Q3 2024 DoubleVerify Holdings Inc Earnings Call

Greetings and welcome to the Double Verify 3rd Quarter 2024 Financial Results Conference Fall. At this time, all participants are in a list and only mode. The question and answer session will follow the formal presentation.

Thank you.

Speaker Change: Good afternoon and welcome to Double Verified Set, 4-2024, and in campus schools. With that today, our Mark Zagorski CEO and Nicola Allais CFO.

Speaker Change: Today's best ladies and this call, making team board with these statements for a subject in herkress on certainties and changes and reflect their contact expectations and information currently available to us.

and their actual results could discern it, surely.

Speaker Change: For more information please refer to the researches now recent SEC findings including our form 10Q and the annual report of form 10Q. In addition, our discussions they will include references to certain supplemental non-gap financial measures and should be considered in addition to nothing substitute for a gap results.

Speaker Change: Reconciliations to the most comparable gap 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 today, we'll be referring to the slide deck posted on our website. With that, I'll turn the call over to Mark.

Mark Zagorski: Thanks Dejal, and thank you all for joining us today. In the third quarter, we drove robust expansion, scaling our solutions across a wide range of social, CTV, and retail media platforms, alongside recording our largest ever global market share wins in a single quarter.

Speaker Change: Our solid execution this quarter sets the foundation for DV's long-term growth while momentum in our core business continues to build.

Speaker Change: In the third quarter, we grew revenue by 18%, up from 17% in Q2, with double-digit growth across all three revenue lines—activation, measurement, and supply side.

Speaker Change: We achieved a standout 83% gross margin and a 35% adjusted EBITDA margin, with the latter marking our highest profitability for any Q3 on record.

Speaker Change: And we grew our net crash flows from operating activities by over 50% to $55 million in the third quarter, underscoring the strength and efficiency of our operations.

Speaker Change: We continue to show robust growth and are exceptionally profitable, all while setting the stage for a stronger market share position in the years ahead.

Speaker Change: We've driven strong revenue growth despite facing several headwinds this year.

Speaker Change: To recap, six large customers scaled back on ad spend that had our most premium products attached to it.

Speaker Change: And, although we have positive momentum around launching a number of social activation tools in 2025, notably across META's newsfeed, the timing of when pre-bid social solutions will launch to connect with our measurement solutions has created near-term impact on overall social growth expectations.

Speaker Change: Additionally, the industry is seeing brand spending soften ahead of the election as political dollars crowd out ad spend, and there is uncertainty around how quickly traditional ad spending rebounds after the elections.

Speaker Change: We've tackled these challenges head-on. We've zeroed in on signing and scaling major new advertiser wins like Pepsi, Halion, Uber, and General Motors. We've up-sold SciBiz AI to nearly 50 DV customers and expanded this powerful differentiator in entirely new channels like social.

Speaker Change: We drove the adoption of our core solutions across fast-growing environments, such as retail media and CTV, and fueled diversified growth across all three revenue lines.

Speaker Change: Simply put, we adapted and are continuing to do so. We're staying laser-focused on market dynamics to proactively position DV for future growth opportunities, building for where the market is headed, not just where it is today.

Speaker Change: When Oracle announced the shutdown of Moat and GrapeShot by September 30th this year, we seized the opportunity. Our team mobilized and we locked in key wins with industry giants like P&G and Google alongside category leaders such as BlackRock, Charter Communications, Inspire Brands, Kellogg, and Dish Network.

Speaker Change: ultimately winning 70% of the RFPs we pursued from foreign loan advertisers over the second, third, and fourth quarters to date.

Speaker Change: In addition to advertisers, we also won critical platform and publisher deals, positioning DV's tech to become essential across the entire ad ecosystem and generating significant new and recurring revenue from our supply side business.

Speaker Change: We secured strategic partnerships with platforms including Criteo, The Trade Desk, Magnite and Pubmatic, alongside top-tier publishers including Activision Blizzard, Telegraph, Euronews, The Economist and The New York Times.

Speaker Change: These partnerships, along with numerous other key wins this quarter, such as significant wins from non-Oracle competitors, including Microsoft and a leading consumer health brand,

Speaker Change: serve as explicit endorsements of our leadership and innovation, positioning DV as the industry's gold standard and the essential currency across its most influential players.

Speaker Change: Our overall Q3 win rate remained above 80% with 38% of wins being competitive steals and 62% being greenfield wins.

Speaker Change: For each of these leading brands, platforms, and publishers, selecting DV wasn't just about filling a gap. It was about setting a new standard.

Speaker Change: DD wins because we don't just sell products, we are trusted to solve real challenges. Our powerful combination of measurement, activation, and optimization, powered by Cybiz AI, is breaking new ground in media effectiveness and aligns perfectly with where the performance-driven advertisers are heading.

Speaker Change: Our innovation leadership, strength and social activation, from YouTube pre-bid to the upcoming meta-solutions, and our programmatic expertise are all reasons why the ecosystem chooses DEV.

Speaker Change: And, as a trusted partner delivering results at scale and fueling future success, our recent slate of wins will only strengthen DB's leadership across the board.

Speaker Change: In the third quarter, we accelerated growth in ABS and activation through new customer ramp-ups and strategic upsells to our existing customers.

Speaker Change: In addition, we expanded our measurement and activation solutions across social, CTV, and retail media platforms, strategically closing gaps where platforms were ready for our technology.

Speaker Change: Let's dive into the progress we've made across all these key media environments, social, CTV, retail media networks, and the open web.

Speaker Change: Beginning with social, we grew our social measurement revenue by 21% year-over-year in Q3.

Speaker Change: Since launching our Brand Safety and Suitability Measurement Solution on Meta earlier this year, we've achieved significant traction, onboarding approximately 60 new advertisers, including 9 top 100 advertisers who had not previously activated DV on Meta.

Speaker Change: which is a promising start. However, we have much more room to grow. While suitability scores offer a valuable benchmark across platforms, the true power of measurement data lies in its ability to drive smarter, more strategic decisions before a campaign even launches.

Speaker Change: As I noted previously, advertisers are looking for pre-bid activation solutions on social platforms to unlock the full potential of their measurement data and drive maximum performance. And that's precisely where we're headed.

Speaker Change: I'm excited to announce the early 2025 launch of our content-level pre-bid avoidance on MetaFeeds and Reels.

Speaker Change: This will better empower advertisers to prevent ads from appearing alongside unsuitable content in real-time. In addition, it integrates with DiDi's pre-bid controls with our post-bid measurement tools, delivering a seamless closed-loop solution that optimizes media performance.

Speaker Change: With pre-bid avoidance, advertisers gain unparalleled control over where their ads appear, safeguarding brand integrity and driving better media outcomes across dynamic social media platforms such as Facebook and Instagram.

Speaker Change: We've also introduced a new video exclusion list solution on TikTok, allowing advertisers to tailor exclusions based on vertical sensitivity and specific brand needs. We expect this activation solution to be available to all advertisers by the first half of 2025.

Speaker Change: On social measurement, we've expanded our post-bid brand suitability measurement on Meta and TikTok by adding reporting on inflammatory politics and news.

Speaker Change: Powered by our DV Universal Content Intelligence, this enhancement addresses unreliable or unstantiated information, deepfakes, and inflammatory political rhetoric.

Speaker Change: Additionally, we've expanded brand safety and suitability measurement on META to include five new languages, increasing our coverage to over 100 countries.

Speaker Change: We also have continued to expand our measurement coverage on TikTok, now supporting Profile, Following, and Search Feeds, as well as TikTok Lite, alongside existing coverage on the For You page and expanded language coverage to Arabic and Tagalog speaking markets.

Speaker Change: Building on the momentum from our successful launch of brand safety and suitability solutions on Reddit and Pinterest last quarter, we've announced expanding our brand safety and suitability measurement to Snap, further strengthening our presence across all major social platforms.

Speaker Change: Our independent social measurement solutions ensure that campaigns are brand-safe, viewable, and fraud-free, with comprehensive safety and suitability coverage now available across the entire social media landscape.

Speaker Change: We're thrilled to announce the expansion of our viewability and fraud measurement solutions to LinkedIn's own and operated video inventory now available across all markets. The expansion of double verified solutions on LinkedIn provides advertisers with enhanced capabilities and unique insights.

Speaker Change: This expanded collaboration validates our leadership in media quality and reinforces our commitment to ensuring advertisers can trust the integrity of their campaigns.

Speaker Change: Gaming, audio, and retail media were also expansion wins for DV as we announced a partnership with Roblox to build 3D inexperienced viewability and invalid traffic measurement.

Speaker Change: an integration that will cover immersive ads across both image and video formats, and we extended our viewability and fraud measurement solutions to Spotify's video campaigns through Spotify Ad Manager, as well as Instacart's display and shoppable display ads.

Speaker Change: Led by our partnerships with leading retail media platforms, our global reach and connectivity in retail media continues to expand. DV's measurement tags are now accepted on 112 key global retail media networks and sites, including 15 of the top retail media platforms and 97 major retailers.

Speaker Change: Shifting to CTV, we grew our Q3 CTV measurement volumes by nearly 60% year over year, driven by YouTube CTV, Amazon, and Roku.

Speaker Change: DV's growth potential in CTD is massive because fraud and transparency remain critical challenges for advertisers.

Speaker Change: Fraud in particular is a growing challenge. The number of CTV fraud schemes and variants surged 58% last year and have nearly quadrupled since 2020.

Speaker Change: We are protecting CTV ad spend and ensuring verified CTV platforms are not ensnared in fraud schemes that attract direct deals.

Speaker Change: On the transparency front, many CTV impressions, especially from OTT suppliers, lack app-level data.

Speaker Change: Compared to the clear visibility in linear TV and other digital platforms, the contrast is striking.

Speaker Change: And just like with fraud, direct CTV buys aren't immune to suitability risks. Many publishers use extension networks, pushing campaigns beyond their own inventory and into open marketplaces with minimal protections.

Speaker Change: While this may help scale or reduce costs, it often results in ads being placed in unsafe or inappropriate content.

Speaker Change: We're expanding our fraud and viewability measurement across CTV buys, including Netflix programmatic channels, providing transparency across all of their buying platforms globally.

Speaker Change: In addition, we are pioneering content-level transparency on a major CTD platform, where our direct CTD impressions grew 90% year-over-year in Q3, driven by robust demand for our upcoming differentiated solution.

Speaker Change: Finally, looking at the open web, we're seeing growth across all our activation solutions, including ABS.

Speaker Change: Like one of our leading CPG brands, which recently leveraged DB's fraud and viewability solutions, in combination with Sybiz, to double its unique reach and improve its QCPM, its proxy for return on ad spend, by 52%.

Speaker Change: As of today, 15 of DV's top 100 customers are already leveraging Sybiz, and since the acquisition, we've successfully upsold Sybiz to nearly 50 DV customers.

Speaker Change: With this strong momentum, we're on pace to deliver $100 million in revenue from Sybiz by 2028.

Speaker Change: Turning to open web measurement, DV's authentic attention increased measurement impression volumes by approximately 300% year-over-year in the third quarter, with more than 300 advertisers using DV's authentic attention so far this year.

Speaker Change: Across all media environments including the open web, advertisers are focused on reaching the right audiences to drive performance, and news platforms consistently attract those valuable engaged audiences.

Speaker Change: We're committing to building solutions that offer both full brand protection and strong ROI, enabling advertisers to leverage the unique strengths of news environments confidently and effectively.

Speaker Change: In October, we launched a Double Verify News Accelerator, the industry's only broad-scale effort to address the growing need for advertisers to connect with engaged news audiences while avoiding brand suitability risks tied to unpredictable content.

Speaker Change: As part of the initiative, we've launched new contextual news products, built the sector's most advanced suitability and sentiment controls, and created enhanced analytics tools to enable advertisers to optimize settings to ensure they can invest in brand-suitable news.

Speaker Change: DB's News Accelerator is a true commitment to supporting a vibrant open web that empowers brands to reach relevant audiences effectively in an ever-evolving news landscape.

Speaker Change: Before I close, let's take a moment to look ahead at DV's future.

Speaker Change: Over the last few years, we've been evolving DV from a company known for protection to one that drives both protection and performance. A shift reflected in our focus on delivering new performance solutions like DV Authentic Attention and Sybids AI.

Speaker Change: These innovations highlight our commitment to build solutions that go beyond verification alone, empowering advertisers with tools and data that deliver quality results.

Speaker Change: We believe we are uniquely positioned to help advertisers both protect and perform, and we aim to unlock even greater value for our customers as we expand our performance solutions in the coming quarters.

Speaker Change: This year, the industry's shift towards outcome-driven platforms, especially those in social media, has accelerated the demand for performance-based solutions. Make no mistake, real performance starts with protection. Without it, ad spend is wasted on fraudulent, non-viewable impressions or placements that don't align with brand objectives.

Speaker Change: DV is uniquely positioned to integrate protection and media quality requirements with performance and media efficacy objectives, creating powerful solutions that today's advertisers demand.

Speaker Change: While this transition may have a near-term impact on core growth as we unify protection with performance on social media, our innovative solutions, including dbAuthenticAttention and SciBizAI, continue to gain momentum to support long-term growth.

Speaker Change: We're at the forefront of building both media quality and measurable impact, setting the stage for DB's continued growth and leadership in an outcomes-focused future.

Speaker Change: DeeDee's focus remains on solving the most pressing brand protection and performance challenges in the digital ad ecosystem.

Speaker Change: Whether it's leading in social activation with innovations like Meta's Pre-Bid Avoidance and TikTok's Video Exclusion List, or attacking fraud and transparency issues in CTV, DV is setting the standard for the future of digital advertising.

Speaker Change: Our core value proposition resonates with the largest advertisers on the planet, and they've entrusted us with ensuring their ad spend delivers quality results.

Speaker Change: Our proven ability to take on the industry's biggest issues with the industry's biggest marketers makes DD a compelling long-term growth business that is well-positioned to drive sustained shareholder value for years to come. With that, let me turn the call over to Nicola.

Nicola Allais: Thank you, Mark, and good afternoon, everyone. Our third quarter results reflect sustained momentum marked by strong revenue growth, solid profitability, and robust cash flow from operations. We delivered double-digit growth across all three revenue lines, activation, measurement, and supply side, underscoring the strength of DV's value proposition to advertisers, platforms, and publishers.

Nicola Allais: In the third quarter, we delivered total revenue of approximately $170 million, reflecting an 18% year-over-year increase, up from 17% revenue growth in Q2. Year-to-date revenue through the third quarter grew 16%.

Nicola Allais: Our slow-starting group of retail and CPG advertisers performed in line with our expectations in the third quarter, and our outlook for this cohort remained stable and unchanged.

Nicola Allais: Advertiser revenue grew 17% in the third quarter, driven by increased volume. Media transactions measured, or MTMs, rose 22% year-over-year, while measured transaction fees, or MTFs, declined 4% year-over-year, driven by product and geographic mix.

Nicola Allais: Looking ahead, we expect MTFs to reflect the continued impact of a greater shift towards measurement and international impressions as we expand globally, as well as the near-term impact of major new global brand wins, in particular Oracle accounts, which were initially closed at competitive rates.

Nicola Allais: Activation revenue grew 18% compared to the prior year. All four activation solution groupings, ABS, Co-Programmatic, Social Activation, and CYBITS, contributed to third quarter growth.

Nicola Allais: ABS, which accounted for 53% of activation revenue, grew 14% year-over-year, driven by new logo activations, upsells to existing customers, and expanded usage among current users.

Nicola Allais: Moreover, 68% of our top 500 customers have now activated ABS in Q3, up from 65% in Q2, demonstrating the continued adoption of this premium product.

Nicola Allais: Core Programmatic Solutions, SciBase AI, and Social Activation Solutions also delivered solid year-over-year gains.

Nicola Allais: Turning to measurement, revenue grew 14%, primarily driven by a 21% increase in social measurement revenue, which accounted for 48% of total measurement revenue in the third quarter.

Nicola Allais: International measurement revenue rose 16% driven by new and existing customers expanding across social, CTV, and the open web. Overall, international revenue accounted for 29% of total measurement revenue in the third quarter.

Nicola Allais: Finally, supply-side revenue grew 30% in the third quarter driven by growth on existing platforms, particularly retail media platforms such as Amazon, and new platform partnerships with limited revenue contribution in the quarter from the recently won Oracle platform and publisher partnerships.

Nicola Allais: Moving to expenses, cost of revenue grew 11%, primarily due to growth in activation revenue, which increased partner costs from revenue sharing arrangements.

Nicola Allais: These were partially upset by cost savings from continued improvement in efficiency in video classification.

Nicola Allais: In Q3, we achieved an 83% margin on revenue less cost of sales. In Q4, we expect to sustain this margin towards the higher end of our projected 80% to 82% range.

Nicola Allais: Research and development expenses increased driven by ongoing investments in AI and machine learning engineering talent, a direct investment in DV's future growth and innovation.

Nicola Allais: Sales and marketing expenses increased driven by continuing investments in technical programmatic analysts to support new product launches such as SciBids.

Nicola Allais: G&A expenses were in line sequentially and compared to the prior year as we effectively leveraged our growing scale.

Nicola Allais: Adjusted EBITDA of $60 million in the third quarter represented a 35% margin and was ahead of expectations due to higher efficiency and cost of revenue and lower operating expenses.

Nicola Allais: We deliver net cash from operations of approximately $55 million in the quarter, up from $36 million in Q3 2023, primarily due to solid cash collections.

Nicola Allais: Capital expenditures were approximately $6 million in the quarter as compared to approximately $5 million in Q3 2023.

Nicola Allais: In the third quarter, we repurchased 1.3 million shares of DV Common Stock for $25 million. This follows a repurchase of 1.4 million shares for $25 million in the second quarter.

Nicola Allais: After the third quarter ended, we repurchased an additional 1.5 million shares for $25 million, bringing total repurchases to 4.1 million shares for $75 million through November 6th.

Nicola Allais: As of November 6, $75 million is available and authorized under the Initial Repurchase Program.

Nicola Allais: Today, we're announcing a new $200 million authorization for further share repurchases, providing a total of $275 million currently authorized and available for share repurchases.

Nicola Allais: Our share repurchase program demonstrates our confidence in DV's long-term growth prospects.

Nicola Allais: Our strategic approach to further share repurchases considers economic costs, general business and market conditions, and other capital priorities including investing in our core business for sustained long-term growth and pursuing acquisitions that accelerate our product roadmap and market expansion.

Nicola Allais: In the first nine months of 24, we deliver net cash from operations of approximately $122 million compared to approximately $68 million in the same period in the prior year.

Nicola Allais: Capital expenditures were approximately $20 million compared to approximately $12 million in the first nine months of 2023.

Nicola Allais: We ended the third quarter with approximately $363 million in cash and short-term investments.

Nicola Allais: Finally, in August, we secured a new $200 million Senior Secured Revolving Credit Facility with a five-year term, replacing the previous facility.

Nicola Allais: Now turning to guidance, we're updating our Q4 outlook to reflect a few key market dynamics this quarter.

Nicola Allais: First, brand spending has softened in the lead-up to the elections as political dollars have crowded out traditional ad spend.

Nicola Allais: For the remainder of this quarter, there is uncertainty around how quickly brand spending rebounds after the elections.

Nicola Allais: Additionally, while the adoption of our measurement solutions on METIS platforms is progressing, it is ramping at a more gradual pace than we anticipated, with some advertisers now awaiting the rollout of our pre-bid capabilities to adopt both measurement and activation.

Nicola Allais: As a result, we expect fourth quarter revenue to range between $194 and $200 million, representing a 14% revenue growth at the midpoint.

Nicola Allais: We expect fourth quarter adjusted EBITDA to range between $73 and $79 million, reflecting a 39% margin at the midpoint and demonstrating the strong operating leverage of our business despite some revenue friction in the quarter.

Nicola Allais: For the fourth quarter, we expect stock-based compensation to range between $22 and $25 million, and weighted average diluted shares outstanding to range between 169 and 173 million shares.

Nicola Allais: For full year 2024, we expect revenue to range between $660 million and $666 million, which represents a 16 percent year-over-year growth at the midpoint.

Nicola Allais: We expected Adjusted Ebitda to range between $218 million and $224 million, which represents a 33% margin at the midpoint, up from the previous 31% margin.

Nicola Allais: While we're not providing guidance for 2025 today, we're navigating several dynamics that will shape our outlook for the year ahead.

Nicola Allais: The anticipated launch of our pre-bid social solutions in the first half of next year is a key development that we expect will drive increased adoption of social measurement and activation on meta.

Nicola Allais: Until the adoption of this new solution ramps, we expect moderate social measurement revenue growth, especially given the strong 47% growth rate we achieved in the first half of 2024.

Nicola Allais: Additionally, with this year's performance from the core of six retail and CPGs advertisers meeting our lower expectations, we anticipate limited year-over-year growth from this group, which is likely to weigh on our total 2025 growth rate.

Nicola Allais: Finally, Oracle's exit was a unique opportunity to secure major enterprise clients like P&G and Google for the long term. While we won these clients in the strength of our solutions and technology, we also had to remain competitive on price.

Nicola Allais: As a result, the full revenue impact of these opportunities will materialize over a longer period of time, typically between one to three years of onboarding, through our ability to upsell our social and activation solutions.

Nicola Allais: The digital ad ecosystem continues to evolve, and we're evolving too. We're building new partnerships in high-growth sectors where ad dollars are shifting, and we're expanding our solution from protection to a combined focus on protection and performance.

Nicola Allais: During this transition period, we expect to maintain a double-digit revenue growth rate with next year serving as a federal stage in our business as we continue to strategically invest in areas to reaccelerate DV's long-term growth.

Nicola Allais: To conclude, we delivered solid third quarter and year-to-date revenue growth and profitability and have made significant progress across our business.

Nicola Allais: DeVete's financial profile is both compelling and resilient.

Nicola Allais: DV is highly profitable, maintaining gross margins above 80% and adjusted EBITDA margins above 30%.

Nicola Allais: We continue to generate significant cash, with $122 million in net operating cash generated in the first 9 months of 2024. And our balance sheet is in excellent shape, with $363 million in cash and short-term investments, and zero long-term debt.

Nicola Allais: And with that, we will open the line for questions. Operator, please go ahead.

Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Nicola Allais: The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.

Nicola Allais: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions.

Speaker Change: Our first questions come from the line of Yousef Squali with Truist Securities. Please proceed with your questions.

Yousef Squali: Great. Thank you guys for taking the questions. I have two. So, can you maybe expand a little more on the more gradual ramp in measurements in Q3 and Q4?

Yousef Squali: I think in your prepared remarks, Nicola, I think you said within measurement social was up 21.

Nicola Allais: International was up 16, overall measurement was up 14, so something did not grow as nearly as you guys had expected. So maybe you can flesh that out a little bit for us. And then related to that and to the upcoming pre-bid avoidance products for META, can you share any additional insight that you guys have in terms of maybe...

Nicola Allais: Timing for for testing. I know your competitors already

Nicola Allais: I think scheduled to be testing it by the end of the year.

Nicola Allais: Especially that you said that, you know, kind of the prospects for 2025 will be dependent.

Nicola Allais: on how quickly you guys can roll that out. So any visibility do you guys have that you can help us or you can share on that topic? Thank you.

Speaker Change: Yeah, Yusef, I'll take the first one around the gradual measurement, the more gradual growth in measurement.

Speaker Change: So, and this is through Q3, right, your question is through Q3, so the number that you quoted yourself is 21% growth in social as opposed to what we saw in the first half of the year which was 47%. So there is a more gradual growth of the social measurement line. We said all along through the year that, you know, we were being cautious on the ramp and adoption of our product on Meta with the brand safety tool now being available. And that is what we've seen already starting in Q3. We're still very excited about the opportunity, the testings are still ongoing, and we actually, you know, we saw more of our top 100 signing up for the product.

Speaker Change: is giving the advertisers a view of what measurement plus activation would look like. And while they're still testing, they now know that that product is coming in the first half of next year. So there is a bit more of a gradual ramp as we wait for that second leg of that story.

Speaker Change: Yeah, and just to add, so on timing for the pre-screened solution.

Speaker Change: So what we're looking at now is some time in Q1 for the launch, at least the alpha launch of that prescreen solution on Meta.

Speaker Change: As Nicola noted, the interesting here, you know, the give and take is that

Speaker Change: Advertisers now who were interested in really kind of digging into the measurement side.

Speaker Change: have said, hey, let's wait till we can activate this data till we really get rolling.

Speaker Change: So, you know, the pre-screen opportunity came a bit earlier than we expected, which is great, but it did impact a bit of uptake on the measurement side. But net-net, you know, we're looking at a pre-screen alpha or initial rollout sometime in Q1 of next year.

Speaker Change: and Mark Zagorski.

Speaker Change: Thank you, guys.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next questions come from the line of Ramo Lenschau with Barclays. Please proceed with your questions.

Speaker Change: Hi, this is Frank Onforimo. Thanks for taking the question. I want to see if we could get more detail on the opportunity with Oracle exiting the market. Are there any products or customer cohorts that have trended better or worse than expected?

Speaker Change: Yeah, it's a great question Frank. So we, as we noted in the call, really laid into the the Oracle opportunity and our team did an amazing job. We closed about 70% of the available RFPs that we participated in.

Speaker Change: And they were really across the board, you know, folks from BlackRock, to DISH, to Charter, to Inspire.

Speaker Change: to P&G and others, you know, big wins for us, for sure. So no real kind of concentration in type of client. One thing we did note, though, is, you know, Moat had a pretty basic product.

Speaker Change: So think of, you know, probably the most basic of verification solutions out there.

Speaker Change: Not just, you know, verifies fraud and viewability but also things like suitability, safety, etc.

Speaker Change: where they've been used to buying a pretty basic product. So in some levels, we were trying to upsell them a bit into something a bit bigger, but had to come down to their level at least to build the initial relationship. So the wins were big, not concentrated in any one area. As Nicola noted in the prepared remarks.

Speaker Change: where the real growth comes from is the upsell down the road of those clients because we know that

Speaker Change: Once we get a customer, the average tenure of our top 25 is over seven years. These were, for the most part, all entirely new customers to DV, and now we've got a nice long track record, or a long road ahead of kind of building relationships with them and upselling them over time.

Speaker Change: Very helpful. Thank you.

Speaker Change: Thank you. Our next questions come from the line of Matt Swanson with RBC Capital Markets. Please proceed with your questions.

Matt Swanson: Yeah, thank you guys so much for taking my questions. Maybe the first one, kind of following up on Frank's final question, with Oracle being kind of a low-cost player in the market, how does that affect kind of long-term pricing dynamics, not having to compete with a floor in the market anymore?

Speaker Change: It's a great question, Matt. So, you know, I think there's definitely been puts and takes to moat leaving, you know. A three-legged stool always has balance, right? But now we're looking at a pretty, you know, a much more limited kind of marketplace, which means that every customer becomes that much more valuable. But what the lower-end product allowed us to do, or lower-end entry, it allows to get into some markets and some advertisers who hadn't considered DV before, because maybe they didn't want to go into premium products.

Speaker Change: But now we can build a relationship with them on a very different foot.

Speaker Change: So we look at this as a land and expand opportunity. We were pretty aggressive in going after those deals, and rightly so, because again, the brands that we got out of this were pretty significant. And I think over time, the pricing dynamics – we've always been a company that's focused on mix, right? How many solutions can we sell an advertiser? I think over time, it's about getting in at an entry level with some of these advertisers, and then building them up as we upsell them ABS, and upsell them attention, upsell them social measurement.

Speaker Change: areas which Moat didn't have solutions for. They had no ABS, they have no attention solution, and they didn't have any social coverage. So these are areas where we're going to try to force, or not force, but you know work with those customers to grow them over time.

Matt Swanson: Yeah, that's really helpful, Mark. And then, Nicola, really impressive, just the Bedell strength, both in the quarter and the guide, especially with some of the revenue headwinds. A lot of interesting things, though, too, with the social and the market share winds. So, as revenue hopefully starts to reaccelerate at some point,

Matt Swanson: How should we think about the durability of the adjusted EBITDA margin expansion?

Nicola Allais: Yeah, I think, you know.

Speaker Change: I'm going to answer it two ways. One is, obviously, our business is expensive.

Speaker Change: Extremely scalable.

Speaker Change: You can see that now very clearly if you look at the G&A line, which is essentially flat to last year and even to last quarter. So we are getting the obvious benefits of scale there. You are also seeing an exit rate on sales and marketing that is going to be lower than where we were at the beginning of the year. And we called that out. We invested this year a little bit to go after the new product effectively sideways. But if you look at the year-on-year growth of sales and marketing, the third quarter is definitely lower than it was in the first half.

Speaker Change: We have a very good gross margin and it's sustainable at those levels, which is well above 80%. So what's left is R&D and our decisions to continue to invest for the business and the future of the business.

Speaker Change: It's a very variable piece of the business, right? We can decide, you know, the speed at which we invest or not. You know, you've heard us say this before, right? We do want to invest. That is how we've achieved such high growth and we've created, you know, market share gains.

Speaker Change: But, to go back to the beginning of your statement, you know, we're now at a scale where there are obvious economies of scale that are benefiting the bottom line.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next questions come from the line of Maria Ripps with Canaccord Uniti. Please proceed with your questions.

Maria Ripps: Great, thanks so much for taking my questions.

Maria Ripps: I wanted to follow up on the launch of your social activation features on Meta. Can you maybe talk about how you would expect that offering to scale relative to how it has been scaling on the open web? And I guess, what are some differences and similarities there? And then secondly, sort of recognizing that your visibility into this may be somewhat limited.

Maria Ripps: Is there any additional color that you can share sort of on the timing for launching these features across more platforms?

Speaker Change: Thanks Maria. So with regard to kind of the scaling of the activation solution, you know, the good things about, you know, being and working with partners like Meta is that, you know, the scale of the advertising and the integrations there are just massive, right?

Speaker Change: The number of impressions that we see on those platforms is very large so that we know when we get a customer on board to measure and then start to activate, the scales of those customers will be big. The challenge sometimes is in getting those customers to actually start to...

Speaker Change: to integrate and to move faster and to test.

Speaker Change: In the open web it's pretty seamless, so our activation solutions go through DSPs, they're already doing their buying through DSPs, you know, it's a click a button and test and roll. On the social platform there's a bit more of a roll-up period, there's measurement learnings that they're doing. So we don't see the activation on social being as fast, for example, as we saw the ABS.

Speaker Change: Growth, you know, over the last several years.

Speaker Change: But once it starts rolling, one thing we do know is that virtuous cycle is pretty powerful. Once we are optimizing, once the measurement starts feeding into the activation aspect of the tool, which is exactly what MetaTool will do, it will feed measurement information into the activation part of it. We know that is a virtuous cycle that allows us to then start expanding across multiple brands. So it's a long way of saying I think the testing cycle is longer than what we've seen in the open web, but the scale becomes considerably larger over time.

Speaker Change: Priever across all social platforms. So, up.

Speaker Change: The one thing we noted in the prepared marks is that we're planning on an early 2024 launch across TikTok.

Speaker Change: I'm sorry, 25, launched across TikTok.

Speaker Change: in our top three social networks that we're covering on measurement right now, so I think that will be an interesting opportunity. We do have a pre-screen solution on YouTube. So rolling into the end of next year, we'll be in a position where we have both pre-bid and post-bid solutions across our three top social measurement platforms.

Speaker Change: Thank you so much for the call.

Speaker Change: for sure.

Speaker Change: Thank you. Our next questions come from the line of Andrew Boone with JMP Securities. Please proceed with your questions.

Andrew Boone: Thanks so much for taking the questions.

Andrew Boone: Mark, I wanted to ask on a bigger picture question. You talked earlier about the transition to performance. Can you step back and say, hey, what is Double Verify missing? Or what else do you guys need to do to execute on a broader performance opportunity?

Speaker Change: And then another bigger picture question, as I think about the evolution of digital advertising that's kind of taken place over the last few years really coming out of COVID, it's really been the shift to video.

Speaker Change: Is that what you guys are seeing? Is there any headwinds or tailwinds as we think about the evolution of digital advertising formats that you guys face? And how do we think about that transition of video impacting MTM and MTF for Double Bear Apply? Thanks so much.

Speaker Change: Sure, Andrew. So, first off, talking about kind of how the business is evolving to, you know, protection and performance of digital media spend. The performance aspect, think about having two main branches for DV, where we're putting investment. The first is on, think of performance metrics.

Speaker Change: So these are things beyond just base verification, saying something's good or high quality. These are metrics like attention, which allow an advertiser to start to look at ROI based on an entirely new currency. So, you know, attention is something we've been talking about for years. It's starting to slowly gain steam. We had...

Speaker Change: Really, a 300% year over year revenue jump this quarter, which I think is substantial of very small numbers, but it's getting there.

Speaker Change: So I think, you know, on the measurement and metric side, we've got probably the hottest kind of alternative performance metric right now in attention that everyone's talking about. So I think we're good there. We're going to continue to invest. The other branch of performance investments is really around optimization.

Speaker Change: and that is where SciBids comes into play.

Speaker Change: We talked about it in our investor day over a year ago, how we saw Sibids is growing and driving revenue for us, as we were able to enter different types of discussions with different types of advertisers.

Speaker Change: Where that's expanded now is as a core part of all of our solutions in this kind of measure, activate, optimize pyramid.

Speaker Change: and where we're seeing that now is our ability to drive higher performance.

Speaker Change: for better media quality, and what that means is lowering the cost of media.

Speaker Change: that sometimes going after higher quality media drives up.

Speaker Change: So, Cybiz is really the core investment that we have on the performance aspect of our business that we're going to be starting to lean into pushing into other parts of our business, including social and social optimization. We've done some pretty amazing performance tests across social that we're excited about and we're going to be expanding there.

Speaker Change: So I think, you know, we're in good shape there. We're just going to continue to lean in and invest and grow on those two areas.

Speaker Change: The second part of your question around video.

Speaker Change: I think it's a tale of two opportunities for DV. The first is short-form video, right? And I think we've done incredibly well in both building applications for that space for folks like TikTok and Meta, as well as, you know, seeing our measurement growth across there. So I think...

Speaker Change: Social video is still going to be a continued driver of growth over the next several quarters and years as consumer behavior eats that stuff up.

Speaker Change: and I think we're well prepared for that.

Speaker Change: The one area that we continue to talk about, which is growing for us nicely in our relationship with folks like Netflix, or a testament to that, is connected television.

Speaker Change: I think we've seen nice volume growth there, our relationships continue to get strengthened across that ecosystem.

Speaker Change: But I still think we're underpenetrated when it comes to the actual revenue opportunity on CTV. And for us, we've talked about this before, driving transparency, getting to the show level when it comes to things like brand safety and suitability are going to be the key to unlocking the real value in CTV.

Speaker Change: Thank you.

Speaker Change: For sure. Thank you. Our next questions come from the line of Justin Patterson with KeyBank Capital Markets. Please proceed with your questions.

Justin Patterson: Great, thanks. Two if I can. Stick with Sybid. So, would love to hear how this is just trending versus your expectations. I know you said you're well on track for the long-term goal, but I'd love a little more detail of just how that's been contributing year-to-date with customers.

Justin Patterson: And then secondly, I just wanted to go back to margins. 33%, you know, healthy performance for the full year here. I know you historically like to operate that closer to 30%. So curious if that's just more indicative of

Justin Patterson: outperformance this year and we should expect some incremental investment going into 2025 or if that's now kind of, you know, you showing a little more margin going forward. Thank you.

Speaker Change: All rights reserved. © The United States Department of State All rights reserved. © 2013 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Department

Speaker Change: Yeah, Justin, I'll start on CIBIT. So we already kind of talked a little bit about this on the last quarter call. CIBIT is pacing ahead of our expectations right now. So we gave that 15% to 17%. We are at that 17 million number expectation for the year. That's a 40% year-on-year growth. So it is pacing.

Speaker Change: towards the high end of that range, and that's a 40% growth. And yes, as you said, we did put out that number of $100 million by 2028, and we feel good about it. There are other metrics that we discussed in our prepared remarks. 15 of our top 100 clients are using it now. It's a critical differentiator for us as we get into the activation side of our business. So it's on track and actually performing on the top end of our expectations.

Speaker Change: You know, the business is very profitable and at some point, you know, that falls to the bottom line. As we think about 2025 and forward, we are still intending to invest in the business, right? You know, our capital allocation decision will be around organic growth, M&A, and buybacks, which we announced additional buybacks today, additional intention to – additional –

Speaker Change: Thank you. Our next question has come from the line of Brian Pitts with BMO Capital Markets. Please proceed with your questions.

Speaker Change: Thank you. This is David Lespergan for Bryan. I wanted to ask about CTV. I believe you guys said CTV measurement volume was up 90% year-over-year, which marks a pretty strong acceleration from the 45% and 55%

Speaker Change: Both in 1Q and 2Q. Can you talk a little bit about the drivers behind that? Is it primarily CPMs across CTV? If you could kind of parse out any details, that would be helpful. Thank you.

Speaker Change: Yeah, so just one quick note there. We saw overall CTV volume go up around 60%. It was a single client that we've been working on with.

Speaker Change: on some transparency and initiatives that we saw 90% volume growth, but 60% is nothing to sneeze at.

Speaker Change: I think what we're seeing driving that is our continued expansion of solutions.

Speaker Change: across those partners. So we mentioned that we're expanding across Netflix Network to cover more impressions there. So I think A, we're just covering more and working with those partners in bigger and broader ways.

Speaker Change: and B, we're benefiting from the number of dollars that are going into that space.

Speaker Change: As I've noted in the past, though, we're still not benefiting at the full level that others have just due to the fact that our fixed-fee model, for the most part, on CTV, doesn't take advantage of those really high CPMs that you see out there. So other platforms that take a percentage of media on CTV are getting a bigger kick there. I think we've talked about this in the past.

Speaker Change: As we expand our value prop to advertisers, and that really lays in driving more transparency and getting brand suitability at the program level. I think we have an opportunity to look at prices that are more in line with what the CPMs are on those platforms.

Speaker Change: That's helpful. And maybe just as a quick second question, on the Oracle RFP win rate of 70%, it sounds like you guys are winning, you know, more than your fair share there. Can you just talk a little bit about, you know, are you having to be a little bit more competitive on these contracts, or are you really just winning on performance? Thanks.

Speaker Change: Yeah, so I think as we mentioned in the call, you're going to win these deals based on the best technology platform. That being said,

Speaker Change: This was no normal RFP process.

Speaker Change: Right, you know, RFPs can take three, six months, sometimes even longer. And there's usually a very big deep dive into technology, testing processes, all that kind of stuff. This was six weeks.

Speaker Change: So in many cases it was very aggressive technical due diligence plus you know getting your best price out there. So these were competitive and we won them based on technology but we knew we had to be really really

Speaker Change: forward on our pricing. And we were, because we know that the real opportunity here is not day one. The real opportunity is two, three years from now when we build relationships with these folks.

Speaker Change: and now are beyond just selling the measurement and we're working with them on things like attention and or on side bids or on you know social measurement all things that that Moat never was able to deliver to them

Speaker Change: Thank you. Our next questions come from the line of Mark Kelly with Stiefel. Please proceed with your questions.

Mark Kelly: Great, thank you very much. I wanted to stick with the Oracle mode topic really quick.

Mark Kelly: Can you maybe frame for us, you know, they had some pretty large, sophisticated...

Mark Kelly: Clients, you know, kind of surprising to hear that they're using only the basic product. I guess. Is it a case where they were using mode for the basic stuff and then kind of piecemealing some of the other, you know, maybe more advanced technologies from You know, kind of a point solution competitor of yours. And that's the kind of business that you know you're going to go after after They've been on boarded or is it that's like totally greenfield things like attention and other products like that. That's my first one. I've got a separate question after

Mark Zagorski: Yeah, so Mark, I think you pretty much nailed it there, which is you know, the business that we went after was the business that was the immediate need, right? Which was, hey, we did X with Moat, Moat didn't do social, you know, Moat didn't have a very robust dynamic, you know, pre-bid suitability product.

Mark Zagorski: We need to fill in whatever gaps we can really on measurement and let's go from there.

Mark Zagorski: Advertisers were using kind of a piece-as-parts solution at that point.

Mark Zagorski: And now we've got an opportunity to consolidate all of those kind of solutions into a single platform And that's exactly the vision that we pitched them on and that we sold them and you know day one They're not starting with all those solutions, but they know what's available now We have the opportunity to move those other players out and deliver them a cohesive platform, and you're exactly right These are sophisticated advertisers

Mark Zagorski: They're big spenders, and I think there's a big opportunity for us down the road.

Speaker Change: you know, the ramp after that product is, you know, goes GA. It sounds like maybe it'll be a quicker adoption curve relative to what we saw.

Mark Zagorski: on the brand safety and suitability stuff, given the comments you made about, you know, some folks waiting for that to be available, but we'd love to get any more color there if possible.

Mark Zagorski: Thank you.

Speaker Change: Yeah, so I don't know if I would say it would be quicker. I think the scaling within a single customer will be a bit faster because you've got that flywheel going between measurement and activation. I think the challenge is to feed that activation. You need to have some base level of measurement and some learnings around that.

Mark Zagorski: trial period, a scaling up period that will take place. So, and part of that is measurement. So this only works with measurement in place.

Mark Zagorski: It's one key thing to note. So you cannot activate the meta solution without having db measurement also in place.

Mark Zagorski: So the same kind of up-cycle time that it takes to get measurement going and people to understand what those results are is still going to take place even with the activation is. Where we see the flywheel happening is once those two things start working together, hopefully it allows us to expand faster within those customers.

Speaker Change: Okay. Thank you, Mark.

Mark Zagorski: Sure.

Speaker Change: Thank you. Our next questions come from the line of Mark Murphy with JPMorgan. Please proceed with your questions.

Mark Zagorski: Hey, this is Arteon for Mark. Thanks for taking the question. You mentioned during the call that there is some uncertainty around how quickly traditional ad spending rebounds.

Mark Zagorski: After the election. Could you just double click on that and maybe explain why that dynamic might be the why might persist after the election is over? Thanks.

Speaker Change: Yeah, so I'll take that. So, you know, it's known, of course, you know, we mentioned it in our in our remark that, you know, grant spending softened up.

Speaker Change: up to the elections, right, because the political dollars had crowded out of the traditional expand. You know, the uncertainty that's coming after is more about how quickly we will see those dollars.

Speaker Change: come back and slow back into the ecosystem. We definitely expect it, but there is some uncertainty as to how quickly that will happen. It is a busy fourth quarter, especially for our large brand advertisers.

Mark Zagorski: And so, it's an uncertainty in the environment, but it's also an uncertainty as to how quickly those dollars will come back.

Speaker Change: I don't think, just to add a little color, we've kind of never seen this before, right? And that's what we're kind of.

Speaker Change: What we're waiting on, which is so many dollars. I mean, more dollars were spent in this election cycle than ever, obviously, in the history of political ad spending. And a vast majority of it was digital, right? Going into social, going into even into programmatic and CTV. I mean, this was the CTV election.

Mark Zagorski: So, it did crowd a lot of brands and a lot of brands sat on the sidelines. They just decided not to spend, period. We heard this directly from some of our customers.

Speaker Change: So, how quickly they say, all right, it's safe to get back in the water is yet to be seen. But, you know, we're obviously, you know, here and ready to rip when they are.

Speaker Change: That's great context. Thank you.

Speaker Change: Thank you. There are no further questions at this time. I would now like to hand the floor back over to Mark Zagorski for any closing remarks.

Mark Zagorski: Thank you all for your time today. We are laser focused on executing against our Protection and Performance Plan and remain excited about the significant opportunities that lie ahead. We look forward to seeing many of you at the conferences in the coming months.

Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.