DoubleVerify Holdings, Inc.

Greetings and welcome to the Double Verify Third 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, Tejal Eggman. Senior Vice President, Investor Relations. Thank you. You may begin.

Good afternoon and welcome to Double Verify's third 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 and uncertainties and changes and reflect our current expectations and 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. Reconciliations to the most comparable GAAP measures are available in today's Enix press release, which is available on our Investor Relations website at ir.doubleverify.com. Also during the call, we'll be referring to the slide deck posted on our website. With that, I'll turn it over to Mark.

Thanks, Dejal, and thank you all for joining us today. Before we dig into our exceptional progress last quarter, I'd like to acknowledge the recent horrific terrorist attacks in Israel and the heartbreaking humanitarian crisis that now impacts millions of people in the region. DV has an incredibly talented team in Tel Aviv that has been remarkably strong and resilient during this undoubtedly challenging time. We continue to support them and all of our global teams affected by the conflict and are actively investing in humanitarian charities focused on helping those in need in the impacted area. Now, turning to our results, we delivered an outstanding third quarter supported by a matrix of growth drivers across key digital media environments. social, programmatic, retail media, and CTV, and across all leading global markets, as our investments in industry-leading solutions helped us create greater value for our existing clients and win a large roster of new clients. Our growth remains resilient, outpacing the market and our competitors, and we are confident that this will continue to be the case in the quarters ahead as the macro stabilizes. We drove 28% revenue growth and achieved 32% adjusted EBITDA margins in the third quarter, a marked acceleration from Q2 and above the top end of our guidance. Today, we are raising the midpoint of our full year 2023 guidance range to reflect the revenue growth of 27%, which again, meaningfully outpaces that of our competitors and the industry. Our customer wins and expansion momentum continues to accelerate. In the third quarter, we won several large new enterprise logos, including Ulta Beauty, General Motors, Total Energy, NFL, Rolex, Miele, Meijer Retail Media, P&G Turkey, Mizcon, Saudi Coffee Company, and Rack Bank. We also significantly expanded our business with current clients, including Uber and Lexus, who implemented ABS abroad in the U.S., Santander, who activated DV authentic attention in Brazil, and Mondelez, Colgate, and Pfizer, who expanded their use of DV's social verification solutions across multiple geographies. Our year-to-date win rate across all opportunities remained above 80%, with 67% of our third quarter wins being greenfield, which we define as wins where the advertiser wasn't using third-party tools for the business that DV won. Winning business with new and existing advertisers fuels our successful land and expand strategy. We drew the total number of advertiser customers generating more than $200,000 over the last 12 months to 272 in the third quarter, up 11% compared to last year. The opportunity to land and expand through product upsell remains vast, as over half of our top 700 customers use less than four of DB's seven core products, and that does not include Sybits. Our products span activation and measurement and are complementary, providing compounding benefits when used together, as realized by the fact that over half of our top 50 customers use six or more of our seven core products. DV continues to grow significantly faster than the industry and is gaining market share due to three core differentiators. Our increasing platform scale and market coverage, our focus on market-defining innovation, and the deep level of trust that we have built with our customers as an unbiased, independent partner. Beginning with expanding coverage scale, we continue to grow the breadth of our measurements across key social platforms with a focus on short-form video. Today, we classify over 130% more content on social platforms than we did a year ago. In the third quarter, we launched viewability and invalid traffic measurement across YouTube Shorts inventory to help advertisers ensure that their ads are viewable and safe from fraud, thereby providing measurement across a greater volume of ad impressions on YouTube. We also expanded TikTok brand safety and suitability measurement across the most important markets in Latin America and Europe and plan to widen our TikTok APAC market coverage even further in the fourth quarter. By year end, we expect to support brand safety and suitability in markets that cover 85% of global digital ad spend ex-China and India. This ongoing product development activity and international expansion investments bolstered DV's social revenue, which grew 56% year-over-year in Q3, up from a 32% growth rate in Q2. Short-form video was a key driver of our third-quarter social revenue growth, as existing users of DV's social solutions leveraged DV's new short-form video verification tools across global campaigns on Metareals, YouTube Shorts, and TikTok. We expect social to be an important driver of measurement growth over the near, medium, and long term as we expand coverage across formats and geographies and enhance our product capabilities to include brand safety and suitability measurement. To that end, we are excited to announce that Double Verify is currently working with Meta to develop our brand suitability verification solution on Meta to verify and measure brand suitability on Facebook and Instagram feeds and reels. We plan to begin testing in Q4. With this planned expansion, DB's global advertisers will have transparency into adjacent content across Facebook and Instagram feed and Reels, resulting in even greater clarity and confidence in their investments on these iconic platforms. When we move our meta solution to GA in 2024, a large part of the long-term growth opportunity is cross-selling DB's meta measurement solution to existing DV customers who are not currently implementing our solutions on the channel. While Meta is the largest contributor to DV social revenue, over 50% of our current social advertisers still have yet to activate our measurement solutions on Meta. Of this opportunity set of hundreds of advertisers, approximately 95% of them activate DV on YouTube. we've had significantly greater brand safety and suitability coverage for a number of years. This customer cohort of DV users on YouTube also advertises on Meta, and we believe that the value created by DV's brand safety and suitability reporting on feed and reels will spur their adoption of DV measurement on Meta. In addition to social, we are continuing to scale across retail media networks, which generated 75% year-over-year revenue growth year-to-date, with revenue contribution across all three business lines. Our measurement tags are accepted on over 60 of the leading retail media networks and sites globally, including 14 of the top retail media platforms and over 45 major retailers. Today, we are thrilled to announce that we've expanded our measurement capabilities by being the first third-party verification solution for advertisers using Amazon Custom Audiences and Amazon's DSP. DB is the first third-party verification platform to offer brand suitability, viewability, attention, fraud, and invalid traffic protection. Amazon Custom Audiences are custom-built segments to help brands reach and re-engage with shoppers most likely to take action. Finally, we continue to expand our platform coverage via a new partnership with Instacart Ads. This solution will help advertisers verify their media spend and maximize their campaign performance across North America's leading grocery technology platform. In programmatic, we continue to ensure that our advertiser customers have access to all of our pre-bid verification solutions anywhere they buy media, by scaling our activation solutions across emerging demand-side platforms. In the quarter, we launched a new DSP integration with LoopMe and expanded pre-bid solutions on Zeta Global, Deep Intent, Basis, Comcast Beeswax, and Criteo's CommerceMax DSPs, widening the distribution of our industry-leading activation solution. Our scale in CTV continues to grow faster than the industry, where DV covers the platforms that receive nearly all CTV ad spend. DV's industry-leading solutions span all aspects of CTV ad buying, from pre-bid avoidance to post-bid blocking and monitoring, and have spurred CTV measurement growth of 29% in the third quarter, doubling the 14% sector growth estimated by Magna Global. A great example of the value of DV's video verification tools to advertisers was demonstrated in our recent study, which revealed that the big six leading media agencies leveraged DV's MRC-accredited video filtering solution to prevent their advertisers from paying approximately $75 million for non-authentic impressions since the beginning of 2022, thus enabling reallocation of spend to higher value spots. DV solutions not only protect ad spend, but help it perform as well. We expect measurement and verification on CTV to continue to increase with platforms such as Disney+, where DV is helping advertisers reach audiences effectively and at scale. And finally, our international business expansion delivered 62% measurement revenue growth in the third quarter, with 75% revenue growth in EMEA and 46% revenue growth in APAC. Since the beginning of 2021, we've more than doubled our international sales, marketing, and client services headcount, including appointing new country leaders to cultivate local business, and we remain very excited about our growth prospects outside of North America in the years to come. Turning to our innovation leadership, I'd like to focus on recent developments with three of our market-defining products, Authentic Attention, SciBiz AI, and Brand Suitability. which is a key differentiator for DV on the programmatic as well as social fronts. Beginning with authentic attention, our MRC accredited engagement and exposure measurement solution, we've measured nearly 26 billion attention impressions year to date and are now beginning to see momentum in advertiser adoption with a 57% sequential increase in the number of advertisers who have activated DV authentic attention in Q3. As our biggest competitors do not have a scaled viable attention solution, authentic attention is increasingly playing a role in our global client win ratio, meaning the product impact on DV growth goes well beyond its direct revenue contribution. We continue to lead in connecting our verification solutions to outcomes by partnering with Attain, a leading data platform that analyzes consumer purchase data in real time. Our pioneering solution will enable advertisers to directly connect DV attention data to real-time sales, providing an in-depth look at consumers' path from engagement and exposure to purchase. The Attain partnership, along with the recently launched ability to use DV's attention measurement data in Sybiz AI through the DV Algorithmic Optimizer, and our premier partnership with T-Vision to expand attention metrics to CTV, are great examples of the groundbreaking work that we are doing to action and expand the use of attention measurement data, which we believe will be core to the future of digital ad verification performance as cookies become challenged. Now, let's dive into another recent innovation investment, Sybids AI. We acquired the business on August 14th and are now in the process of integrating our organization's systems and processes. There's meaningful customer interest in the DV CYBIDS AI powered optimization platform, which clearly differentiates DV's value proposition to enterprise brands, as well as to more DR-focused mid-market advertisers. The CYBIDS team continues to close new business based on driving tangible outcomes and ROI improvement most recently exemplified by a DV Sybids client, Iceland Air, who realized a 70% decrease in cost per flight booking and an ROI of 10x relative to the benchmark after using Sybids AI. Additionally, the Sybids AI solution has already provided an edge in several enterprise verification RFPs, And as we expand its global footprint, this competitive advantage will only grow. DV's innovations advancing our brand suitability solutions continue to be a market differentiator. We recently launched an industry-first made-for-advertising, or MFA, solution in September to enable our advertisers to avoid MFA content, which has exploded since the launch of the easily accessible generative AI tool. DD's proprietary MFA solution is the only solution in market today which can be enabled to directly buy a customer in their brand safety and suitability profile measurement and an ABS for pre-bid avoidance. It has already been adopted by some of our largest CPG and retail advertisers with interest from many more. And speaking of ABS, it remains one of DV's most successful innovations and a great example of how our competitive differentiators continue to deliver dividends. Last quarter, we grew ABS revenue by 40% year-over-year, largely driven by existing users expanding their use of the product to more lines of business across more geographies. Even though ABS has been in the market for five years, we expect expanded usage by existing ABS users to continue to drive strong ABS growth going forward. In addition, we continue to drive first-time activations of the product from new customers as well as existing customers. We grew AVS penetration among our top 500 customers by approximately 10 percentage points year-over-year, and we have significant room for growth, given nearly 40% of our top 500 advertisers have yet to activate the product. Sticking with the theme of innovation and brand suitability, I'd like to underscore that DV's advanced brand suitability products act as a key differentiator across our social platform implementations. DV has the most comprehensive set of suitability categories and provides advertisers the greatest granularity in customization. The robust policy-based classification engine that makes ABS so successful is what powers our suitability solutions on social as well. Brand suitability drives DV's programmatic leadership and will establish us as the breakaway leader in social for three key reasons. One, DV has the most number of categories beyond the 12 categories covered by GARM floor guidelines. DV is unique in that we provide nearly 50 safety and suitability categories on some social platforms, enabling advertisers to avoid critical categories such as made-for-kids and gambling content, and to create custom suitability categories and unique video exclusion lists. Two, DV is the first and only verification provider to offer pre-campaign suitability solutions that complement post-campaign measurement on social to drive learning, optimization, and better outcomes for advertisers. And three, DV provides the most advanced AI-based video classification technology in the industry with the highest accuracy rate and a superior ability to use objects, logos, and action detection to analyze and classify videos based on context and sentiment. I would like to conclude my comments, as always, on the differentiated pillar of trust. DB is unique in upholding its core value of providing unbiased, objective, third-party measurement that is independent of the media transaction. Trust, along with successful innovation, helps us win new clients and it's also the glue that makes our client relationships sticky, keeping churn in check. Our gross revenue retention rate has consistently remained above 95%, and it did so again in the third quarter. Customer trust is also rooted in platform stability, data, privacy, and security, all areas in which we are clear leaders. DD sets itself apart in having achieved ISO 27001, SOC 2 Type 2, Neutronian certifications, as well as APEC CBPR and APEC PRP and EU, UK, and Swiss Data Privacy Framework registrations, among its many other privacy and security audits and certifications. To summarize, DV continues to win because of our market-leading coverage scale, product innovation that creates differentiation, and client value and deep level of trust and security that is woven into the fabric of our platforms and our ecosystem relationships. We are pleased with the progress we've made year to date and remain focused on growing and realizing our solid pipeline of new and expansionary deals that will further drive our market share and create an even stronger long-term growth trajectory. With that, let me hand the call over to Nicola.