DoubleVerify Holdings, Inc.

Greetings and welcome to the DoubleVerify Fourth Quarter and Full Year 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. And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you, Tachel Engman, Investor Relations. Thank you, Tachel. You may begin.

Good afternoon and welcome to DoubleVerify Fourth Quarter and Full Year 2023 Earnings Conference Call. With us today are Mark Zaborski, CEO, and Nicola Alaiz, CFO. Today's press release and this call may contain forward-looking statements that are subject to inherent risks, 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 annual report for our Form 10K. 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 are available in today's Earnings press release, which is available on our Investor Relations website at .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 good afternoon, everyone. 2023 was DV's third year as a public company and one where we continued to deliver industry-leading revenue and profitability growth fueled by AI-powered product innovations that drove a higher ROI for our customers and accelerated DV's global client expansion trajectory and market share gains. In 2023, we grew total revenue by 27% year over year to $572.5 million, and our platform measured over 7 trillion billable media transactions across a growing number of digital media properties, formats, and devices. DV's continued expansion into new global markets and media environments fueled over $120 million of incremental revenue during the year and established our scale as not only a market differentiator, but also a springboard for future revenue growth, especially internationally, where our measurement business grew over 40% last year. Our focus on top-line growth in 2023 was matched by our commitment to profitability and cash flow generation. Our business generated a 33% adjusted EBITDA margin and approximately $120 million of net operating activities in 2023, an increase of 26%, even as we invested in growing our global workforce, expanding our premium solution set, and integrating a new acquisition, CyBids AI. In the fourth quarter, we ended the year with a revenue growth rate of 29% and adjusted EBITDA margins of 38%. This rare and winning combination of growth and profitability allows us to continue to invest in AI and automation, which in turn helps drive our global scale and connectivity and fuel market-leading product innovation. These are DV's core differentiators and the engines of our long-term growth. Before I discuss the numerous drivers of our strong performance and market share gains in the quarter and the year in detail, let me highlight the two growth areas I'm most excited about for 2024 and beyond. Social media solutions and CyBids AI. DV's social media verification solutions continue to add unique value in challenging advertising environments and will only become more essential during the upcoming election season. We grew our top 700 customers' adoption of DV's social measurement solutions by 10 percentage points in 2023 to 54%, helping propel the sector's revenue growth to nearly 50% for the year. In addition, we grew fourth quarter social measurement revenue by 21% sequentially, and all of our new measurement wins in the fourth quarter signed up for social coverage. As social media gains a larger share of advertiser wallets, our position is one of the few companies scaled to operate independently across this media put, DV in a unique and differentiated position. CyBids AI, which we acquired in the second half of 2023, has generated an incredible amount of excitement with current and prospective clients. We've integrated sales functions into our commercial org and started connecting its platform to our core solutions. Essentially leveraging CyBids AI to transform the entire verification category. With CyBids, DV has a unique value proposition that allows advertisers to protect their brand equity and reduce media waste while simultaneously improving core performance KPIs such as lower CPMs and higher reach. This seamless achievement of both protection and performance is a differentiator that is helping DV win new deals. In fact, 40% of our large new logo wins since the beginning of this year are actively testing CyBids AI. With expanding CyBids coverage across key programmatic DSPs and major social media platforms, our customer adoption scale will allow DV to unlock an entirely new performance marketing team. Speaking of wins, we're pleased to have delivered a banner fourth quarter for new customer wins with strong continued win momentum year to date. Fourth quarter to date, we've won several iconic and category leading enterprise logos, including Pepsi, Walgreens and Halion. We maintained an 80% plus win rate across all new opportunities in 2023 with 62% of our full year and 59% of our fourth quarter wins being Greenfield, which we define as wins where the advertiser wasn't using third party tools for the business that DV won. These great Q4 wins add to the powerful roster of new deals we closed in 2023, which included Air France, Uber, Ulta Beauty, General Motors, Total Energy, NFL, Rolex, Sam's Club, Pizza Hut, Revlon and Liberty Mutual. We work with approximately half of the world's top 1000 advertisers and continue to acquire large new enterprise logos. Leading brands choose DV not based on price, but because we offer proprietary and market leading technology, unrivaled brand equity protection and tangible ROI improvement. We also have the ability to significantly expand within the nearly 450 top advertisers that we currently do business with, as DV's fees comprise less than half a percent of this cohort's digital ad spend in 2023. We expect to double our share of their media spend over time as we, one, expand these valued customer relationships across geographies and media environments, and two, upsell them our broader integrated product suite of activation and measurement solutions. As mentioned last quarter, over half of our top 700 customers use less than four of DV's seven core products, and that does not include side bits, creating a vast expansion opportunity within our existing customer base. In addition, we've leaned into our customer acquisition and retention plan of building higher value, more strategic customer engagements that leverage our real time data to drive superior outcomes and ROI. Over the last four years, DV has more than doubled the number of customers and revenue while increasing our overall MTF and expanding the bundle of solutions our customers use from us. As media performance joins media quality protection as a core part of our superior value proposition, closed-loose optimization, leveraging data partnerships like we have with Attain, fueled by data insights from SideBits AI, and activated via proprietary solutions like ABS, will help us to further enhance our premium value position in the marketplace, elevate and differentiate the level of our customer engagements, and set DV up for continued future market share growth. Clients like Lexus have used double-verified premium solutions to reduce media waste, increase safety, and drive site traffic by 3.5x. DV maintains and will continue to maintain our strong pricing and margin profile based on these higher levels of strategic customer engagement driven by measurable ROI that our premium solutions deliver. In the fourth quarter and early this year, we achieved product and platform expansion milestones that we expect will fuel our growth in 2024 and beyond across all major media environments, social, CTV, retail media networks, and the open web. Let me discuss each of these in the context of our core differentiators, namely our rapidly growing global scaling connectivity and our market defining innovation. Both of which are powered by our advancements in AI and automation. Beginning with social, we increased social measurement revenue by 62% year over year in the fourth quarter and by 48% for the full year, significantly outperforming our competitors as well as the growth rate of the broader social ad sector. During 2023 and the beginning of 2024, we meaningfully expanded our measurement coverage across key social platforms, widening our global scale and connectivity across this vital media environment. According to Magna Global, social media advertising made up more than 60% of digital ad spend at Xsearch in 2023, yet only 15% of DV's total revenue was attributable to social measurement in 2023. As we continue to expand our product coverage across key social platforms, we expect customer adoption of DV solutions across social media to fuel revenue growth for years to come. On Meta, we're pleased to announce that following our successful beta tests in the fourth quarter, we launched DV's brand safety and suitability measurement on Facebook and Instagram feeds and reels in the first quarter of 2024. This release is in general availability. For the first time, global advertisers are able to activate DV's AI powered classification technology to protect their brand equity and comprehensively measure media quality on Facebook and Instagram feeds and reels, creating greater transparency across some of the most engaging user generated content environments in the world. To date, customers have reacted enthusiastically to this launch and impression volumes on Meta have increased by 51% in the first eight weeks of 2024 compared to the same prior year period. On YouTube, following our launch of viewability and invalid traffic across YouTube Shorts in the third quarter of 2023, we launched brand safety and suitability measurement capabilities across YouTube Shorts inventory in the fourth quarter, providing media measurement across a greater volume of ad impressions on YouTube. In addition, we continue to expand TikTok brand safety and suitability measurement across the most important markets in Latin America and Europe and further widened our TikTok APAC market coverage. We currently support brand safety and suitability across 32 markets, which cover 91% of global digital ad spend, ex China and India. Our scale and recent product innovations across social media and short form video are powered by DV's Universal Content Intelligence, a proprietary AI classification engine that enables us to verify video content faster, more accurately and more cost effectively than any of our competitors, having a direct positive impact on our gross margins as we scale. By using predictive AI versus the more basic frame by frame process others use, we are able to lower video analysis costs and scale faster. Our solution most recently enabled the rapid rollout of new social markets and suitability categories as exemplified by this month's launch of TikTok brand suitability in Japan, as well as our first market release of suitability categories by industry verticals. This advanced capability provides DV with a strong comparative advantage in social media content analysis, where video comprised a whopping 67% of all social content in 2023, according to Magna Global, and in which we exhibited our speed to market leadership on the Meta News Feed brand safety launch early this year. Turning now to CTV, where ad supported streaming continues to gain momentum, DV grew its CTV measurement volumes by 34% in the fourth quarter and by 33% for the full year 2023, significantly outperforming 2023 CTV ad spend growth of 16%, according to Magna Global estimates. CTV comprised approximately 5% of our total impression volume in 2023, in line with its nearly 5% share of digital ad spend X search. Building on DV's existing CTV solutions that allow verification at the app level, we will soon be providing advertisers with more granular content level transparency down to the show level, including program genre, ratings, classifications, and more. We are in advanced dialogue with three of the top 10 streaming platforms provide brand safety and suitability measurement and content performance insights at the program level across OTT campaigns. We believe content level transparency at scale across major CTV platforms will be a catalyst for mass adoption of brand suitability measurement on CTV, enabling DV to enhance the long term value we deliver to and can extract from this high CPM media environment. And we continue to protect our customers CTV media investments from fraud by leveraging DV's industry leading fraud lab and extensive CTV platform integrations. This week, in conjunction with Roku, we announced the discovery and mitigation of a new CTV fraud scheme we're calling CycloneBot due to its scale, aggression and velocity. We estimate CycloneBot is generating 250 million false ad requests per day across 1.5 million devices, largely eluding traditional fraud detection methodology. Roku's proprietary watermark technology provided a crucial element in helping identify and mitigate the attacks, saving our combined customers millions in wasted ad spend. Fraud is still a challenge for CTV buyers and DV is still the leader in protecting our clients from sophisticated fraud schemes. Turning to retail media, we generated approximately $23 million of retail media revenue across all three business lines in 2023, achieving 60% year over year growth and significantly outpacing the sector's 15% growth rate as reported by Magna Global. Our global scale and connectivity across retail media continues to expand with DV's measurement tags now We have a total of 15 retail media sites, including 14 of the top retail media platforms and 62 major retailers. DV has a strong value proposition for both on-site or owned and operated retail media, as well as off-site or audience extensions. Invalid traffic is still significantly higher on owned and operated retail media sites than on traditional media due to an abundance of traffic from competitive price scrapers, while overall violation rates are 129% higher on off-site retail media inventory than on owned and operated sites. On the product innovation front, we are working with Criteo to provide an industry-leading solution that measures on-site quality metrics for retail media. Through this upcoming integration, DV will provide invalid traffic, brand suitability, and viewability measurement on Criteo's network of retail media partners, ensuring that marketers are maximizing engagement across this critical channel. Finally, on the open web, our innovations advancing our brand suitability solutions continue to be a key market differentiator as exemplified by our most premium price solution, authentic brand suitability. ABS grew by 48% in 2023 and contributed $182 million to our top line for the full year. In Q323, we launched an industry-first -for-advertising, or MFA, solution to provide our advertisers with the ability to identify and avoid MFA content, which has exploded since the launch of the easily accessible generative AI tools. This quarter, we advanced that tool by leveraging AI-based auditing to launch a more granular, tiered for advertising measurement and pre-bid avoidance solution. This second generation solution addresses MFA in a more surgical and brand-specific way, giving advertisers more control over balancing quality, performance, and reach. DV continues to have the only solution in market today that can be enabled directly by a customer and their brand safety and suitability profile for and connected to pre-bid avoidance via ABS. It's another great example of DV's innovation leadership and customer adoption is increasing steadily. DV's brand suitability tools are more valuable than ever during election years, when advertisers need to closely monitor challenging political content globally and in real time. DV's election task force has been providing actionable data insights and analysis to protect brand equity and safeguard media investments since 2022, giving DV a differentiated, deep set of experience to deliver real value for our customers seeking to navigate an evolving media landscape. We're also pleased to be expanding our industry-leading universal attention segments to Amazon and Viance DSPs. Our attention pre-bid segments are gaining early momentum, and our attention measurement business is now growing steadily, with 2023 delivering over 180% growth in impression volumes. Before I wrap up and Nicole shares details on our strong 2023 financial results and 2024 outlook, let me conclude with three key takeaways from my remarks today. First, DV continues to significantly outgrow the digital advertising industry and is gaining market share across every digital media environment, social, CTV, retail media, and the open web. Second, DV will continue to win because the customer value we create through our unmatched global scale and connectivity and our market-defining product innovation, both of which are powered by a proprietary AI that allows the most efficient analysis of vast amounts of data. Every day, DV analyzes 1.3 billion minutes of video, close to 275 million social posts, approximately 8 million web pages, and over 22 million hours of audio content. Finally, we remain focused on growing and realizing our solid pipeline of new and expansionary deals and becoming more engaged with our current customer base that will further drive our market share and create an even stronger long-term trajectory. The fundamental drivers that have powered our growth over the last three years remain strong and intractable. With that, let me hand the call over to Nicole.

Thank you, Mark, and good afternoon everyone. DV delivered industry-leading fourth quarter and full year 2023 revenue growth and profitability, demonstrated continued strong operational execution through a year challenged by geopolitical and macroeconomic uncertainty. Fourth quarter total revenue growth of 29% was driven by 32% growth in activation, 30% growth in measurement, and 5% growth in supply side. Our activation and measurement businesses, which are driven by advertisers, were a combined 93% of our total fourth quarter revenue. Advertiser revenue grew 31% in the fourth quarter, driven by 25% growth in volume, or MTM, and 5% growth in pricing, or MTF, on a -over-year basis. In addition, CyBits performed in line with our expectations. MTF growth accelerated sequentially from 2% in the quarter to 5% in the fourth quarter due to a continued mixed shift towards premium price solutions, followed by the impact of the ABS display and video price bifurcation, which was completed across all major DSPs in the third quarter. ABS revenue grew 45% -over-year in the fourth quarter, driven by volume growth of 34% and MTF growth of 9% -over-year. Approximately two-thirds of the -over-year growth in ABS came from existing ABS customers expanding their usage to more brands and to more markets, while a third of the growth came from customers who activated the solutions for the first time. Fourth quarter measurement revenue grew 30%, driven by social revenue growth of 62%. International measurement revenue grew 43% in the quarter, with EMEA growth of 45% and APAC growth of 39% -over-year. International revenue comprised 29% of measurement revenue, up from 26% in the fourth quarter of 2022. Supply-side revenue grew 5%, largely driven by growth in new publisher customers in the fourth quarter. For full year 2023, revenue growth of 27% was driven by activation revenue growth of 31% and measurement revenue growth of 25%. Social revenue grew 48% in 2023 and comprised 43% of our measurement revenue, up from 37% in the prior year. With spend on social platforms expected to continue to represent approximately 60% of digital ad budgets ex-search in 2024, our social measurement revenue continues to have a long runway for growth. Supply-side revenue growth of 5% was driven by increased publisher revenue. For the full year 2023, advertiser revenue growth was primarily driven by volume growth. We measured 7 trillion billable transactions, a 25% -over-year increase in MTM while average fee per thousand impressions increased to 7.5 cents, a 3% -over-year increase in MTF. We expect volumes to remain the primary driver of our growth as we continue to verify more digital ad impressions through product innovation and channel and geographic expansion and we expect MTF to remain stable. Our approach on pricing is to lead with our product offering of unique and differentiated solutions including ABS, social prescreen and now CyBids. Our ability to continue to upsell existing clients and acquire new clients to the full suite of products has yielded an overall increase in MTF over the last four years, including a 5% increase in Q4 2023. Moving to expenses, costs of revenue in the fourth quarter increased by 32%, primarily driven by an increase in revenue sharing arrangement costs with programmatic partners driven by activation revenue growth. We delivered 83% revenue less cost of sales in the fourth quarter, up from 82% in Q3 as we eliminated some duplicative data center costs. Total non-GAAP operating expenses increased which excludes stock-based compensation and other items for comparability grew 24% compared to 29% revenue growth, reflecting the efficiency of our operating model as we scale. Finally, we delivered $65 million of adjusted EBITDA or 38% margin and $33 million of net income in the fourth quarter. For full year 2023, costs of revenue increased by 37%, primarily driven by an increase in revenue sharing arrangement costs with programmatic partners driven by growth in activation revenue. We delivered 81% revenue less cost of sales. Going forward, we continue to expect revenue less cost of sales to range between 80 to 82% as we balance data center cost savings with continued investment in cloud optimization and in scaling our infrastructure. Total non-GAAP operating expenses represented 49% of total revenue as compared to 51% in full year 2022. Non-GAAP product development costs grew 28%, sales marketing and customer support grew 16%, and GNA grew 15% compared to prior year. We delivered full year adjusted EBITDA of $187 million, representing a 33% adjusted EBITDA margin and $71.5 million of net income as our business continues to combine high revenue growth with high profitability. We ended 2023 with 1,101 employees, up from 902 at the end of 2022. Nearly half of our headcount growth was attributable to R&D where we continue to invest in our engineering and product resources. Moving to cash flow, we generated approximately $120 million of net cash from operating activities in 2023, which represented an operating cash flow to adjusted EBITDA ratio of 64%. Capital expenditures were approximately $17 million in 2023. And finally, we ended the year with $310 million of cash on hand and zero long-term debt. In 2023, we achieved a net revenue retention rate of 124%, maintaining an over 120% NRR for the last five years, while our gross revenue retention remained above 95% also for the fifth year in a row. We grew the average revenue from our top 100 customers by 42% year over year to $3.7 million. We also grew the number of advertisers generating more than $1 million of revenue by 19% year over year to 93%. We grew the number of advertisers generating more than $200,000 of revenue by 18% year over year to $290. We have long-term relationships with our customers and remain deeply embedded in their marketing plans. Our top 75 customers have worked with us for over seven years, while our top 50 and our top 25 have been DV clients for over eight years. As Mark mentioned, we have maintained an 80% plus win rate across all opportunities and have a strong pipeline of new expansionary deals that will continue to support a long-term growth trajectory. Now let's talk about 2024 and guidance. For the first quarter of 2024, we expect revenue in the range of $136 to $140 million, a year over year increase of 13% at the midpoint, an adjusted EBITDA in the range of $33 to $37 million, representing a 25% adjusted EBITDA margin at the midpoint. Our growth rate in the first quarter reflects a slow start by brand advertisers and a slow ramp by recently signed new customers, which will catch up in the second half based on large new customer seasonal spend and usage patterns. We're guiding to full year 2024 revenue in the range of $680 to $704 million, a year over year increase of 22% at the midpoint, an adjusted EBITDA in the range of $205 to $221 million, representing a 31% adjusted EBITDA margin at the midpoint. We expect a quarterly share of a full year revenue to be more second half weighted in 2024 than in ramp in the second half of the year. We continue to expect CyBiz AI to contribute between $15 to $17 million to full year 2024 revenue. The midpoint of our guidance implies an approximately $124 million increase in revenue in full year 2024, a testament to the accelerating demand for DV solutions by existing and new customers across more geographies and media environments. Similar to last year, we expect the key drivers of DV's 2024 revenue growth to be increased authentic brand suitability usage and adoption and activation, social measurement revenue growth, increased international adoption of our measurement solutions, CyBiz AI, and new customer acquisition. Our guidance reflects measured contribution from new revenue opportunities in 2024, including incremental revenue from increased customer adoption and meta, authentic attention, and CTV activation and measurement. We expect stock-based compensation expenses for the first quarter of 2024 in the range of $19 to $21 million. For the full year, stock-based compensation expenses expected in the range of $91 to $96 million. Weighted average fully diluted shares outstanding for the first quarter are expected in the range of $175 to $177 million. We anticipate capital expenditures, including capitalized software, to range between $20 and $30 million for 2024 as we continue to invest in new product innovation to support future growth. With zero debt, a strong cash balance, we are well positioned to drive further business expansion and long-term growth in 2024. And with that, we will open up the line for questions. Operator, please go ahead.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star two if you'd like to remove a question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up. Thank you. One moment while we poll for questions. And the first question comes from the line of Matt Swanson with RBC Capital Markets. Please proceed with your question.

Yeah, great. Thank you guys so much for taking my questions. You know, it was great to hear about some of these big investment areas, you know, social being up 62% for measurement, international coming up, CTV coming up. But just kind of maybe for a balance from a -over-year perspective, do you mind kind of touching on some of the areas of your business that maybe were headwinds to those overall growth rates? And particularly kind of a, you know, topic du jour right now is pricing coming up more from a competitive standpoint.

Yeah, thanks for the question, Matt. And everyone, thank you for your patience. I know that was a long call before you got to your questions, but we had a lot of news to share. Let me take this, the second part of your question head on. We are not seeing pricing pressure, period. You know, Nicola mentioned we saw MTFs actually increase full year last year and Q4 last year. And when we close new deals, of which we announced some great ones, we're not closing them based on price. We close them based on stronger technology, unique tools like ABS, our continued social expansion that's driven by, you know, the most efficient AI video recognition out there. So, you know, we're not seeing pricing pressure. We are not, you know, addressing or going after new business with an aggressive price structure. And to be clear, you know, we're winning new deals and taking market share at MTFs that are, you know, were increased last year.

Yeah, no, that's really helpful. And I guess moving to the second question, I'll kind of revisit a piece of the first. But, Nicola, when you're thinking about guidance, you gave us some of this color. And it certainly is not lost on us that we like to think of things as kind of core, core, or maybe not counting our chickens before they hatch. But we went through so many secular tailwinds between social and retail media, the rampant international, the retail media, side bids. How are you thinking about just kind of balancing these opportunities as we look out through the year, kind of how you're thinking about the impact that had on your guidance?

Yeah, so as we've always said, and we said it again today, you know, we look for a view on the year that's core on core. And core on core for us, because it is not part of our core, is continued growth in ABS, right? Two thirds of the growth even in the last quarter, which was the very strong quarter growth for ABS was from existing customers using ABS on more and more of their compression. So core on core assumes a continued growth from existing customer on ABS. It assumes continued growth on social, just as a reminder, within the growth rate that we saw in 23, really that only included English language for TikTok as an example. And that's probably a very large growth opportunity for us as we open up new languages above and beyond English. So those are two of the sort of the major ones that you're going to continue to see in addition to international. The fundamental growth drivers of what we saw in 23 are what we expect to continue to see in 24. And that's core on core. What's not in that is the meta opportunity, which is the one that, you know, we've been talking over the last few quarters. You know, that is a measured, very measured view for us in 2024 and the numbers that we have, we're guiding to. We think the upside is large. But, you know, we're being measured about how exactly it's going to impact our number, sticking to the core on core message. In addition to that, authentic attention is also an opportunity where, you know, if there is upside and acceleration in adoption, that would be upside to a core on core view that we have on guidance and CTVs similarly.

All right. Appreciate it.

And the next question comes from the line of Justin Patterson with KeyBank Capital Markets. Please proceed with your question.

Great. Thank you very much, too, if I can. First, just unpacking the guidance a little bit more from the prior line of questioning. Could you help us understand a little bit more of just the slower start to the year? Typically, we thought about you as being a little more immune to some of the macro pressures in there. I believe you called out brand advertisers starting a little bit more slowly this year. So just would love to hear a little bit more you're seeing there, both from the activation and.

Yeah. So the, you know, what we said, what we're seeing is a slow ramp of our new contracted wins. And these are very large enterprise wins. And, you know, until we get in with the client to understand how the product is being rolled out, it's difficult to see how it's actually going to ramp. So that is that is item one. Item two is a slow start for existing brand advertisers. It's isolated to certain advertisers. It feels specific to their spending pattern. It doesn't feel like a macro item at all. This is a slow start that we expect will ramp as we get into the future quarters. The combination of those two slow starts is what's reflected in our Q1 outlook. The ramp that we expect is really based on what we know to be a relationship of a large enterprise client. It will ramp once once our solutions are actually deployed across their entire global spend, we will see the benefit of it. So the ramp is really based on that happening rather than, you know, over waiting on say meta opportunity as I was discussing before. It remains core on core is just added spend coming later than originally anticipated.

Got it. That's helpful. And then for the next question, I just wanted to go back to the tech platform and the very healthy gross margins. You're saying, I know for short form video that you're pretty unique towards how you're approaching brand safety there. As we think about just short form scaling up over the next few years, how do you think about just some of the efficiencies on the tech platform providing more room to invest around the next growth opportunities for DV going forward? Thank you.

Yeah, thanks. It's a great take, Justin. You know, we've been talking over the last 12 to 18 months on how much we've invested in R&D, even versus kind of peers in the marketplace. And this is where it really starts to pay off. If you look at, you know, where we're talking about growth, we focused a ton on short form video. Right now, social video on social is something like over 60%, almost 70% of total volume. That means if we're going to grow on social, we have to analyze social video, building the tool set that we had to analyze and use AI to do predictive modeling across that video and do so in a way that's highly accurate, that meets all the standards of the social platforms that we are and can scale to massive levels. You know, that's something that could break you if you don't do it right. And as you've seen, you know, we're guiding towards really nice gross margins, even though, you know, a very big chunk of our growth is going to come from this video. So our investments in R&D, our investments in the analyzing video are really starting to pay off because as that sector grows, you'll see that we're not seeing any additional degradation of our gross margin costs due to hosting or, you know, technical costs of analyzing that video. That's a real win for us.

Great. Thank you both.

And the next question comes from the line of Ramo Lenchow with Barclays. Please proceed with your question.

Hi, this is Frank. Thanks for taking the question. Any way to quantify what you're betting in the guide from the Meta opportunity and what are some of the key metrics that you point us to for evaluating the progression on that opportunity? Thank you.

So, you know, we mentioned a growth rate so far this year regarding Meta of a total of over 50% growth so far year to date. That's in the context of a few things. First off, we launched across Instagram and Facebook Reels last year, which added some additional inventory. We've now launched in late January the News Feed opportunity, right? So if you think about if you want to scale kind of where Facebook and where Meta sat with us last year, it was roughly, let's say, 7% of our overall revenue. Growing at %-ish or so this year, you know, if you take 7% of our revenue last year, of the 500, you're looking, you know, close to 40 million. So if we're growing at %-ish or so across all of those different lines this year, you know, you're looking at another $20 million of revenue across all of the Meta properties. That is a potential there. Now that's if we continue to maintain the growth rate. We've got some -over-year comps. Remember, we launched across Reels and Instagram mid-last year but we've got the additional News Feed on here. So I'd say something roughly in that range is where we're going to see, you know, that Meta opportunity panning out across all the new things that we've covered there.

Very helpful. Thanks, Mark.

And the next question comes from the line of Yusuf Squali with Truist Securities. Please proceed with your question.

Hi, guys. Thanks for taking the questions. One, starting with the Unicorra, I think you mentioned that you believe MTF should remain stable. I'm not sure you were referring if that was a kind of a formal outlook for 2024 because I think you mentioned that before you start talking about the outlook. But the point is, out of that 22% growth in the revenue guide for 2024, can you maybe help us parse out the volume versus price? And if MTFs are to remain stable, why is that considering the mixed shift going on? They don't have a good follow-up.

Yeah. So Yusuf, what we mentioned in the remarks is that we anticipate most of the growth to come from volume. That shouldn't be a surprise to anyone, right? That the MTF is really driving the continued growth of the business. From an MTF perspective, we grew. We grew in Q4 of 23. We grew full year of 2023. The growth that we saw was based on a mixed shift towards premium price products. It's slightly offset by the fact that we're expanding internationally quite aggressively, but overall, it did increase. The statement we made is we do not expect those to go down based on us needing to lower the price of the products that we have in the market. Our expectation is that we will continue to see strong MTFs because we're able to continue to upsell premium price products. Our perspective is not that we have to necessarily reduce the MTF on other products.

Awesome. That's very clear now. Thank you. And just on the linearity of the year as we look throughout 2024, typically your Q1 is maybe 21, 22% of revenues. I think based on your guide, it looks more like high teams. I understand the color you're giving around the brand advertisers, some of the large new enterprises coming on. Maybe help us think through when do you make up the shortfall in Q1? Does Q2 retract and do we see a nice uptick in Q2 or is it more linear across the three quarters? Thank you.

Yeah, I think what we're going to see is we set it in our remarks that it's going to be heavier weighted towards the second half of the year versus the first half of the year. It's probably one to two points in terms of revenue between the first half to the second half. So you can kind of see sort of the ramps starting after Q1 if you take that as a guide.

Okay. Thank you very much, Nikodam.

Our next question comes from the line of Arjun Bhatia with William Blair. Please proceed with your question.

Yep, perfect. Thank you. Maybe if I can start on some of the large customer wins that you talked about that are signed and contracted but haven't started recognizing revenue from those yet. Is that, you know, this in Q4, Q1, is that larger than it's been in historical periods? So maybe if we compare to 2023 and 2022, have you seen a greater activity of, you know, larger customers that are taking longer ramps? Just maybe expand on that a little bit, if you could please.

Yeah, it's a great question, Arjun. You know, we see this periodically when we nail a couple large businesses. If you remember Q2 of last year, we closed a couple of really big deals. They started a little bit slower than we expected and it created a bit of a drag. I think, you know, as we start moving into these large enterprise global customers like Pepsi and Alion, et cetera, they do take a bit of time to scale up. And as Nicole noted, you know, we are learning over time, you know, the bigger the customer and whether or not they're launching globally all at once or they're launching, you know, market by market, there is a bit of a drag that creates some level of, you know, predictability challenges for us. That being said, I think, you know, I would say this year pipeline and the deals that we closed in the pipeline were pretty comparable to last year. Last year, we closed a bunch of big deals coming into the year. And we see this kind of, you know, ebb and flow of big deals coming in. And I think that's, it's just, you know, the nature of the game. You know, we're talking a couple, you know, we're looking at this, this is a couple million dollars here or there on the edges, I know makes a big difference for how we look at the year. But as Nicole noted, when we provided the guide for the year, this is, you know, we're guiding based on core on core growth on pipeline deals that are closed and we expect to ramp. So we know that these are going to come in, they're just, they're just coming in a bit slower than, than we would have hoped.

Okay. That's very helpful, Mark. Thank you. And then if I can maybe just revisit the pricing aspect a little bit, you know, obviously, I know you've said you don't want to compete on price and you have a superior product to be able to do that. But when you have a competitor in market that is using aggressive pricing tactics, how do you think, you know, you might respond if that continues into the future? Is there enough of a ROI differential that you can continue to compete on product or, you know, do we have to go down this price route at some point?

Yeah, so it's a great, a great ask. And I think the way we look at this is, if we were just competing on the same products that did the same things and delivered the same results, then yeah, we'd have to look at price, but we're not. We're looking at a differentiated, you know, set of solutions, everything from side bids optimization to what we do on ABS, which no one else has, to even now the speed and efficacy of our social business, which if you look at how our social grew versus, you know, how some others in the markets have grew, grew twice as fast. If we had the same product in social, how are we growing twice as fast in social, right? So it really is a strategy of saying the investments we made in products in an R&D over the last 12 to 18 months are allowing us to charge a premium. And the solutions that are basic, that go head to head with each other, sure, if we just have those, you'd end up in a pricing situation. We're not there as exemplified by, you know, increasing MTFs in Q4 and for the full year last year. And, you know, that's why we're being very clear in saying, you know, we're not going out there and attacking deals on price. Doesn't mean that we, you know, we aren't competitive. Doesn't mean that, you know, we don't get into the muck. But if you look at our greenfield wins, still close to 60%, that means we're winning new deals, not going out and just trying to take a share from our competitors by, you know, driving price. Winning deals based on functionality and winning deals on differentiation.

All right, very helpful. Thank you, Mark. Got it.

And the next question comes from the line of Michael Graham with Canaccord Genuity. Please proceed with your question.

Hi, thanks very much. My two quick questions are, number one, on ABS, you know, you mentioned 45% growth and also called it out as an expected source of strength in 2024. And can you just frame out, you know, how much penetration you think is left with your customers? I mean, you mentioned that a lot of your customers are sort of increasing their, you know, their deployment of that product. So maybe just frame out how much you think is left there. And then just a quick one on how the election year might have factored into your full year guidance would be helpful to understand.

And that's great questions, Michael. Hope everything's okay there. I'm hearing the sirens in the background. I don't know what's

going on down there on Fifth Avenue, but it's loud. Sorry.

All right, I thought you were up in Boston. So, you know, look, ABS for us, you know, continues to be a bright spot. And I think a key thing, key couple things to think about are, A, you know, 65% of our top 500 customers use ABS, which means, you know, in those top 500, we still have, you know, over a third who haven't used them. So number one. Number two, if you look at our growth, you know, last quarter, 66% of that growth came from existing ABS users. So even when we penetrate a user, so, you know, we go and add a new top 500 customer, they still grow. They're adding new markets. They're adding new lines of business. So, you know, we had existing ABS customer expansions with Amazon, with Pfizer, with Walmart. You know, a lot of growth is still, you know, there's a lot of still growth opportunity there is what I'm getting at. And, you know, I think it's a great testament to the efficacy of the product. Second half of your question on elections. You know, it's interesting. We didn't bake anything into our guide for elections. I think it's something that is a bit of a wild card, right? It can have the intent to create lots of incendiary content and more demand for our solutions. But we also know sometimes it crowds out traditional advertisers from buying impressions. So I think NetNet, we've looked at as neutral, you know, for our business. And again, as Nicola said, you know, we're not driving or betting growth on things that are still questionable. You know, we're betting our growth and our guidance on things that we have in the hopper and that we can predict.

Thank you, Mark.

Sure.

And the next question comes from the line of Andrew Boone with JMP Securities. Please proceed with your question.

Great. Thanks so much for taking my questions. Mark, you talked about the 20 million from Meta. And I know that we've asked you this in the past but if you think about Meta and more of a medium term opportunity, can you come back and help size the overall potential of brand safety on Meta?

It's a great question, Andrew. I think it's a bit early for us to size out Meta, the brand safety aspect on its own, you know, in combination with the other things we've launched across. We know there's significant growth opportunity for sure. We do know, and we've said this before, only about half of our top 100 customers use us for measurement across Meta today. Whereas across YouTube, another incredibly popular social platform, we are over 90% penetrated. So, you know, I think that the addition, we've said this in the past, the addition of newsfeed coverage is certainly going to attract new customers into social. I don't think we've factored that fully into it, you know, as of today. Again, we're being measured in how we look at that growth trajectory of that solution. But net-net, you know, the addition of coverage of Instagram, Reels, and now the newsfeed make Meta a really, you know, a strong driver and a strong growth catalyst. We've seen it in the last year, you know, ending up the year with social, you know, growing at 62% and Meta is a big part of that.

And then, Mark, we've talked about in the past couple quarters, kind of side bids and its opportunity to bring on new customers. Can you just update us there now as the product has been longer through the sales force and is maturing in terms of your -to-market? What are you seeing there in terms of that being a new on-ramp for customers? Thanks so much.

Yeah, and the interesting thing about side bids, you know, we talked about it like this is some solution that we've, you know, we've had for years and teams are, you know, we've only had it for around a quarter, a full quarter. And, you know, it's generated a ton of excitement. We talked about, you know, 40% of our new customer wins so far this year are actually testing outside. That's pretty huge. If you think about the attach rate of a new product to a new close at almost 50%, it's pretty big, right? So again, we're being tempered in how we look at how that business can grow. But it goes into that bucket of differentiators, right? It goes into that bucket of things that takes us out of the pricing muck and allows us to continue to drive premium, a premium approach to our customers. So we like it. We know customers are interested. We know it's something unique that DV has. And when I talked about in the call how it's changing the way we look at verification, it really is. And then we're starting to look at not just side bids as a standalone, but how we can plug it into things like free screen on social video, how we can plug it into, you know, other types of social networks, etc. It's a really kind of neat tool set that I think we've got a lot of bandwidth to kind of

And the next question comes from the line of Matthew Cost with Morgan Stanley. Please proceed with your question.

Hi, everybody. Thanks for taking the question. You talked about the slower start to the year for existing brands. But I wonder if we zoom out and just think about the behavior of brand advertisers versus performance advertisers. Is there any difference that you would call out that you've seen in 4Q and into 2024 in terms of the willingness of brand versus performance to lean into the product offerings, whether that's adopting new products or expanding usage of the ones they already use?

It's a great question. I think that for us, and I'm not going to paint the entire brand advertiser category in one way because that's not what we're saying. I think we just had some selected customers who had slower growth in the first couple months of the year. I don't think there's anything brand versus performance that we really would talk about other than that. You know, handful of retail and CTB clients that we had, had a slower start to the year. So I don't think there's a ton to look into there on brand versus performance. Yeah.

Great. Thank you.

Sure.

And the next question comes from the line of Brian Pitz with BMO please proceed with your question.

Thanks, Mark. You mentioned side bids before. Maybe just an update, further update there around your pre-bid MFA avoidance announcement, perhaps an opportunity on the broader pre-campaign planning and activation market as you see it. Just maybe some of the early customer feedback. I know you said it's still early.

Yeah. Thanks, Brian, for the question. I mean, if you've hung around the ad space for the last eight to 12 months, MFA has probably been the hottest topic out there besides really bad generative AI tools. I think that the MFA area is one in which advertisers first looked at using a meat cleaver to attack. And I think that was at the detriment of a lot of great publishers, particularly marginalized publishers who are being excluded from media buys. And where we approach this and saying, look, MFA is not this monolithic definition of content. Advertisers need to interpret based on specific rules what they're comfortable with. And that was the launch of our MFA pre-bid product set, the second gen that we just launched this week, which basically allows advertisers to hear how they filter out content. And they can do that in addition to exclusion lists or any other specific sites they want to have. But what it does is it allows them to balance reach, performance, and specific sites that they also want to include in those lists. And the feedback has been great. We had some coverage recently in the press about advertisers who are certainly looking for more of a scalpel than a meat cleaver. And this fits that bill perfectly. The cool part about this as well is this plugs right into our ABS tool set. So again, we've got a differentiated powerful tool set in ABS. And now we've made it even more powerful by plugging MFA tiers into there, allowing advertisers to dynamically optimize what they're doing on the front as well. So we're pretty fired up about MFA. We're fired up about what we've been able to do different than our competitors and how it plugs into a tool that's totally proprietary to us.

Got it. And then just maybe a quick political follow on to an earlier question. How big of a problem is avoiding disinformation or fake news for your clients, particularly as it relates to ad placement next to UGC videos?

You know, this is something that we started talking about in 2020. We launched officially our political news task force in 2022, but really hadn't been going before then, and in which we hear from customers all the time. I mean, this ebbs and flows, but one thing we do know, we saw this in the 2022 midterms, is that during heated elections, no surprise, we see not only more inflammatory news and political content, but we see more hate speech. We see more disinformation and more competitive races. And this isn't just national, but local, more competitive the race is in the state. The higher instances we see of things like hate speech, that becomes scary for advertisers. And again, going back to the MFA discussion I have, in the past, their choice was, well, I'm going to use a meat cleaver and just block news. I want to be away from UGC. I want to be away from news. I'm going to shut things off. We're giving them a scalpel again so that legitimate news, legitimate content, and UGC that doesn't violate those areas of misinformation, disinformation, inflammatory news and politics, and hate speech isn't excluded. So it's not something where advertisers are leaning into. Again, we don't see it as a category in its own that's going to drive business for us. We think it is just another value add that our solution provides that makes us sticky with our customers.

Awesome. Thanks. Very helpful.

For

sure.

And the next question comes from the line of Brian Fitzgerald with Wells Fargo. Please proceed with your question.

Thanks, guys. Maybe one little differentiate when you think about third-party cookies and privacy sandbox. After looking over the back and forth between the IAEA tech labs and Google, it seems as though there is still some work to be done there in terms of allowing for verification on the new on-device auctions. Could you talk about your preparations there and how you think about both the risks and the opportunities around on-device auctions? How you think cookie deprecation pans out for you guys? Thanks.

Yeah, for sure. For sure, Brian. So we've been, you know, obviously prepping for this for a long time. We were fully engaged with kind of multiple working groups that are working on Google's privacy sandbox, and we're pretty confident that we'll have a seamless transition of services as the sandbox and the deprecation of cookies become implemented over time. There's a lot of moving parts, but this is one thing where Google has been pretty open and leaning in and making sure that they become good partners to the ecosystem. And we've had a relationship with Google on multiple levels for many years. You know, the sandbox, the privacy sandbox, although not perfect, is certainly going to be a place where we're going to be able to deliver our services and solutions, and we're working with the right people to make sure that happens.

Great. Thanks, Mark. Appreciate it.

Got it.

And the next question comes from the line of Omar D'Souki with Bank of America. Please proceed with your question.

Hi. Thanks for fitting me in here. So you sounded fairly confident on ABS, and you did specify that new contract wins were driving the lower guidance, excuse me, driving the low-teens guidance for the first quarter. So is it fair to assume that those newly contracted wins are ramping their measurement volumes slower than in previous history, and that they're still early in the upsell process?

Yes, I think that's exactly right, Omar. The onboarding process for large enterprise clients would start on the measurement side, and so that's where you're going to see the initial impact of their ramp, and that will leave the activation and the upsell opportunity for the premium price product for the second phase.

Okay, great. And then as you look into calendar 24, which geography will drive most of the growth and the activation revenues, and can you give us some sense of whether international is, if there's any market structure difference in international that makes it a less high growth market than the U.S.?

I mean, the international markets are, for us, this is a high-growth area, just because the opportunities for us to go after Greenfield's opportunities is still greater, right? There's just more opportunities outside of the U.S. than there are in the U.S., and so if you look at our growth for the rest of the world, it's 43% the fourth quarter of 23. So it is spread across both EMEA and APAC. There was a bit of a disjointed growth trajectory for those two areas the year prior to the last one, when the macros was a different environment, but right now we're seeing growth in all areas of the rest of the world.

So I was just trying to hone in specifically on activation. So do your comments apply to that segment as well?

Yeah, I think the patterns don't really change too much between measurement and activation in terms of the opportunity that we have internationally. Got

it.

I appreciate it.

Thank you.

And the next question comes from the line of Laura Martin with Needham and Company. Please proceed with your question.

Great. I have two. So following up on your side-bids answer you said 40% of your new customers are testing side-bids. What I like best about that acquisition is they got paid as a percent of revenue or it's historically double-verified as always gotten paid on a 60 per thousand impression. My question is, as these new customers are adopting side-bids or at least testing it, are they still getting paid as a percent of revenue? So does that sort of lend revenue diversification to your business model over time? I guess that's my question.

Okay. Great hearing from you, Laura. Yes, they are still pursuing a percentage of media model and I like the way you framed it as kind of revenue type diversification. We've always thought ourselves as transactional SaaS, which is fixed and has its pluses. But as you know, in this space, when CPMs go up, it can also have a potential negative as well. So having them as percentage of revenue I think is an interesting opportunity for us. We get to take advantage of some of those increased CPMs that we may see down the road.

Okay. Fantastic news. And then my second question is on one of the things I see going on in for these big brands, like you call them the biggest hundred brands. And one of the things I see them doing is trying to tie connected television all the way down to performance by full funnel. And I think that's what we see in Amazon's Avod addition to its streaming tier and Walmart's acquisition of Vizio. So my question to you is, as these big brands that are your core customers do more to drive all of their advertising into performance, even what's historically been top of funnel rather than just CPM base, is that good for you or is that bad for you? Double verify.

It's a great question. I mean, I don't think, I think I want to say it's neutral. And by that, if we look at where we've come from all the other platforms we're on, so social, mobile, open web, all of those have performance capabilities and performance type advertisers and brand type advertisers. CTV will eventually start to look at that in the same way, as you noted, connecting a closed loop aspect of it. And I think that, you know, our core value prop in those places is very similar to the core value prop that we'll see in CTV, which is ensuring that that spend, whether it's evaluated on a closed loop basis or on some type of brand metric is secure, fraud-free, viewable, and brand safe. So I think it doesn't really change the value prop. And the cool thing for us is since we are integrated into, you know, all of the top 10 CTV platforms at the app level, we, you know, if there's an opportunity for us, for example, to start looking at driving performance through a tool like CyBids, you know, we're already there and we've already kind of built those hooks and those connections. So I think, you know, down the road, it could be something interesting for us, but, but NetNet, I think it's more of the same that we've seen across other media types.

Thanks very much. Thank you.

Richard? And our final question comes from the line of Mark Murphy with JP Morgan. Please proceed with your question.

Hey, this is already on for Mark Murphy. Thanks for taking the question. Just to touch base again on the certain brand advertisers that are kind of starting a little bit slower this year. Is there any kind of common thread between them, whether it's kind of what's causing that geography, industry, anything along those lines worth kind of discussing?

Thanks. No, I mean, look, you know, we're not going to pin this to macro. I don't think it's a macro thing. It's just, it's a bit anomalous. We have a couple of retailers who are having a tough go of it. You know, a CPG company is having some issues, you know, regarding ramping up spend based on some challenges they have. So it's not really anything I think we can pin to either a vertical in any way or a macro in any way. It just happens to be a handful of customers spending slower than they did last year.

That's very helpful. Thank you. And then just to follow up, and I know it's early on, but what side is there, are you guys able to kind of use that new set of solutions to speak with customers that maybe you just weren't speaking didn't make sense to before that you can now? Thanks. And I'll step back into the queue.

100%. So, you know, in some cases, and we may have mentioned this before, we're even talking to, you know, folks who aren't using our core measurement solutions right now. But they know that there's pretty much not another great optimization opportunity like this around. So gets our foot in the door with them as well. So it does, it's spurned a lot of conversations. And as we noted, you know, even with folks we are talking to, you know, almost 50% of them, you know, so far this year, the new deals we close are testing it. So it's a good uptick and a good attach rate.

There are no further questions at this time. I would like to turn the floor back over to Mark for any closing comments.

Great. Thank you all for joining us today. And as always, we'd like to thank our customers, our team, partners, shareholders, and all the stakeholders that helped make 2023 a record year for DV, and who will be supporting our growth for years to come. We're excited about the prospect of another great year of growth, driven by our unmatched global scale and differentiated technology. Have a great night, everybody.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.