation adjustment	—		—	—		—		—		—		1,193		1,193
Shares repurchased for settlement of employee tax withholdings	—		—	30		(787)		—		—		—		(787)
Stock-based compensation expense	—		—	—		—		11,992		—		—		11,992
Common stock issued upon exercise of stock options	527		1	—		—		1,765		—		—		1,766
Common stock issued upon vesting of restricted stock units	182		—	—		—		—		—		—		—
Treasury stock reissued upon settlement of equity awards	—		—	(35)		914		(914)		—		—		—
Net income	—		—	—		—		—		12,175		—		12,175
Balance as of March 31, 2023	166,157	$	166	26	$	(669)	$	769,142	$	139,692	$	(5,133)	$	903,198

Balance as of January 1, 2022	162,347	$	162	50	$	(1,802)	$	717,228	$	84,249	$	(771)	$	799,066
Foreign currency translation adjustment	—		—	—		—		—		—		(1,570)		(1,570)
Shares repurchased for settlement of employee tax withholdings	—		—	41		(1,058)		—		—		—		(1,058)
Stock-based compensation expense	—		—	—		—		10,994		—		—		10,994
Common stock issued to non-employees	4		—	—		—		—		—		—		—
Common stock issued upon exercise of stock options	572		1	—		—		1,677		—		—		1,678
Common stock issued upon vesting of restricted stock units	195		—	—		—		—		—		—		—
Net income	—		—	—		—		—		4,579		—		4,579
Balance as of March 31, 2022	163,118	$	163	91	$	(2,860)	$	729,899	$	88,828	$	(2,341)	$	813,689

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

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DoubleVerify Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended
	March 31,
(in thousands)	2023		2022
Operating activities:
Net income	$	12,175	$	4,579
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Bad debt expense		1,285		1,079
Depreciation and amortization expense		8,983		9,040
Amortization of debt issuance costs		74		74
Non-cash lease expense		1,658		2,002
Deferred taxes		(5,382)		(2,016)
Stock-based compensation expense		11,813		10,994
Interest income		—		(14)
Loss on disposal of fixed assets		—		471
Other		(2)		(150)
Changes in operating assets and liabilities
Trade receivables		(8,052)		(12,224)
Prepaid expenses and other assets		(6,874)		(2,332)
Trade payables		3,700		2
Accrued expenses and other liabilities		2,048		(13,754)
Net cash provided by (used in) operating activities		21,426		(2,249)
Investing activities:
Purchase of property, plant and equipment		(4,099)		(4,759)
Net cash (used in) investing activities		(4,099)		(4,759)
Financing activities:
Proceeds from revolving credit facility		50,000		—
Payments to revolving credit facility		(50,000)		—
Payment of contingent consideration related to Zentrick acquisition		—		(3,247)
Proceeds from common stock issued upon exercise of stock options		1,766		1,678
Payments related to offering costs		—		(6)
Finance lease payments		(513)		(480)
Shares repurchased for settlement of employee tax withholdings		(787)		(1,058)
Net cash provided by (used in) financing activities		466		(3,113)
Effect of exchange rate changes on cash and cash equivalents and restricted cash		131		131
Net increase (decrease) in cash, cash equivalents, and restricted cash		17,924		(9,990)
Cash, cash equivalents, and restricted cash - Beginning of period		267,938		221,725
Cash, cash equivalents, and restricted cash - End of period	$	285,862	$	211,735

Cash and cash equivalents	$	285,738	$	211,600
Restricted cash (included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets)		124		135
Total cash and cash equivalents and restricted cash	$	285,862	$	211,735
Supplemental cash flow information:
Cash paid for taxes	$	1,708	$	948
Cash paid for interest	$	266	$	244
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities, net of impairments and tenant improvement allowances	$	1,415	$	79,563
Capital assets financed by accounts payable and accrued expenses	$	378	$	—
Stock-based compensation included in capitalized software development costs	$	179	$	—

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

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DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except per share data, unless otherwise stated)

1. Description of Business

DoubleVerify Holdings, Inc. (the “Company”) is a leading software platform for digital media measurement and analytics. Our mission is to create stronger, safer, more secure digital transactions that drive optimal outcomes for global advertisers. Through our software platform and the metrics it provides, we help preserve the fair value exchange between buyers and sellers of digital media. The Company’s solutions provide advertisers unbiased data analytics that enable advertisers to increase the effectiveness, quality and return on their digital advertising investments. The DV Authentic Ad is our proprietary metric of digital media quality, which measures whether a digital ad was delivered in a brand suitable environment, fully viewable, by a real person and in the intended geography. The Company’s software interface, DV Pinnacle, delivers these metrics to our customers in real time, allowing them to access critical performance data on their digital transactions. The Company’s software solutions are integrated across the entire digital advertising ecosystem, including programmatic platforms, social media channels and digital publishers. The Company’s solutions are accredited by the Media Rating Council, which allows the Company’s data to be used as a single source standard in the evaluation and measurement of digital ads.

The Company was incorporated on August 16, 2017, is registered in the state of Delaware and is the parent company of DoubleVerify Midco, Inc. (“MidCo”), which is in turn the parent company of DoubleVerify Inc. On August 18, 2017, DoubleVerify Inc. entered into an agreement and plan of merger (the “Agreement”), whereby the Company and Pixel Merger Sub, Inc. (“Merger Sub”), a wholly-owned subsidiary of the Company, agreed to provide for the merger of the Merger Sub with DoubleVerify Inc. pursuant to the terms and conditions of the Agreement.

On the effective date, Merger Sub was merged with and into DoubleVerify Inc. whereupon the separate corporate existence of Merger Sub ceased and DoubleVerify Inc. continued as the surviving corporation.

Through the merger, the Company acquired 100% of the outstanding equity instruments of DoubleVerify Inc., (the “Acquisition”) resulting in a change of control at the parent level. The merger resulted in the application of acquisition accounting under the provisions of Financial Accounting Standards Board (“FASB”) Topic Accounting Standards Codification (“ASC”) 805, “Business Combinations.”

The Company is headquartered in New York, New York and has wholly-owned subsidiaries in numerous jurisdictions including Israel, the United Kingdom, the United Arab Emirates, Germany, Singapore, Australia, Canada, Brazil, Belgium, Mexico, France, Japan, Spain, Finland, and India, and operates in one reportable segment.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Preparation and Principles of Consolidation

The accompanying Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, the Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2023 and 2022, the Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2023 and 2022, and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair presentation of the results for the periods shown in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules and regulations of the SEC for interim financial reporting periods. Accordingly, certain information and footnote disclosures have been condensed or omitted pursuant to SEC rules that would ordinarily be required under GAAP for complete financial statements. These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2022.

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DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except per share data, unless otherwise stated)

Use of Estimates and Judgments in the Preparation of the Condensed Consolidated Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expense during the reporting periods. Significant estimates and judgments are inherent in the analysis and measurement of items including, but not limited to: revenue recognition criteria including the determination of principal versus agent revenue considerations, income taxes, the valuation and recoverability of goodwill and intangible assets, the assessment of potential loss from contingencies, assumptions in valuing acquired assets and liabilities assumed in business combinations, the allowance for doubtful accounts, and assumptions used in determining the fair value of stock-based compensation. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates. These estimates are based on the information available as of the date of the Condensed Consolidated Financial Statements.

3. Revenue

The following table disaggregates revenue between advertiser customers, where revenue is generated based on number of ads measured for Measurement or measured and purchased for Activation, and Supply-side customers, where revenue is generated based on contracts with minimum guarantees or contracts that contain overages after minimum guarantees are achieved.

Disaggregated revenue by customer type is as follows:


	Three Months Ended
	March 31,
(in thousands)	2023		2022
Activation	$	69,892	$	53,031
Measurement		41,385		33,834
Supply-side customer		11,317		9,858
Total revenue	$	122,594	$	96,723

Contract assets relate to the Company’s conditional right to consideration for completed performance under the contract (e.g., unbilled receivables). Trade receivables, net of allowance for doubtful accounts, include unbilled receivable balances of $48.8 million and $52.7 million as of March 31, 2023 and December 31, 2022, respectively.

4. Goodwill and Intangible Assets

The following is a summary of changes to the goodwill carrying value from December 31, 2022 to March 31, 2023:


(in thousands)
Goodwill at December 31, 2022	$	343,011
Foreign exchange impact		848
Goodwill at March 31, 2023	$	343,859

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DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except per share data, unless otherwise stated)

The following table summarizes the Company’s intangible assets and related accumulated amortization:


(in thousands)	March 31, 2023						December 31, 2022
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Trademarks and brands	$	11,734	$	(4,506)	$	7,228	$	11,733	$	(4,294)	$	7,439
Customer relationships		145,949		(52,789)		93,160		145,834		(49,587)		96,247
Developed technology		76,827		(47,876)		28,951		76,677		(44,956)		31,721
Non-compete agreements		65		(52)		13		64		(42)		22
Total intangible assets	$	234,575	$	(105,223)	$	129,352	$	234,308	$	(98,879)	$	135,429

Amortization expense related to intangible assets for the three months ended March 31, 2023 and March 31, 2022 is $6.2 million and $6.3 million, respectively.

Estimated future expected amortization expense of intangible assets as of March 31, 2023 is as follows:


(in thousands)
2023 (for remaining nine months)	$	18,606
2024		23,314
2025		21,182
2026		16,084
2027		13,874
2028		13,453
Thereafter		22,839
Total	$	129,352

The weighted-average remaining useful life by major asset classes as of March 31, 2023 is as follows:


		(In years)
Trademarks and brands		9
Customer relationships		7
Developed technology		3
Non-compete agreements		1

There were no impairments identified during the three months ended March 31, 2023 or March 31, 2022.

5. Property, Plant and Equipment

Property, plant and equipment, including equipment under finance lease obligations and capitalized software development costs, consists of the following:


	As of
(in thousands)	March 31, 2023		December 31, 2022
Computers and peripheral equipment	$	19,264	$	19,189
Office furniture and equipment		2,544		2,542
Leasehold improvements		31,492		29,678
Capitalized software development costs		24,579		22,026
Less accumulated depreciation and amortization		(29,037)		(26,401)
Total property, plant and equipment, net	$	48,842	$	47,034

For each of the three months ended March 31, 2023 and March 31, 2022, total depreciation expense was $2.7 million.

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DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except per share data, unless otherwise stated)

Property and equipment under finance lease obligations, consisting of computer equipment, totaled $12.3 million as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023 and December 31, 2022, accumulated depreciation related to property and equipment under finance lease obligations totaled $11.4 million and $11.2 million, respectively. Refer to Note 6, Leases.

6. Leases

The following table presents lease cost and cash paid for amounts included in the measurement of lease liabilities for finance and operating leases for the three months ended March 31, 2023 and 2022, respectively.


	Three Months Ended March 31,
(in thousands)	2023		2022
Lease cost:
Operating lease cost (1)	$	2,587	$	2,878
Finance lease cost
Depreciation of finance lease assets (2)		217		372
Interest on finance lease liabilities (3)		23		42
Short-term lease cost (1)		246		251
Sublease income (1)		(267)		—
Total lease cost	$	2,806	$	3,543

Other information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases	$	1,336	$	1,180
Operating cash outflows from finance leases	$	23	$	35
Financing cash outflows from finance leases	$	513	$	480

(1)

Included in Cost of revenue, Sales, marketing and customer support, Product development and General and administrative expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.

(2)

Included in Depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.

(3)

Included in Interest expense in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.

The following table presents weighted-average remaining lease terms and weighted-average discount rates for finance and operating leases as of March 31, 2023 and 2022, respectively:


	March 31,
	2023	2022
Weighted-average remaining lease term - operating leases (in years)	13.9	14.7
Weighted-average remaining lease term - finance leases (in years)	1.4	2.2
Weighted-average discount rate - operating leases	4.5%	4.4%
Weighted-average discount rate - finance leases	3.7%	3.7%

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DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except per share data, unless otherwise stated)

Maturities of lease liabilities as of March 31, 2023 are as follows:


	March 31, 2023
(in thousands)	Operating Leases		Finance Leases
2023 (for remaining nine months)	$	5,861	$	1,401
2024		8,160		598
2025		7,538		168
2026		6,783		—
2027		6,660		—
2028		6,751		—
Thereafter		74,037		—
Total lease payments		115,790		2,167
Less amount representing interest		(33,720)		(55)
Present value of total lease payments	$	82,070	$	2,112

7. Fair Value Measurement

As of March 31, 2023, the Company did not have any financial instruments measured at fair value.

The following table presents the Company’s financial instruments that are measured at fair value on a recurring basis:

As of December 31, 2022

Quoted Market

Prices in Active

Significant

(in thousands)

Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Tota1 Fair Value

(Level 1)

(Level 2)

(Level 3)

Measurements

Assets:

Cash equivalents

11,710

—

11,710

Cash equivalents consisting of money market funds of $11.7 million as of December 31, 2022, were classified as Level 1 of the fair value hierarchy and valued using quoted market prices in active markets.

8. Long-term Debt

On October 1, 2020, DoubleVerify Inc., as borrower (the “Borrower”), and MidCo, as guarantor, entered into an amendment and restatement agreement with the banks and other financial institutions party thereto, as lenders, and Capital One, National Association, as administrative agent, letter of credit issuer and swing lender, and others, to (i) amend and restate the Company’s prior credit agreement, as amended and restated on October 1, 2020 (the “Credit Agreement”) and (ii) replace the Company’s prior credit facilities with a new senior secured revolving credit facility (the “New Revolving Credit Facility”) in an aggregate principal amount of $150.0 million (with a letter of credit facility of up to $15.0 million as a sublimit). Subject to certain terms and conditions, the Borrower is entitled to request additional term loan facilities or increases in the revolving credit commitments under the New Revolving Credit Facility. The New Revolving Credit Facility is payable in quarterly installments for interest, with the principal balance due in full at maturity on October 1, 2025. Additional fees paid quarterly include fees for the unused revolving facility and unused letter of credit. The commitment fee on any unused balance is payable periodically and may range from 0.25% to 0.40% based upon the Borrower’s total net leverage ratio calculated in accordance with the Credit Agreement.

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DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except per share data, unless otherwise stated)

On March 29, 2023, the Company entered into an amendment to the New Revolving Credit Facility to replace the LIBOR based interest rate with a Secured Overnight Financing Rate (“SOFR”) based interest rate. The New Revolving Credit Facility bears interest at SOFR plus 2.00% or the Alternate Base Rate plus 1.00% (at the Company’s option), which may vary from time to time based on the Borrower’s total net leverage ratio calculated in accordance with the Credit Agreement.

The New Revolving Credit Facility contains a number of significant negative covenants. Subject to certain exceptions, these covenants require the Borrower to comply with certain requirements and restrictions on its ability to, among other things: incur indebtedness; create liens; engage in mergers or consolidations; make investments, loans and advances; pay dividends or other distributions and repurchase capital stock; sell assets; engage in certain transactions with affiliates; enter into sale and leaseback transactions; and make certain accounting changes. As a result of these restrictions, substantially all of the net assets of the Borrower are restricted from distribution to the Company or any holders of its equity.

The New Revolving Credit Facility has a first priority lien on substantially all of the assets of MidCo, the Borrower and Ad-Juster, the Company’s indirect subsidiary. The New Revolving Credit Facility requires the Borrower to remain in compliance with a maximum total net leverage ratio and a minimum fixed charge coverage ratio, each as defined in the Credit Agreement.

As of March 31, 2023, the maximum total net leverage ratio and minimum fixed charge coverage ratio is 3.5x and 1.25x, respectively. The Borrower was in compliance with all covenants under the New Revolving Credit Facility as of March 31, 2023.

During the three months ended March 31, 2023, the Company borrowed and repaid $50.0 million on the New Revolving Credit Facility. As of March 31, 2023 and December 31, 2022, there was no outstanding debt under the New Revolving Credit Facility.

9. Income Tax

The Company’s quarterly income tax provision is calculated using an estimated annual effective income tax rate ("ETR") based on actual historical information and forward-looking estimates. The Company’s estimated annual ETR may fluctuate due to changes in forecasted annual pre-tax income, changes in the jurisdictional mix of forecasted pre-tax income, and changes to actual or forecasted permanent book to tax differences (e.g., non-deductible expenses). In addition, the Company’s ETR for a particular reporting period may fluctuate as the result of changes to the valuation allowance for net deferred tax assets, the impact of anticipated tax settlements with federal, state, or foreign tax authorities, or the impact of tax law changes. The Company identifies items that are unusual and non-recurring in nature and treats these as discrete events. The tax effect of these discrete events is booked entirely in the quarter in which they occur.

During the three months ended March 31, 2023, the Company recorded an income tax provision of $5.5 million, resulting in an effective tax rate of 31.1%, which includes an annualized effective tax provision of $31.1 million (representing an effective tax rate of 32.9%) and discrete items relating primarily to non-cash compensation (representing an effective tax rate of (0.4%)). During the three months ended March 31, 2022, the Company recorded an income tax benefit of $2.0 million, resulting in an effective tax rate of (77.4%). These effective tax rates differ from the U.S. federal statutory rate primarily due to the effects of various permanent book-to-tax adjustments, foreign tax rate differences, U.S. tax on foreign operations, and U.S. state/local taxes.

A valuation allowance has been established against a small amount of foreign capital losses and certain U.S. tax loss carryforwards. All other net deferred tax assets have been determined to be more likely than not realizable. The Company regularly reviews its deferred tax assets for recoverability and would establish a valuation allowance if it believed that such assets may not be recovered, taking into consideration historical operating results, expectations of future earnings, changes in its operations, and the expected timing of the reversals of existing temporary differences.

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DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except per share data, unless otherwise stated)

The Company accounts for uncertainty in income taxes utilizing ASC 740-10, “Income Taxes.” ASC 740-10 clarifies whether or not to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. It prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosures. The application of ASC 740-10 requires judgment related to the uncertainty in income taxes and could impact the Company’s effective tax rate.

10. Earnings Per Share

The following table reconciles the numerators and denominators used in computations of the basic and diluted EPS for the three months ended March 31, 2023 and March 31, 2022:


	Three Months Ended
	March 31,
	2023		2022
Numerator:
Net Income (basic and diluted)	$	12,175	$	4,579
Denominator:
Weighted-average common shares outstanding		165,631		162,612
Dilutive effect of share-based awards		6,026		7,827
Weighted-average dilutive shares outstanding		171,657		170,439
Basic earnings per share	$	0.07	$	0.03
Diluted earnings per share	$	0.07	$	0.03

Approximately 7.1 million and 4.9 million weighted average shares issuable under stock-based awards were not included in the diluted EPS calculation in the three months ended March 31, 2023 and March 31, 2022, respectively, because they were antidilutive.

11. Stock-Based Compensation

Employee Equity Incentive Plan

On September 20, 2017, the Company established its 2017 Omnibus Equity Incentive Program (the “2017 Plan”) which provides for the granting of equity-based awards to certain employees, directors, independent contractors, consultants and agents. Under the 2017 Plan, the Company may grant non-qualified stock options, stock appreciation rights, restricted stock units, and other stock-based awards.

On April 19, 2021 the Company established its 2021 Omnibus Equity Incentive Plan (“2021 Equity Plan”). The 2021 Equity Plan provides for the grant of stock options (including qualified incentive stock options and nonqualified stock options), stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, and other stock or cash settled incentive awards.

Options become exercisable subject to vesting schedules up to four years from the date of the grant and subject to certain timing restrictions upon an employee’s separation of service and no later than 10 years after the grant date.

Restricted stock units are subject to vesting schedules up to four years from the date of the grant and subject to certain restrictions upon employee separation.

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DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except per share data, unless otherwise stated)

A summary of stock option activity as of and for the three months ended March 31, 2023 is as follows:


	Stock Option
				Weighted Average
				Remaining
	Number of	Weighted Average		Contractual Life		Aggregate
	Options	Exercise Price		(Years)		Intrinsic Value
Outstanding as of December 31, 2022	11,861	$	13.43	7.17	$	129,323
Options granted	789		24.72
Options exercised	(544)		3.20
Options forfeited	(41)		27.75
Outstanding as of March 31, 2023	12,065	$	14.58	7.20	$	194,352
Options expected to vest as of March 31, 2023	4,477	$	22.98	8.68	$	35,705
Options exercisable as of March 31, 2023	7,232	$	8.82	6.18	$	156,941

Stock options include grants to executives that contain both market-based and performance-based vesting conditions. There were no stock options granted that contain both market-based and performance-based vesting conditions during the three months ended March 31, 2023. During the three months ended March 31, 2023, 11 stock options were exercised and 2,015 market-based and performance-based stock options remain outstanding as of March 31, 2023.

The weighted average grant date fair value of options granted during the three months ended March 31, 2023 and March 31, 2022 was $12.21 and $12.77, respectively. The total intrinsic value of options exercised during the three months ended March 31, 2023 and March 31, 2022 was $12.8 million and $12.1 million, respectively.

The fair market value of each option granted during the three months ended March 31, 2023 has been estimated on the grant date using the Black-Scholes-Merton option-pricing model with the following assumptions:


		2023
Risk - free interest rate (percentage)		3.6
Expected term (years)		6.1
Expected dividend yield (percentage)		—
Expected volatility (percentage)		46.5

The Company’s board of directors (the “Board”) did not declare or pay dividends on any Company stock during the three months ended March 31, 2023 and March 31, 2022.

A summary of restricted stock unit activity as of and for the three months ended March 31, 2023 is as follows:


	Restricted Stock Units
	Number of	Weighted Average
	Shares	Grant Date Fair Value
Outstanding as of December 31, 2022	3,154	$	27.07
Granted	1,988		24.90
Vested	(218)		26.94
Forfeited	(56)		28.94
Outstanding as of March 31, 2023	4,868	$	26.17

The total grant date fair value of restricted stock units that vested during the three months ended March 31, 2023 was $5.9 million.

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DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except per share data, unless otherwise stated)

As of March 31, 2023, unrecognized stock-based compensation expense was $146.2 million, which is expected to be recognized over a weighted-average period of 1.6 years.

Total stock-based compensation expense recorded in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows:


	Three Months Ended
	March 31,
(in thousands)	2023		2022
Product development	$	4,379	$	3,366
Sales, marketing and customer support		3,507		3,829
General and administrative		3,927		3,799
Total stock-based compensation	$	11,813	$	10,994

Employee Stock Purchase Plan

In March 2021, the Board approved the Company’s 2021 Employee Stock Purchase Plan (“ESPP”), and employees became eligible to enroll in August 2021. Purchases are accomplished through participation in discrete offering periods. The ESPP is available to U.S.-based employees and was expanded to most of the Company’s non-U.S.-based employees in 2022. The current offering period began on December 1, 2022 and will end on May 31, 2023. The Company expects the program to continue consecutively for six-month offering periods for the foreseeable future.

Under the ESPP, eligible employees are able to acquire shares of the Company’s common stock by accumulating funds through payroll deductions. The purchase price for shares of common stock purchased under the ESPP is 85% of the lesser of the fair market value of the common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of the applicable offering period. Employees are required to hold shares purchased for minimum of six months following the purchase date.

Stock-based compensation expense for the ESPP is recognized on a straight-line basis over the requisite service period of each award. Stock-based compensation expense related to the ESPP totaled $0.2 million and $0.1 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

12. Supplemental Financial Statement Information

Accrued Expenses

Accrued expenses as of March 31, 2023 and December 31, 2022 were as follows:


	As of
(in thousands)	March 31, 2023		December 31, 2022
Vendor payments	$	5,175	$	4,824
Employee commissions and bonuses		10,006		17,718
Payroll and other employee related expense		7,581		7,024
401k and pension expense		451		2,144
Other taxes		2,272		1,375
Total accrued expenses	$	25,485	$	33,085

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DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except per share data, unless otherwise stated)

Other (Income) Expense, Net

Other (income) expense, net primarily consists of interest income and the impact of foreign currency transaction gains and losses associated with monetary assets and liabilities. For the three months ended March 31, 2023, Other (income) expense, net was $2.7 million, primarily consisting of interest income earned on interest-bearing monetary assets. For the three months ended March 31, 2022, Other (income) expense, net was less than $0.1 million, primarily related to losses from changes in foreign exchange rates.

13. Commitments and Contingencies

Contingencies

Litigation

From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. The Company records liabilities for contingencies including legal costs when it is probable that a liability has been incurred and when the amount can be reasonably estimated. Legal costs are expensed as incurred. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, management does not believe that any of these proceedings or other claims will have a material effect on the Company’s business, financial condition, results of operations or cash flows.

14. Segment Information

The Company has determined that it operates as one operating and reportable segment. The Company’s chief operating decision maker reviews financial information on a consolidated basis, together with certain operating and performance measures principally to make decisions about how to allocate resources and measure performance.

15. Subsequent Events

On May 1, 2023, the Company approved 54 stock options and 156 restricted stock units under the 2021 Equity Plan.

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report and our audited financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 and elsewhere in this Quarterly Report, including under the heading “Special Note Regarding Forward-Looking Statements.”

Company Overview

DoubleVerify is a leading software platform for digital media measurement and analytics. Our mission is to create stronger, safer, more secure digital transactions that drive optimal outcomes for global advertisers. Through our software platform and the metrics it provides, we help preserve the fair value exchange in the digital advertising marketplace.

Our customers include many of the largest global advertisers and digital ad platforms and publishers. We deliver our suite of measurement solutions through a robust and scalable software platform that provides our customers with unified data analytics. We provide a consistent, cross-platform measurement standard across all major forms of digital media, making it easier for advertiser and supply-side customers to benchmark performance across all of their digital ads and to optimize business outcomes in real time. In 2022, our coverage spanned nearly 100 countries where our customers activate our services and covers all key digital media channels, formats and devices.

For the three months ended March 31, 2023 and March 31, 2022, we generated 91% and 90% of our revenue, respectively, from advertiser customers. We derive revenue from our advertiser customers based on the volume of media transactions, or ads, that our software platform measures (“Media Transactions Measured”). Advertisers utilize the DV Authentic Ad, our definitive metric of digital media quality, to evaluate the existence of fraud, brand safety, viewability and geography for each digital ad. Advertisers pay us an analysis fee (“Measured Transaction Fee”) per thousand impressions based on the volume of Media Transactions Measured on their behalf. We maintain an expansive set of direct integrations across the entire digital advertising ecosystem, including with leading programmatic, CTV, and social platforms, which enable us to deliver our metrics to the platforms where our customers buy ads. Further, our services are not reliant on any single source of impressions and we can service our customers as their digital advertising needs change.

For the three months ended March 31, 2023 and March 31, 2022, 9% and 10% of our revenue, respectively, was generated from our supply-side customers to validate the quality of their ad inventory. We generate revenue from supply-side customers based on monthly or annual contracts with minimum guarantees and tiered pricing when guarantees are met.

Russia’s Invasion of Ukraine

In February 2022, the Russian Federation commenced a military action in Ukraine. In response to the military action, and in support of the people of Ukraine, we voluntarily discontinued our relationships with Russia-based customers. We continue to monitor the situation and the current and potential impact on our business, our people and our customers. The impact on our business to date is not material, but, as a result of the discontinuation of services with Russia-based advertisers and the ongoing conflict in Ukraine, the Company had a $1.0 million increase in bad debt reserves during the three months ended March 31, 2022.

Components of Our Results of Operations

We manage our business operations and report our financial results in a single segment.

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Revenue

Our customers use our solutions to measure the effectiveness of their digital advertisements. We generate revenue from our advertising customers based on the volume of Media Transactions Measured on our software platform, and for supply-side customers, based on contracts with minimum guarantees or contracts that have tiered pricing after minimum guarantees are achieved. Our existing customer base has remained largely stable, and our gross revenue retention rate was over 95% for the three months ended March 31, 2023. We define our gross revenue retention rate as the total prior period revenue earned from advertiser customers, less the portion of prior period revenue attributable to lost advertiser customers, divided by the total prior period revenue from advertiser customers, excluding a portion of our revenues that cannot be allocated to specific advertiser customers.

For the three months ended March 31, 2023 and March 31, 2022, we generated 91% and 90% of our revenue, respectively, from advertiser customers. Advertisers can purchase our services to measure the quality and performance of ads after they are purchased directly from digital properties, including publishers and social media platforms, which we track as Measurement revenue. Advertisers can also purchase our services through programmatic and social media platforms to evaluate the quality of ad inventories before they are purchased, which we track as Activation revenue. We generate revenue from advertisers by charging a Measured Transaction Fee based on the volume of Media Transactions Measured on behalf of our customers. We recognize revenue from advertisers in the period in which we provide our measurement solutions.

For the three months ended March 31, 2023 and March 31, 2022, we generated 9% and 10% of our revenue, respectively, from supply-side customers who use our data analytics to validate the quality of their ad inventory and provide data to their customers to facilitate targeting and purchasing of digital ads, which we refer to as Supply-side revenue. We generate revenue for certain supply-side arrangements that include minimum guaranteed fees that reset monthly and are recognized on a straight-line basis over the access period, which is usually twelve months. For contracts that contain overages, once the minimum guaranteed amount is achieved, overages are recognized as earned over time based on a tiered pricing structure.


	Three Months Ended March 31,				Change		Change
	2023		2022		$		%

	(In Thousands)
Revenue by customer type:
Activation	$	69,892	$	53,031	$	16,861	32	%
Measurement		41,385		33,834		7,551	22
Supply-side customer		11,317		9,858		1,459	15
Total revenue	$	122,594	$	96,723	$	25,871	27	%

Operating Expenses

Our operating expenses consist of the following categories:

Cost of revenue. Cost of revenue primarily consists of platform hosting fees, data center costs, software and other technology expenses, and other costs directly associated with data infrastructure; personnel costs, including salaries, bonuses, stock-based compensation and benefits, directly associated with the support and delivery of our software platform and data solutions; and costs from revenue-sharing arrangements with our partners.

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Product development. Product development expenses primarily consist of personnel costs, including salaries, bonuses, stock-based compensation and benefits, third party vendors and outsourced engineering services, and allocated overhead. Overhead costs such as information technology infrastructure, rent and occupancy charges are allocated based on headcount. Product development expenses are expensed as incurred, except to the extent that such costs are associated with software development that qualifies for capitalization, which are then recorded as capitalized software development costs included in Property, plant and equipment, net on our Condensed Consolidated Balance Sheets. Capitalized software development costs are amortized to depreciation and amortization.

Sales, marketing, and customer support. Sales, marketing, and customer support expenses primarily consist of personnel costs directly associated with sales, marketing, and customer support departments, including salaries, bonuses, commissions, stock-based compensation and benefits, and allocated overhead. Overhead costs such as information technology infrastructure, rent and occupancy charges are allocated based on headcount. Sales and marketing expense also includes costs for promotional marketing activities, advertising costs, and attendance at events and trade shows. Sales commissions are expensed as incurred.

General and administrative. General and administrative expenses primarily consist of personnel expenses associated with our executive, finance, legal, human resources and other administrative employees. General and administrative expenses also include professional fees for external accounting, legal, investor relations and other consulting services, expenses to operate as a public company, including costs to comply with rules and regulations applicable to companies listed on a U.S. securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, other overhead expenses including insurance, as well as third-party costs related to acquisitions.

Interest expense. Interest expense for the three months ended March 31, 2023 and March 31, 2022 consists primarily of debt issuance costs, commitment fees associated with the unused portion of the New Revolving Credit Facility, interest on balances that were outstanding under the New Revolving Credit Facility and interest on finance leases. The New Revolving Credit Facility bears interest at SOFR plus an applicable margin per annum. See “Liquidity and Capital Resources—Debt Obligations.”

Other (income) expense. Other (income) expense consists primarily of interest earned on interest-bearing monetary assets and gains and losses on foreign currency transactions.

Results of Operations

Comparison of the Three Months Ended March 31, 2023 and March 31, 2022

The following table shows our Condensed Consolidated Results of Operations:


	Three Months Ended March 31,				Change		Change
	2023		2022		$		%

		(In Thousands)
Revenue	$	122,594	$	96,723	$	25,871	27	%
Cost of revenue (exclusive of depreciation and amortization shown separately below)		23,952		16,877		7,075	42
Product development		28,555		21,588		6,967	32
Sales, marketing and customer support		25,712		26,684		(972)	(4)
General and administrative		20,188		19,675		513	3
Depreciation and amortization		8,983		9,040		(57)	(1)
Income from operations		15,204		2,859		12,345	432
Interest expense		256		232		24	10
Other (income) expense, net		(2,734)		46		(2,780)	6,043
Income before income taxes		17,682		2,581		15,101	585
Income tax expense (benefit)		5,507		(1,998)		7,505	376
Net income	$	12,175	$	4,579	$	7,596	166	%

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The following table sets forth our Condensed Consolidated Results of Operations for the specified periods as a percentage of our revenue for those periods presented:


	Three Months Ended March 31,
	2023		2022
Revenue	100	%	100	%
Cost of revenue (exclusive of depreciation and amortization shown separately below)	20		17
Product development	23		22
Sales, marketing and customer support	21		28
General and administrative	16		20
Depreciation and amortization	7		9
Income from operations	12		3
Interest expense	—		—
Other (income) expense, net	(2)		—
Income before income taxes	14		3
Income tax expense (benefit)	4		(2)
Net income	10	%	5	%

Revenue

Total revenue increased by $25.9 million, or 27%, from $96.7 million in the three months ended March 31, 2022 to $122.6 million in the three months ended March 31, 2023.

Total Advertiser revenue increased by $24.4 million, or 28%, in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, driven primarily by a 25% increase in Media Transactions Measured and a 3% increase in Measured Transaction Fees.

Activation revenue increased by $16.9 million, or 32%, in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, driven by greater adoption of our Authentic Brand Suitability (ABS) solution as well as by new customers activating our core (non-ABS) programmatic solutions.

Measurement revenue grew $7.6 million, or 22%, in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily driven by new customers and expansions by existing customers, both within and outside the United States.

Supply-side revenue grew $1.5 million, or 15%, in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, driven primarily by an increase in revenue from existing customers and from new platform customers.

Cost of Revenue (exclusive of depreciation and amortization shown below)

Cost of revenue increased by $7.1 million, or 42%, from $16.9 million in the three months ended March 31, 2022 to $24.0 million in the three months ended March 31, 2023. The increase was primarily due to growth in our Activation revenue which drove increases in partner costs from revenue-sharing arrangements, as well as accelerated investments in cloud services to provide scale and flexibility necessary to support future growth.

Product Development Expenses

Product development expenses increased by $7.0 million, or 32%, from $21.6 million in the three months ended March 31, 2022 to $28.6 million in the three months ended March 31, 2023. The increase was primarily due to an increase in personnel costs, including stock-based compensation, of $5.5 million, an increase in third-party software costs and outsourced engineering services of $1.0 million to support product development efforts.

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Sales, Marketing and Customer Support Expenses

Sales, marketing and customer support expenses decreased by $1.0 million, or 4%, from $26.7 million in the three months ended March 31, 2022 to $25.7 million in the three months ended March 31, 2023. The decrease was primarily due to a decrease in personnel costs, including stock-based compensation and sales commissions, of $1.8 million. This was partially offset by marketing activities, including advertising, promotions, events and other activities which increased $0.5 million, and personnel travel and entertainment expenses to support marketing and sales activities which increased $0.4 million.

General and Administrative Expenses

General and administrative expenses increased by $0.5 million, or 3%, from $19.7 million in the three months ended March 31, 2022 to $20.2 million in the three months ended March 31, 2023. Personnel costs, including stock-based compensation, increased $0.5 million. Non-personnel costs included $0.2 million in third-party costs incurred for an underwritten secondary public offering by certain stockholders of the Company and $0.6 million in sales tax. Cost increases were offset by a $0.7 million decrease in transaction costs, integration and restructuring costs related to the acquisition of OpenSlate.

Depreciation and Amortization

Depreciation and amortization decreased by $0.1 million, or 1%, from $9.0 million in the three months ended March 31, 2022, to $9.0 million in the three months ended March 31, 2023. The decrease was primarily due to the impact of fully depreciated assets.

Interest Expense

Interest expense increased by less than $0.1 million, from $0.2 million in the three months ended March 31, 2022 to $0.3 million in the three months ended March 31, 2023. The increase was attributable to the borrowing under the New Revolving Credit Facility that was initiated on March 10, 2023, which was repaid in full on March 17, 2023.

Other (Income) Expense, Net

Other (income) expense, net increased by $2.8 million, from an expense of less than $0.1 million in the three months ended March 31, 2022 to income of $2.7 million in the three months ended March 31, 2023. The increase was primarily due to an increase in interest earned on interest-bearing monetary assets.

Income Tax Expense (Benefit)

Income tax expense (benefit) increased by $7.5 million from a $2.0 million benefit in the three months ended March 31, 2022 to a $5.5 million expense in the three months ended March 31, 2023. The increase was primarily due to an increase in pre-tax book income and permanent book-to-tax income adjustments.

Adjusted EBITDA

In addition to our results determined in accordance with GAAP, Management believes that certain non-GAAP financial measures, including Adjusted EBITDA and Adjusted EBITDA Margin, are useful in evaluating our business. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenue. The following table presents a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to the most directly comparable financial measure prepared in accordance with GAAP.

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	Three Months Ended March 31,
	2023		2022

	(In Thousands)
Net income	$	12,175	$	4,579
Net income margin		10%		5%
Depreciation and amortization		8,983		9,040
Stock-based compensation		11,813		10,994
Interest expense		256		232
Income tax expense (benefit)		5,507		(1,998)
M&A and restructuring costs (a)		—		653
Offering, IPO readiness and secondary offering costs (b)		187		—
Other (recoveries) costs (c)		(267)		1,197
Other (income) expense (d)		(2,734)		46
Adjusted EBITDA	$	35,920	$	24,743
Adjusted EBITDA margin		29%		26%

(a)

M&A and restructuring costs for the three months ended March 31, 2022 consist of transaction costs, integration and restructuring costs related to the acquisition of OpenSlate.

(b)

Offering, IPO readiness and secondary offering costs for the three months ended March 31, 2023 consist of third-party costs incurred for an underwritten secondary public offering by certain stockholders of the Company.

(c)

Other (recoveries) costs for the three months ended March 31, 2023 consist of sublease income for leased office space. For the three months ended March 31, 2022, other costs consist of costs related to the departures of the Company’s former Chief Operating Officer and Chief Customer Officer, and of costs related to the disposal of furniture for an unoccupied leased office space.

(d)

Other (income) expense for the three months ended March 31, 2023 and March 31, 2022 consist of interest income earned on interest-bearing monetary assets, and of the impact of changes in foreign currency exchange rates.

We use Adjusted EBITDA and Adjusted EBITDA Margin as measures of operational efficiency to understand and evaluate our core business operations. We believe that these non-GAAP financial measures are useful to investors for period to period comparisons of our core business and for understanding and evaluating trends in operating results on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Some of the limitations of these measures are:

●

they do not reflect changes in, or cash requirements for, working capital needs;

●

Adjusted EBITDA does not reflect capital expenditures or future requirements for capital expenditures or contractual commitments;

●

they do not reflect income tax expense or the cash requirements to pay income taxes;

●

they do not reflect interest expense or the cash requirements necessary to service interest or principal debt payments; and

●

although depreciation and amortization are non-cash charges related mainly to intangible assets, certain assets being depreciated and amortized will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

In addition, other companies in our industry may calculate these non-GAAP financial measures differently, therefore limiting their usefulness as a comparative measure. You should compensate for these limitations by relying primarily on our GAAP results and using the non-GAAP financial measures only supplementally.

Liquidity and Capital Resources

Our operations are financed primarily through cash generated from operations. As of March 31, 2023, we had cash of $285.7 million and net working capital, consisting of current assets (excluding cash) less current liabilities, of $114.9 million.

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We believe existing cash and cash generated from operations, together with the $150.0 million undrawn balance under the New Revolving Credit Facility as of March 31, 2023, will be sufficient to meet working capital and capital expenditure requirements for at least the next 12 months.

Our liquidity has not been materially impacted to date by Russia’s invasion of Ukraine, as discussed above.

Total future capital requirements and the adequacy of available funds will depend on many factors, including those discussed above as well as the risks and uncertainties set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Debt Obligations

On March 10, 2023, we initiated a borrowing of $50.0 million under the New Revolving Credit Facility and subsequently repaid $50.0 million on March 17, 2023. As of March 31, 2023, there was no outstanding debt under the New Revolving Credit Facility.

Cash Flows

The following table summarizes our cash flows for the periods indicated:


	Three Months Ended March 31,
	2023		2022

	(In Thousands)
Cash flows provided by (used in) operating activities	$	21,426	$	(2,249)
Cash flows (used in) investing activities		(4,099)		(4,759)
Cash flows provided by (used in) financing activities		466		(3,113)
Effect of exchange rate changes on cash and cash equivalents and restricted cash		131		131
Increase (decrease) in cash, cash equivalents, and restricted cash	$	17,924	$	(9,990)

Operating Activities

Our cash flows from operating activities are primarily influenced by growth in our operations and by changes in our working capital. In particular, trade receivables increase in conjunction with our rapid growth in sales and decrease based on timing of cash receipts from our customers. The timing of payments of trade payables also impacts our cash flows from operating activities. We typically pay suppliers in advance of collections from our customers. Our collection and payment cycles can vary from period to period.

For the three months ended March 31, 2023, cash provided by operating activities was $21.4 million, attributable to net income of $12.2 million, adjusted for non-cash charges of $18.4 million and $9.2 million use of cash from changes in operating assets and liabilities. Non-cash charges primarily consisted of $9.0 million in depreciation and amortization and $11.8 million in stock-based compensation. The main drivers of the changes in operating assets and liabilities were a $14.9 million increase in trade receivables, prepaid assets and other assets due mainly to an increase in sales and the timing of collections, and a $5.7 million increase in trade payables and accrued expenses primarily related to the timing of vendor payments.

For the three months ended March 31, 2022, cash used in operating activities was $2.2 million, attributable to net income of $4.6 million, adjusted for non-cash charges of $21.5 million and $28.3 million use of cash from changes in operating assets and liabilities. Non-cash charges primarily consisted of $9.0 million in depreciation and amortization and $11.0 million in stock-based compensation. The main drivers of the changes in operating assets and liabilities were an increase in trade receivables and prepaid assets of $14.6 million due mainly to timing of collections which vary from period to period, and a decrease of $13.8 million in accrued expense and other liabilities primarily related to the timing of employee related payroll tax liabilities.

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Investing Activities

For the three months ended March 31, 2023, cash used in investing activities of $4.1 million was attributable to purchases of property, plant and equipment, and capitalized software development costs. For the three months ended March 31, 2022, cash used in investing activities of $4.8 million was attributable to purchases of property, plant and equipment, and capitalized software development costs.

Financing Activities

For the three months ended March 31, 2023, cash provided by financing activities of $0.5 million was primarily due to $1.8 million proceeds from common stock issued upon exercise of stock options, offset by $0.8 million of shares repurchased for settlement of employee tax withholding and by $0.5 million of finance lease payments. For the three months ended March 31, 2022, cash used in financing activities of $3.1 million was primarily due to a $3.2 million payment of contingent consideration related to the Zentrick acquisition.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets and liabilities and related disclosures at the dates of the financial statements, and revenue and expenses during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. We evaluate these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material.

Some of the judgments that management makes in applying its accounting estimates in these areas are discussed in Note 2 to our audited Consolidated Financial Statements appearing in our Annual Report on Form 10-K for the year ended December 31, 2022. Since the date of our most recent Annual Report on Form 10-K, there have been no material changes to our critical accounting policies and estimates.

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Item 3: Quantitative and Qualitative Disclosures about Market Risk

Market risks at March 31, 2023 have not materially changed from those discussed in the Annual Report on Form 10-K for the year ended December 31, 2022 under the heading “Quantitative and Qualitative Disclosures about Market Risk.”

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2023. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported as and when required, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding its required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls and Procedures

Management recognizes that a control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues have been detected. The inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any legal proceedings that would, either individually or in the aggregate, have a material adverse effect on our business, financial condition or cash flows. We may, from time to time, be involved in legal proceedings arising in the normal course of business. The outcome of legal proceedings is unpredictable and may have an adverse impact on our business or financial condition.

Item 1A. Risk Factors

There have been no material changes to the risk factors described in the section titled “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2022, except for the additional risks noted below.

We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our or our customers’ liquidity and financial performance.

We maintain U.S. cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks that exceed the FDIC insurance limits. We also maintain cash deposits in banks in certain foreign jurisdictions in which we operate, some of which are not insured or are only partially insured by the FDIC or similar entities. Bank failures, events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints for us or for our customers. Recently, more than one FDIC insured bank has abruptly failed. The failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial performance. Our customers, including those of our customers that are banks, may be similarly adversely affected by any bank failure or other event affecting financial institutions. Any similar resulting adverse effects to our customers’ liquidity or financial performance could reduce the demand for our solutions or affect the collectability of our accounts receivable. There can be no assurance that deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. government or any applicable foreign government, or that any bank or financial institution with which we or our customers do business will be able to obtain the necessary liquidity from other banks, government institutions, or by acquisition in the event of a failure or liquidity crisis.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Recent Sales of Unregistered Securities

Not applicable.

(b) Use of Proceeds

On April 23, 2021, we completed our IPO in which we sold 9,977 thousand shares of common stock at a public offering price of $27.00 per share, which includes the full exercise of the underwriters’ option to purchase 1,350 thousand additional shares from us. We received aggregate net proceeds of $253.2 million from the IPO, after deducting underwriting discount fees of $16.2 million. We incurred offering costs related to the IPO of approximately $26.1 million, inclusive of underwriting discount fees. All of the shares issued and sold in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-254380), which was declared effective by the SEC on April 20, 2021. The representatives of the underwriters of our IPO were Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC.

In connection with the IPO, Providence and certain of our other existing stockholders sold an aggregate of 5,356 thousand shares of our common stock, which includes the full exercise of the underwriters’ option to purchase 650 thousand additional shares of our common stock from Providence. We did not receive any proceeds from the sale of shares by these stockholders.

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PART II — OTHER INFORMATION

On April 23, 2021, concurrent with the completion of the IPO, an affiliate of Tiger Global Management, LLC (“Tiger Investor”) purchased from us 1,111 thousand shares of our common stock in a private placement at a price per share equal to the IPO price of $27.00. We received aggregate net proceeds of $29.0 million from the concurrent private placement, after deducting fees of $1.0 million.

On April 30, 2021, we used a portion of the net proceeds from the IPO and concurrent private placement to pay the entire outstanding balance under the New Revolving Credit Facility of $22.0 million.

On August 31, 2021, we used a portion of the net proceeds from the IPO and concurrent private placement to purchase all of the outstanding stock of Meetrics for $24.3 million.

On November 22, 2021, we used a portion of the net proceeds from the IPO and concurrent private placement to purchase all of the outstanding stock of OpenSlate for $147.4 million, which included net cash of $124.9 million and common stock transferred of $22.5 million.

There has been no material change in the planned use of the IPO net proceeds as described in our final prospectus, dated April 20, 2021 and filed with the SEC, pursuant to Rule 424(b)(4) under the Securities Act, on April 22, 2021 (the “Prospectus”).

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits


Exhibit No.		Description

10.1		First Amendment to Second Amended and Restated Credit Agreement, entered into as of March 29, 2023, by and among DoubleVerify MidCo, Inc., DoubleVerify Inc., the lenders party thereto and Capital One, National Association, as administrative agent for the lenders.

31.1†		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2†		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1†*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2†*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS†		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH†		XBRL Taxonomy Extension Schema Document

101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†		XBRL Taxonomy Extension Label Linkbase Document

101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document
104†		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

†Filed herewith.

Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Quarterly Report and not “filed” as part of such report for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of Section 18 of the Exchange Act, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 10, 2023


	DOUBLEVERIFY HOLDINGS, INC.

	By:	/s/ Mark Zagorski
	Name:	Mark Zagorski
	Title:	Chief Executive Officer and Director
		(Principal Executive Officer)

	By:	/s/ Nicola Allais
	Name:	Nicola Allais
	Title:	Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)