DoubleVerify Holdings, Inc.

Greetings and welcome to the Double Verify Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tajal Engman, Senior Vice President of Investor Relations. Thank you. You may begin.

Good afternoon and welcome to Double Verify's second quarter 2023 earnings conference call. With us today are Mark Zagorski, CEO, and Nicola Elias, CFO. Today's press release in this call may contain forward-looking statements that are subject to inherent risks, uncertainties, and changes, and reflect our current expectations and the information currently available to us, and our actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings, including our Form 10-Q and our annual report of Form 10-K. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results. Reconciliation to the most comparable GAAP measures available in today's earnings press release, which is available in our investor relations website at ir.doubleverify.com. Also, during the call today, we'll be referring to the slide deck posted on our website. With that, I'll turn it over to Mark.

Thanks, Sejal, and thank you all for joining us today. I'm excited to discuss our second quarter results and to share the significant progress we've made across multiple fronts, from product innovation and channel expansion to new enterprise logo wins and international growth, as DV continues to fire on all cylinders. In addition, I'd like to discuss our pending acquisition of Sybids, a global leader in AI-powered digital campaign optimization. Sybids AI makes DV data more impactful and accelerates our evolution from protection to performance. This transformative acquisition combines our media quality and performance data with Sybids AI-powered real-time optimization algorithms to drive superior ad KPIs and tangible business outcomes for advertisers. Sybids will help make our sizable and successful activation business bigger and even more essential for marketers and significantly differentiate our programmatic offering in the marketplace. But first, let's talk about the quarter. We grew second quarter revenue by 22% to nearly $134 million above the midpoint of our guidance range. We achieved second quarter adjusted EBITDA of $40 million representing 30% adjusted EBITDA margins and exceeding the top end of our guidance range. Revenue in the first six months of 2023 grew 24% against an elevated 43% prior year growth rate. The key drivers of our first half 2023 revenue growth included continued strong adoption and expansion of our ABS product, increased social platform coverage and volume, and a growing number of international wins with key global customers. DV remained highly profitable and continued to generate strong cash flow from operations. We delivered approximately $25 million of net income and generated over $32 million of net cash from operations in the first half of 2023. Our customer win and expansion momentum continued in the second quarter. We won several large new enterprise logos, including Uber Brand Marketing, Sam's Club, Pizza Hut, Revlon, Liberty Mutual, and Bose in the United States, Lululemon and UNICEF in EMEA, Spotify in Minot, and the Ministry of Foreign Affairs in Japan. Notable existing customer expansions include De Beers activating DV measurement data across multiple international markets, Swarovski activating DV's measurement and prescreen social solutions in Japan, and Avis adopting ABS in the United States. Our win rate across all opportunities remained above 80%, with 54% of our second quarter wins being greenfield, which we define as wins where the advertiser wasn't using third-party tools for the business that DV won. The high growth rate of greenfield wins speaks to the underpenetrated TAM that continues to fuel DV's growth. we expect new client wins to propel our successful land and expand strategy through which we grew the number of advertiser customers generating more than $200,000 over the last 12 months by 20% year over year. In addition to generating strong core revenue growth, we remain focused on investing in long-term strategic initiatives that leverage our core verification offering to evolve our customer value proposition from protecting media spend to optimizing media performance. Our verification business continues to create a proprietary data asset of unparalleled scale and granularity. DV analyzes approximately 300 billion data transactions, including 60 years of video content on a daily basis. Our investments in performance solutions have leveraged this vast data asset to create measurement products such as DV authentic attention, as well as pre-bid programmatic tools, such as ABS, that are based on aggregated measurement data and contextual intelligence. The acquisition of Sybids represents the latest and potentially most impactful of these evolutionary investments to unlock even greater value in these proprietary data assets. Sybids is a cutting-edge Paris-based startup founded by a team of data science PhDs and machine learning engineers who are driven to bring programmatic advertising into the AI age. Sybids builds independent AI that automates and optimizes programmatic buying of digital ad campaigns agnostically across demand-side platforms. Their AI dynamically generates custom bidding algorithms aligned with client KPIs and desired outcomes. Sybids' powerful and sophisticated machine learning technology can dynamically action DV's granular measurement data Within a programmatic ad campaign, DV and Sybid's combined customer value proposition is to deliver industry-leading campaign performance based on bespoke ad KPIs or business outcomes by offering continuous feedback loop between activation, measurement, and optimization. This loop is powered by Sybid's AI technology and DV's trusted media quality and performance data that is comprehensive, granular, now actionable in real time. For example, Sybids can dynamically optimize advertiser campaign performance against customizable KPIs and desired business outcomes using DV's authentic attention measurement data. The algorithmic bidding function that Sybids builds can deliver results that far outstrip static programmatic segments, ushering in a new era for results-driven advertisers. In addition to DV's proprietary data, Sybiz is able to adjust a wide range of data points, including first-party data, third-party contextual data, alternative media quality and performance measurement data, programmatic bid stream data, and pricing data, all to help inform advertisers' programmatic strategies in a way that maximizes campaign performance. This means that even if an advertiser is not a DV measurement customer, we can still help them deliver powerful results from their programmatic spend. And that ad spend can be across any of the major DSPs where Sybids complements their platforms and has seamless integration, including the Trade Desk, Google's DV360, Microsoft's Xander, Comcast's Beeswax, and the mobile platform Kaizen. We've seen the power of Sybids AI technology firsthand. In partnership with Sybids, We recently launched the DV Algorithmic Optimizer, where Sybid's AI ingests impression-level DV authentic attention data and campaign cost data, enabling advertisers to automatically optimize towards the best-performing inventory at the best price while maintaining scale. In the results of the initial tests, on average, we observed a 45% reduction in media CPMs, a 63% increase in attention levels, and a 95% increase in impressions won. The Sybids acquisition also has the potential to enhance and differentiate DV's measurement business. Not only will our existing measurement data be significantly more actionable and impactful in programmatic activation applications, but Sybids AI will also help enhance the precision and effectiveness of measurement data sets, such as authentic attention. By weighting attention signals, Against conversions and other ROI measures, DV can construct customized measurement metrics based on specific KPIs and or verticals. Simply put, the results of algorithmic optimization and activation applications will help enhance the construction of a truly differentiated measurement data set. SciVid shares DV's values of transparency, independence, and innovation. Both companies are ad server and DSP agnostic and do not buy or sell media. Both companies' solutions are privacy forward and don't use persistent tracking technologies such as third-party cookies or Apple's IDFA. And both companies have a legacy of leaning into machine learning-based AI. Sybids will bring nearly 20 data scientists and engineers to DV, which will augment and accelerate our existing machine learning programs with critical AI talent that is difficult to source. To demonstrate the power of Sybids AI and explore the future of AI-driven innovation at DV, Sybids and DV's executive leadership teams, along with industry experts, will be hosting an in-person innovation day for the investment community on Thursday, September 14th, from 1 p.m. to 4 p.m. at the Standard Hotel in New York City. The event will also be webcast live. As you can tell, we're pretty excited about the opportunity SideBids creates to help our customers harness the power of their DV data to optimize and maximize campaign performance. Acquiring this AI power technology allows us to meaningful elevate our customer value proposition across activation and measurement, while also increasing our potential TAM with performance driven advertisers, creating broader upsell opportunities for current and new customers. I'd like to turn now to the key growth milestones we achieved since our last earnings call. I will discuss these in the context of our three core differentiators. Our rapidly growing scale, our focus on market defining innovation, and the deep level of trust that we built with our customers as an unbiased, independent partner. Starting with our expanding coverage scale, we continue to grow our measurement breadth across key social platforms with a focus on short form video, which has a steep growth trajectory and an impressive ad load that offers a unique opportunity for advertisers and DV. HubSpot's State of Marketing 2023 study expects short form video to see the most growth of all marketing strategies this year as one in five marketers plan to leverage short form video for the first time in 2023. To that end, we are excited to expand our viewability offering on Meta to include measurement on Facebook and Instagram Reels, a rapidly growing short form video environment with a highly engaged user base. With Reels plays exceeding 200 billion per day across Facebook and Instagram, Reels is sought after by advertisers who can now leverage DD's viewability and fraud measurement technology for insights into which of their ads are being seen by real users and driving results for their campaigns. We're also excited to announce the expansion of our quality solution on YouTube to enable measurement on YouTube Shorts. DV's launch of viewability and fraud measurement across YouTube Shorts inventory will help advertisers ensure that their ads are viewable and safe from fraud, thereby providing performance insights across a greater volume ad impressions on YouTube. To conclude on short form video, we continue to build momentum with TikTok, which contributed nearly a third of our social measurement revenue growth in the second quarter as customers rapidly activated the DV Authentic app. We generated more TikTok revenue in the second quarter than we did in full year 2022, and TikTok remained our third largest social revenue generator after Meta and YouTube. International markets fueled a good deal of our TikTok growth, where we continue to focus on maximizing our language coverage and plan to be live with brand safety and suitability in 25 additional markets in the second half of the year. Overall, we grew social measurement volume by 41% year-over-year in the second quarter. Our social revenue growth in dollar terms continues to be led by advertisers leveraging our solutions on meta, which generates almost half of our social measurement revenue. In addition to offering a greater breadth of verification coverage across its platform with Reels, Meta remains committed to providing advertisers with a deeper level of transparency through brand suitability controls and verification. We continue to engage Meta on brand suitability and verification and measurement solutions and look forward to rolling out an expanded DV authentic ad in the coming months. Turning to CTV scale, we grew CTV measurement volumes by 32% in the second quarter, outpacing the 14% CTV revenue growth rate expected of the industry in 2023, according to IAB research. And since we launched viewability verification and fraud protection coverage on Netflix as supported plan in March, we've seen four consecutive months of growth, both in the number of advertising using our solution and impression volumes. We expect long-term growth as Netflix continues to innovate its advertiser offerings. In addition, We continue to scale across retail media networks, which generated 81% year-over-year revenue growth in the second quarter, with revenue contribution across all three business lines. Our measurement tags are accepted on over 50 of the key global retail media networks and sites, including 12 of the top retail media platforms and 39 major retailers. Moreover, our partnerships are global. with DV's measurement coverage of retail media spanning all major geographies, including the U.S., EMEA, and APAC, with international partners such as Sainsbury's, CitrusAd, and Zitcha working with DV for verification. Staying with scale across ad networks, we were excited to share the news last week of a new partnership with Uber's advertising platform, to help advertisers verify their media spend and maximize campaign performance across the Uber journey ads format in the United States. Uber's mobility and ad inventory represents a new source of measurement impressions for DV across an ad network with growing scale and unique first-party data. We look forward to bringing Uber's advertisers a higher level of trust and transparency as we broaden our quality coverage across another major tech platform. In addition to this supply-side partnership, we are also excited to announce that we have added Uber to our roster of NASDAQ 100 advertisers, which include the likes of Amazon, Meta, Airbnb, and Adobe. Uber Brand Marketing selected DV as its exclusive measurement partner for its own media spend globally across all lines of business and geographies. This is another great example of the network effect between our platform and advertiser business. DV is uniquely positioned to be embedded in the world's largest advertising platforms as a verification partner and to be selected by the brands that power these platforms, including Amazon, Meta, Adobe, and now Uber, to verify and protect their own advertising spend. Shifting gears to scale through international business expansion, we've continued to grow our commercial footprint to 27 locations, Through the launch of business operations in Indonesia, the Philippines, Vietnam, and three more locations in Europe, we grew international measurement revenue by 39% year-over-year in the second quarter, with EMEA growing 33% and APAC delivering 50% growth. International growth has strongly rebounded as advertisers activate DV's social solutions across more markets as we expand platform coverage and roll out additional language capabilities. Turning to innovation, we launched two new programmatic attention optimization solutions in the second quarter. I touched on DV Algorithmic Optimizer, a product recently developed with Sybiz that puts DV clients at the forefront of using AI to power attention-based bidding. We also launched the DV Universal Attention Segment, which is a pre-bid programmatic segment powered by best-in-class machine learning and data from DV Authentic Attention. In CTV, we found that attention measurement for CTV was the single most requested attention solution for advertising. So, we joined forces with T-Vision to develop a solution that will combine DV's scalable ad exposure data, including viewable time and fully on-screen measurement, with T-Vision's viewer presence and eyes-on-screen ad attention signals that will deliver the most holistic attention measurement solution for advertisers looking to gauge their performance on CTV. To conclude on the differentiated pillar of trust, we are pleased to be expanding our partnership with Roku as we work jointly to investigate and mitigate merging ad fraud schemes in CTV, following our successful neutralization of Smokescreen, a sophisticated ad fraud scheme that targeted CTV devices, siphoning over $6 million monthly from unprotected advertisers and publishers. In addition, DV's viewability and programmatic analytics are integrated with Roku's OneView platform with a plan to expand DV's quality and performance offerings in the coming months. Finally, we continue to demonstrate our commitment to providing identity-independent, privacy-forward secure tools by completing several annual privacy-focused third-party attestations conducted by TrustArc and further expanding their scope to cover the full enterprise, These include TrustArc's international privacy verification and the APEC CBPR and APEC PRP certifications. We remain the only company in the ad measurement and verification space to achieve these privacy-focused attestations. In addition, we have successfully achieved SOC 2 type 2 compliance and have been issued a report with no qualified opinion for the fourth consecutive year, cementing DV as the leader when it comes to global data privacy compliance, data protection, and information security, which is the foundation of trust upon which we built our market-leading technology. To conclude, we are successfully building on our core differentiators of scale, innovation, and trust and strategically positioning DV for industry leadership and market share growth for years to come. Our strategic investment in AI powered campaign optimization technology like Sybiz AI is expected to unlock new growth for our activation and our measurement business as we continue to create dynamic market leading solutions that drive real outcomes for our customers. We continue to expand coverage across social to provide advertisers with verification everywhere and for every ad impression. And we remain laser focused on growing and realizing our solid pipeline of new and expansionary deals that will create an even stronger long-term growth trajectory for DV. With that, let me hand the call over to Nicola.