All right, thank you everyone for joining us. My name is Matt Farrell. I'm the Internet and Media Analyst here at Piper Sandler. We're very lucky to have Nicola, the CFO of DoubleVerify, with us for a fireside chat. So Nicola, why don't we just start with a brief overview of DV?
Sure. Yeah, so DoubleVerify provides services to advertisers. We help advertisers protect the quality of the ads that they put online, right, and that is with the intention to maximize the ROI that they get on their ad spend. What we do for advertisers is we protect them against fraud. We make sure that the ads are viewed, and more and more now we help put ads next to content that's brand safe and brand suitable. We've been doing this for ten plus years. We're integrated with most of the platforms that are both on the open web, but also on the walled garden of the industry. Our main advertisers are brand, large brand advertisers that are very focused on return for their investment, but also on protecting their own brands.
You know, as I said, we've been around about 10-plus years, you know, double-digit top line and bottom line growth.
Cool. And, you know, DoubleVerify exhibited a solid Q2 and a strong full year guide on the last call. Would love to hear a bit more about what's driving some of the near-term trends in both activation and measurement, and anything specific you'd call out from a vertical perspective of strengths or weakness right now?
Yeah. The way we help advertisers is both on the measurement side of the business, which is an ad runs, and then we tell the advertiser how it did. Based on the criteria that we have, but we also help the advertiser now more and more on the activation side of the business, which is even before you bid on an ad, you know, can you use our data to inform whether you're about to bid on a good placement or a bad placement, and so we have measurement and activation.
That's 90% of our revenue. The drivers of the growth on activation, which is the larger part of our revenue, it was a double-digit growth in Q2. What's happened recently is, we've been able to open up activation for social, so this is a new trend where we've been able to do activation for the open web for a long time, but now we're starting to do it on the social side.
And that's been one of the drivers of the growth on the activation side. We think it's a long-term growth drivers, where we'll be able to replicate the success we've had with the open web, with the social platforms. And that business grew 12% in the quarter. Measurement grew 22%, where, again, this is an ad runs, and then we measure how it did. That driver of the growth is also social. So there's a theme here, which is, historically, the company has done its services first on the open web, and now we're moving to social.
The big driver of this measurement is the fact that brand safety and suitability, which is a very interesting product for our clients, is now available on Meta. It's only been available on Meta since the beginning of this year. And that's one of the drivers of the growth. So Q2 was a good quarter for us because we grew double digits in all of our revenue drivers. Above and beyond what we used to do, which was just Open Web.
Maybe just taking a step back to your bigger picture, you know, based on your conversations with advertisers, y ou know, how is the broader digital advertising landscape here, I guess, in Q3 and heading into year-end? And what are some of the puts and takes that we should be considering, from maybe a macro or even a micro perspective?
Yeah. So what we say, what we're feeling is- that the mood is cautiously optimistic, maybe leaning a little bit more towards cautious, just because there are a few unknowns that are happening in the third and fourth quarter, right? There's still an unknown around interest rates and the timing of that. There is the political season, which doesn't directly impact our revenue-
but does have an impact on overall media inventory, and CPMs are paid for the inventory. So it creates this sort of cautious outlook through the third and the fourth quarter. I think it's too soon to say how advertisers will enter 2025, because we need to go through this period. I think in general, it's important to know that the market has moved away from long commitments from advertisers.
Where, you know, at the beginning of the year would come, and you'd have six, nine months worth of commitments from the advertisers. Even the upfronts today are pretty segmented, right? There's an overall commitment, but even within that, there is the ability for the advertisers to change the view. So the visibility is three months, six months, vary. Six months would be deemed long.
Right? So three months window, where the advertisers are able now to choose where they're gonna put their dollars. So it's. I think it's cautiously optimistic, but we need to see what happens through the next few months.
You know, DoubleVerify has been one of the few companies within digital advertising- That's actually driving accelerated revenue growth in the back half of the year. You know, you kind of hit on it before, but I wanted to double-click on what's driving that strong momentum and allowing you to kind of accelerate revenues while the rest of the industry - is kind of, you know, stabilizing after some strong growth?
Yeah, so we have several drivers, which is sort of what powers the whole story of DV. Specifically for the second half of this year, we've seen strong momentum on a company called Scibids, which we acquired last August. W hich is an even more sophisticated way of doing activation. It allows people to use analytics and AI to predict what they would like to spend on a specific impression. It's algorithmically based. It's the only product out there in the market that does this. So we acquired it in the middle of last year. You know, we're trending on the higher end of the expectation that we put out there for this product and that will we anticipate and will have an impact in the second half. Social momentum continues.
So as I said, we just launched a product on Facebook, and we see continued momentum from social on the measurement side. We're seeing early signs of momentum for the activation product for social. As I said, that's more recent but it is also having some impact on how we see the second half of the year. You know, on the puts and takes list, you know, the Moat, which I'm -which I think we'll speak to in a bit. You know, we've put in a modest assumption for the impact that it will have in the second half, and we'll talk about that later, and then we did have this year, a discrete set of advertisers that had some uneven spend, which, you know, didn't help or hurt in the second quarter.
It is still very uneven as we get into the second half, so that could be a give-and-take for the second half.
Maybe let's dive into social a little bit more. You hit on Meta. You know, obviously, we're still early around their adoption of brand safety and suitability, but what are some of the early takeaways that you have? And I think, you know, call it. I think we're what, about nine months into it at this point.
Yeah. So the adoption of the Meta pro. So this was a big moment in the social challenge, just because Meta is such a large player. The fact that we now have brand safety and suitability does create a large opportunity. And just to size the opportunity, right? So 50% of our top 100 clients were using the Meta product even before brand safety and suitability was available, right? So they kind of used it knowing that it would come. 50% of the top 100 were not using it at all, kind of, waiting for this product.
The example that we have, the benchmark that we have, is YouTube, which has had that product since 2020 or 2019. That penetration is 90+% . So with that product, 90% of our top 100 are using it. On Facebook, it's only 50%. So the natural opportunity there is for the remaining 50% to use it. Now, we've been very consistent in saying it's gonna take some time because the advertiser needs to understand the data that they're now getting from Facebook. Understand it, read it, benchmark it against what they're getting from us on other platforms before they can really act upon the data. So there is a testing period. It's a lot of volume for advertisers.
So they really want to test it. They've, they're testing it on a specific brand for a specific period of time. So the testing period is long, as we expected, and then there will be a contracting period, which is also, you know, can take its own time. But the opportunity is really for the extra 50% of the top 100 to use their product, which is what we have on YouTube.
Yep. And maybe just taking a step back, you know, as you pointed out, social as a category has been a huge driver.
You know, we've talked about TikTok, in the past. What inning are we in, kind of, around the social adoption curve for your products? And, you know, at some point in the future, how much of your revenue could be coming from social?
Yeah. So, I don't know baseball, so I don't know what inning we're in. What I will say is, we are.. As I said, we don't have. Let's start from what we don't have. We don't have the activation suite of product on social, so it's really currently just measurement. We have. Let me just clarify. We have a social activation solution on YouTube alone but it's early, and we don't have it, and it's a pre-screen solution. It's not really a pre-bid equivalent to what we have on the Open Web. So that is still nascent.
Even within measurement, we just have brand safety and brand suitability on Meta, so it's gonna take time to even grow that. The way we think about the opportunity is, you can think about it in terms of the revenue percentage that we get from social. It's not even 20% of our total revenue It's 60%-70% of all digital ad spend today. That gap, once you have the full suite of products, should close, right?
'Cause at some point, if we verify everywhere, we're gonna look... Our revenue mix should look like our advertising mix. So you can keep that in mind, which is 20% is our revenue mix versus 60%-70%. The much larger opportunity within our own revenue set is, if you look at what activation is as a percentage of measurement for the open web. it's a three times ratio. For every dollar we get on measurement, we have three more dollars on the activation side.
On social, it's essentially very, very small, and we only have it on YouTube, which is not even the largest player on social. So there's all those gaps that we can close. It's gonna take time.
Of course.
Part of the distinction between open web and the social platform is that you need an integration with every single social platform as opposed to the Open Web, where which becomes available as soon as you have the product. That will also take some time, but that's the midterm opportunity, right? Replicating that one, two, three on the social side of the business.
Yep. And maybe pivoting to CTV. It's been a hot topic. This year. You have some early partnerships within this space. Just help us understand the value that you're providing to advertisers within CTV, especially as a lot more inventory has, kind of, come on?
Yeah. Yeah. So we've been talking about social. CTV is even behind in terms of- of adoption of the product, right? So the short-term opportunity is really social. CTV is behind. You know, we talk a lot about CTV, and it's talked a lot about just because the opportunity is so large. But it's still about 10% of all inventory on digital CTV, so it's still small.
What we have the suite of products available. The dynamic that's happening in CTV that's still existing today is a supply and demand issue, right? So there is a supply, but for a long time, it was so limited, the advertisers were just saying- I just need to buy whatever's available, right? Because I need to be in it. Now, the supply side of CTV is opening up. Quite aggressively and quite quickly. So Netflix now has an ad-supported service. Amazon Prime is a very large, component of what's gonna open up the supply side of CTV. Once that opens up, advertisers will want more choice and will want to be able to use a product like ours, differentiate between the quality of the inventory, right? Once it opens up, then our product becomes very relevant.
In order to unpack the last piece of this, we will need show-level data, which is not yet provided for our product to be used. So we can tell you if there's brand safety suitability around apps that are within the CTV ecosystem, but not yet at the show level data. We are starting to talk to all the different partners to get that information, and once we have that, then the power of the tool will really be available because it will differentiate the type of supplies that you have. As you can tell-
This is a longer-term opportunity, right? Social is much larger for us short term than CTV. But we're on the right path, and we're making sure that advertisers understand the benefit of getting that show-level data.
You know, pivoting a little bit again, you hit on them earlier, but the company's been working through a unique situation with a few large retail CPG customers this year. What's the latest and greatest on this customer cohort as we head into year-end?
Yeah. So I mean, we've been consistent with our message. It is the six. What we've seen this year is lower level of ad spend from these six. Right? They didn't turn off our services. Right? But because they are lowering their ad spend, it obviously has an impact on our revenue. The issues are discrete to every single one of these six. As we said in the Q2 call, they, you know, we didn't see anything worse or better to change our outlook for the six. The spend pattern is uneven, and we've said that since the beginning, right? So we're not seeing the patterns that we generally would have seen from the group. It's definitely too early to tell what's gonna happen in 2025 with the group.
Within the group, there are companies that are clearly not gonna spend the way they were in the past, because of discrete issues that they have internally. But it's definitely too early to tell how it's gonna play out in 2025.
Gotcha. Okay, and maybe as a result of, you know, this cohort, one of the more debated topics over the last few quarters has just been activation revenue.
Sure.
How should we be thinking about the growth drivers of activation. Kind of over the shorter term, but also over the longer term
Sure
Just given kind of the backdrop that we've seen because of this customer cohort?
So activation growth has been driven the past few year from ABS- Right? Which is our premium priced product that really had an unbelievable success. You know, if, if you, if you roll back a few years, we expected this to be a premium product for our top 100. We're now well penetrating in our top 500. So even though it was a premium priced product, the power of the tool made it such that even the customers below the top 100 were using it. We still have a long way to go there. There's still over 170 of our top 1,500 that are not using the product, right? But the growth has naturally slowed because it's a five-plus-year product.
Right, so what... And it was impacted a lot by the core of the six. What we've seen, and clearly Q2 showed this, which is activation grew faster than ABS. I think we've moved away from having a single product driver of growth t o more drivers of growth. And so if we think about activation and what's helped the growth there is Scibids, which we acquired last year, and that is essentially the next evolution of the ABS product.
It allows people to do predictive analytics that are not just, "Yes, use this," or, "Yes, bid on this," "No, don't bid on this." So it allows advertisers to evolve from just a yes, no answer to something that's a little bit more sophisticated based on resulting KPIs that they're looking for.
And so in our model, which is we're getting paid for every impression that we help verify, t hat means more impressions are bid on. Right? So it's the next evolution of the ABS product, and that is one of the drivers of the growth. The second driver of the growth is what we were discussing earlier, which is we do have a pre-screened product for social. And for YouTube, that product grew 30% in the second quarter. So there are drivers of growth there. I think to go back to where you asked at the start of the question, activation in the company as well is no longer just one product.
We've always said it, but we had such an outsized success with ABS, that the message got a bit lost, and so the fact that we have all these multiple drivers of growth, and we're able to show growth overall that's ahead of the ABS growth, leads us to see how we're gonna continue to grow, even though ABS is no longer at the growth rates that it had in the past few years.
Gotcha. And let's talk a little bit about the Moat opportunity.
It's kind of a unique moment in the industry.
That's right.
How has DV positioned itself out of the gate to win customers from Moat initially?
So, we've been winning clients from Moat for a long time.
Right? So, and it was, it was included in our assumptions, like, we've been working to gain those clients for a while, and so some of the names that we mentioned that we've signed this year from Moat would be Pepsi and Haleon. Those are large enterprise deals that, over time, in a natural process, would take their time through an RFP. And we're kind of, you know, get ultimately to win. Now, obviously, with Moat announcing that they're closing on September thirtieth, the RFP season is, like, this short, right?
Everybody needs to figure out what they're gonna do as of October one. So it's a unique situation where every client is looking for a new solution. It's an intense moment where, you know, the opportunity for us is, once we have a client, the average length of one of our clients is seven plus years or our top clients. So it really is important for us to win this client. One thing that's unique about the shortened RFP season is that, clients don't - clients are looking to replace what they were having with Moat first.
Right.
And then we'll talk about upsell. So rather than having a very sophisticated product offering and solution that cuts across all our products, we are first going in and doing a like for like.
And then over time, we will upgrade, upsell to activation products, Scibids, et cetera, et cetera. Moat's offering was essentially measurement on a pretty basic level. So all this is to say, we're winning our fair share of them.... It's gonna start at an entry level. And then we'll be able to upsell to the other products suite that we have.
Because Moat's product set was more basic in nature, isn't it, like, the upsell and the cross-sell opportunity, is that potentially larger for these clients that you've won because of the suite that you have and the suite that Moat didn't have? And I guess, how should we think about the cadence, right? You mentioned , we're just gonna walk in the door with X," but when should Y and Z really start to trickle in?
I think it'll take, you know, it'll be. Just to size the opportunity. I think there's probably a one and a half times more revenue coming o nce we get activation inside SciBids, et cetera, et cetera. So it is definitely gonna have an impact in 2025 and 2026. I just said 2025 and 2026. I think it'll take 12 to 18 months for the clients to get used to our product and for us to be able to go in and explain the new, the other solutions and then to get them to upsell it. So I would expect 12-18 months.
Gotcha. And once the dust settles here after this period of I don't want to say chaos, but, you know-
Opportunity.
Yeah, opportunity. How should investors be thinking about the competitive landscape of the industry, and does anything materially change now that Moat isn't part of the landscape?
You know, as I said, we've been winning clients against Moat for a while. And so it was an obvious distant third player in the space. So I think the immediate impact is just it has accelerated the time where you have a third player that's no longer there. The landscape in general is, you know, we've been in the business ten plus years and so has our closest peer, right? So we've been against IAS for t en plus years. The dynamics there don't really change, except that you have this moment. I think what's a bit... What is also available in the industry is a single point solution. It's an attractive market. A lot of the wins are still green fields. The market is growing, and both companies are growing and profitable, right?
We're growing faster, but, you know, we're both growing and we're both profitable because the market is so large. Right? There's still a lot of advertisers that don't use verification, so, we're bound to. It's bound to remain a very competitive environment. I think Moat going away just creates this moment in time, but it doesn't change the other dynamics in the business. You know, we still have more interesting products, more sophisticated products, products that others don't have in the industry. Even the single point solutions are unable to replicate something like Scibids, for example.
The pre-screen tool we have on YouTube, which is the beginning of activation, there really isn't something else out there that's the same. So we feel very good about product innovation as the reason why we're gaining and creating a gap between ourselves and IAS. and overall in scale, right? At some point, the advertisers will want to have one point of reference that is a benchmark to measure verification across all of their buys.
You know, as one company becomes larger, I think that achieves that a little bit, and we're on our way to do that.
Yep, and maybe just let's talk about AI real quickly. It's the topic of... It has been the topic of the day for what seems like forever.
For many days.
Yeah. What role does AI play in your business, and why is it a differentiator for the company?
So AI helps on the product side. So it's everybody's talking about AI, but we've been using machine learning for a long time to essentially accelerate the time it takes us to put products out. So I'll give a very simple example: You know, once you figure out how to do brand safety and suitability in one language. AI and machines can help you do that same brand safety and suitability in multiples of languages, and that kind of accelerates the time that you can put products out. It also helps us be smarter about how we verify. So, on video, which is now the largest part of our volume right? If you're verifying the quality of a sunset, you don't have to really do frame by frame, right?
If you're smart enough to get the machines to be smart enough to say, "Yeah, sun's going down." Every frame is kind of the same, until there's something that changes, in which case then do verify. But that creates an efficiency and speed to market of our product. There's a lot of efficiency that we're gaining. They're becoming obvious in our financials, like we have a very high gross margin number and it's actually increasing, partly because of what I just described here, which is machines are helping us do things faster and cheaper. Which means that we're able to invest in not just humans to do classification but we're able to reinvest into data scientists and other types of engineering resources. So it's having an acceleration impact on the way we do our business.
Let's maybe touch on the financials here with the last couple of minutes. You guys have been a double-digit grower with 30% EBITDA margins for some time now. And I guess this is a bit of a high-class problem, but I guess, how should we be thinking about the trade-off between growth and profitability as we move forward? And then maybe, w e'll follow up on some cash flow stuff.
Our strategy has been. We've gotten to the point where, because of our strategy, which has been, if there is superior revenue growth, we'll continue to invest into the business. Right? Because that's the big differentiator. W hen both IAS and DV public were essentially the same size, we're now over $120 million larger than they are. That, we believe, is a good indicator of where we're verifying everywhere for more clients. A nd we have more scale. We're able to achieve that by innovating into the business, but still achieving a 30% margin. Right? We won't always have to invest this much to achieve revenue growth.
Correct.
At some point, there will be kind of a deeper discussion around the trade-offs, but right now, we're not seeing it, right? We have higher percent revenue growth. We're getting larger, and so we're able to continue to invest at that 30% margin. But again, at some point, we won't have to invest as much as we have to continue to show revenue growth. We're not, we're not there yet, but we obviously keep an eye on it.
And then, with kind of the strong cash generation that you have- you know, a clean balance sheet. You had the buyback recently. How should we be thinking about the use of cash moving forward?
Yeah, so we have over $300 million, no debt, as I said. Capital allocation for us is invest in the business because organic growth is really strong. F ind M&A opportunities that can accelerate that organic growth in terms of product and innovation or geographic expansion. And now this year, we've also introduced buyback, which to us is just part of the natural evolution of where we can allocate some of our cash. We keep an eye on stock-based comp, as a barometer of what a reasonable buyback program looks like.
The cadence is pretty predictable at this point, right? It's kind of tagged to the stock-based comp number. We have a lot of opportunities to use the cash. It is a good problem to have. M&A remains something that we're very interested in continuing to pursue.
Awesome. Well, that's all the time we have, Nicola.
Great.
Thank you so much.
Yeah.
Yeah, thank everyone for joining us.