DoubleVerify Holdings, Inc. Q2 2025 earnings call

Good afternoon and welcome to DoubleVerify's second quarter 2025 earnings conference call. With us today are Mark Zagorski, CEO, and Nicola Allais, 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 Form 10-Q and our annual report on Form 10-K. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results. Reconciliations for the most comparable GAAP measures are available in today's earnings 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 it over to Mark.

Thanks, Tejal. We delivered a standout second quarter with revenue up 21% year over year at $189 million, beating the raised guidance we issued at Innovation Day and building on the 17% growth we delivered in Q1. Growth was broad-based with double-digit expansion across all three of our revenue lines: activation, measurement, and supply side. Our advertiser business, which accounts for 91% of our total revenue, also delivered 21% year-over-year growth, its highest quarterly growth rate since the fourth quarter of 2023. We drove Q2 growth with the same focused execution that fueled growth in Q1 by expanding our relationships with existing advertisers and rapidly scaling new ones. The largest share of our first-half revenue growth came from existing advertisers attaching new DV solutions and expanding usage across channels and geographies.

That momentum underscores the success of our attach, stack, and scale revenue growth strategy, which leverages our growing proprietary suite of verification and optimization solutions to build deeper customer relationships that deliver bottom-line results. Our recently launched Media Advantage Platform, or MAP, is a first-to-market unified approach that brings together verification, optimization, and outcomes measurement, powered by the recently acquired Rockerbox asset across programmatic, social, and CTV. MAP is clearly resonating with the market, enabling new and current customers to protect media quality and improve efficiency with scaled integrated solutions that aren't available anywhere else. Further underscoring the value and appeal of DV's differentiated solutions and revenue engine, roughly a third of our first-half revenue growth came from new advertisers, with last year's MOAT advertiser wins contributing roughly one percentage point to our 19% first-half revenue growth.

Large enterprise customers such as Microsoft and Kenvue, signed in 2024, are now scaling meaningfully, a testament to our ability to displace incumbents, gain share, and grow our engagements with those customers over time. This represents more than a one-time migration lift. It exemplifies our consistent execution to drive sustained new customer growth by focusing on our competitively differentiated stack. We expect a gradual ramp of new win momentum in 2025, which will largely benefit 2026, supported by strong enterprise win rates and an active pipeline. To reiterate, though, the primary driver of our growth continues to be existing customers stacking new DV solutions and expanding their usage, reinforcing the durability of our model and the strength of our net revenue retention.

Our success to date is occurring in parallel to a business transition in which we are evolving our product suite to navigate a shifting market and take advantage of innovations in AI. While we continue to develop our social activation and CTV product suites, we've been able to drive strong upsell momentum of our core solutions, resulting in healthy recurring revenue growth and underscoring the durability of our customer value proposition. Our business momentum is clear in the strength of our customer relationships. In Q2, we secured major expansions with global leaders such as Reckitt Benckiser, Sony PlayStation, Electronic Arts, General Motors, Lexus, Fidelity, and Kroger, all which deepened their investment in DV across new solutions, markets, or media types.

We also added several new enterprise clients across retail, consumer goods, and financial services, including a leading toy and entertainment company, a major global payments platform, and one of the world's best-known fashion retailers, along with new logos like Lidl, Parabo, TransUnion, Sage, Zendesk, Banco do Brasil, Dave's Hot Chicken, and iFit. We expect our new client wins to further accelerate our attach and stack strategy by expanding both the breadth and depth of advertiser relationships. New win momentum is already evident in the evolution of our customer base. Ten recently won large advertisers now feature in our top 100, with three ranking among our top 15 revenue contributors. Their rapid scaling, fueled by strong adoption of DV's solutions, demonstrates how the compounding power of our product stack is resonating with customers and delivering immediate, measurable value.

At the same time, our revenue is becoming more diversified as we grew the number of advertiser customers generating over $200,000 in annual revenue by 12%, a clear indication that our platform is driving deeper engagement and long-term value. Now, let's dive into our second quarter performance across three of our key growth environments: social media, CTV, and programmatic. Social continues to be one of DV's most important growth opportunities. In Q2, social measurement revenue grew 14% year over year, led by the growth on YouTube, TikTok, and Meta, and global advertiser expansion across CPG, tech, healthcare, and media. A major milestone this quarter was the beta launch of DV Authentic Advantage on YouTube, our most advanced integrated solution to date. While it unifies pre-bid suitability, Scibids AI optimization, and post-bid measurement, this solution is far more than a bundling of capabilities.

DV Authentic Advantage introduces a first-of-its-kind automated workflow that harnesses the unique strengths of each component solution to drive outcomes that are better than the sum of its parts. Focused initially on the high-value social and social video sectors, DV Authentic Advantage will be generally available in early September, enabling advertisers to achieve stronger contextual brand relevance, greater reach, and more efficient spend, all while maintaining their desired standards of protection. It's evidence of how DV continues to lead through purposeful innovation, solving real advertiser challenges and delivering measurable impact. As the only player in the market with this unification of capabilities, we're delivering what many in the industry have long sought, protection without compromising performance. DV Authentic Advantage has now been tested across 90 campaigns and is delivering customers measurable gains in CPMs, scale, and suitability.

More importantly, it's driving incremental value for customers by expanding product adoption, increasing customer lifetime value, and strengthening our position across measurement, activation, and optimization. It's a clear example of how the integrated power of DV's Media Advantage Platform is unlocking new growth. On Meta, we continue to scale both activation and measurement. Since launching our pre-screen suitability solution on Meta in late Q1, we've seen solid momentum. Revenue from Meta activation solutions remains ahead of plan, with 26 advertisers live, including 13 of our top 100 now leveraging pre-screen suitability on the platform. With both pre-screen activation and post-bid measurement, we are now able to compound value across the media transaction and monetize our social impressions twice.

Pre-screen impressions, as a percentage of our post-bid suitability impressions on Meta, doubled from March to Q2 this year, underscoring our expectation that this solution will be a more significant growth contributor into 2026. We are also actively evolving our initial brand suitability solution that was launched in 2024, expanding brand suitability measurement on Meta to include more categories. By connecting our full suite of pre-screen controls with post-bid AI-powered measurement, we continue to deliver the true closed-loop coverage across Facebook and Instagram feeds and Reels. Turning to CTV, the thesis that the premium nature of CTV negates the need for verification solutions is not playing out in the market. CTV remains one of DV's most exciting growth drivers and a key part of our goal to verify everywhere media runs. In Q2, CTV measurement impressions grew 45% year over year, significantly outpacing overall company growth.

CTV represented 11% of total measurement impression volumes in the first half of 2025 and 22% of our non-social measurement volumes, a sign of growing advertising adoption and deeper engagement across premium streaming inventory. On the activation front, adoption of DV's Authentic Brand Suitability and fraud solutions continues to build across CTV inventory. On our largest DSP partner, CTV now represents nearly 20% of video impressions where advertisers apply ABS and fraud, clear evidence that pre-bid protection is becoming standard even in premium streaming environments. On the supply side, we continue to expand our CTV footprint through new partnerships with major platforms, including Samsung and TCL. As ad dollars continue to shift from linear TV to streaming, DV is scaling right along with them.

What's often lumped into the programmatic open web is, in reality, a fast-growing share of high-quality CTV inventory, and DV is uniquely positioned to capture that opportunity. Our 2025 Global Insights report reinforces this. 68% of U.S. advertisers say CTV outperforms their baseline KPIs, yet only 57% are investing meaningfully in the channel today, pointing to significant investment headroom. Despite progress in CTV supply quality, advertisers still face fragmentation, limited transparency, and inconsistent measurement, all areas where DV adds critical value. DV continues to invest in and enhance our CTV suite and has roadmapped numerous CTV activation and measurement expansions, which we believe will continue to drive our CTV growth into 2026. Now let's turn to programmatic, a high-growth and dynamic part of our business. Programmatic today goes well beyond just websites on the open web.

It powers CTV video, fuels the rise of retail media networks, and supports a wide range of high-engagement inventory that sits outside social walled gardens. In many ways, it's become a catch-all for the next wave of digital opportunity. As AI transforms how consumers discover content, programmatic has become the infrastructure layer powering access to new, high-value, addressable engagement. Advertisers looking for scalable, cost-effective, and brand-suitable reach beyond social walled gardens are increasingly leaning into a broader digital ecosystem where quality engagement is growing rapidly. DV powers that ecosystem, aligning suitability, performance, and accountability at every impression. In Q2, DV saw healthy programmatic volume across both video and display formats, with activation acceleration driven by ABS, which grew 23% year over year, and by Scibids AI, which delivered another strong quarter. Since acquiring Scibids in August 2023, we've successfully upsold its AI optimization capabilities to hundreds of DV customers.

Thanks, Mark, and good afternoon, everyone. Q2 2025 was another strong quarter with both revenue and adjusted EBITDA exceeding the high end of the guidance we previously raised intra-quarter at Innovation Day. We achieved balanced performance across the business, with growth converting into healthy profitability, even as we continued to invest in long-term initiatives supporting the evolution of the DV Media Advantage Platform vision, including products such as DV Authentic Advantage and the integration of the recently acquired Rockerbox solutions. Total revenue grew 21% year over year to $189 million, building on a strong 17% growth in Q1 2025. Adjusted EBITDA grew 22% year over year to $57 million, with a 30% margin, up from a 27% margin in Q1 2025. Advertiser revenue grew 21% year over year in the second quarter, driven by stronger measurement attach and deeper product stacking or upsells, driving higher volumes across the platform.

Media transactions measured, or MTMs, increased 19% year over year, while measured transaction fees, or MTFs, declined 1% year over year, a relative improvement compared to the same period last year due to changes in product mix and geographic mix, driven by strong upselling of premium products such as ABS and social activation. Activation revenue grew 25% year over year in the second quarter. All four activation solution groupings, ABS, core programmatic, social activation, and Scibids AI, contributed to our second quarter growth. ABS, which accounted for 52% of activation revenue this quarter, grew 23% year over year. ABS growth is being driven by expansion within existing advertisers across more brands and markets, new logo wins, and upsells to current clients.

We achieved solid ABS upsell momentum, with 70% of our top 500 customers now using the product in the second quarter, up from 65% in the same quarter last year. Non-ABS activation revenue grew 26% year over year, driven by both existing and new customer adoption. Turning to measurement, revenue grew 15% year over year in the second quarter, driven primarily by growth in social. Social measurement revenue rose 14%, accounting for 48% of total measurement revenue. Growth was driven by both greater adoption among existing customers and by new advertiser wins. YouTube, TikTok, and Meta remain the primary contributors, collectively accounting for over 90% of Q2 social measurement revenue. Non-social measurement also grew 16%, supported by the Rockerbox acquisition, which remains on track to contribute approximately $8 million to DV's full-year 2025 revenue. International measurement revenue grew 8% year over year, representing 28% of total measurement revenue.

Finally, supply-side revenue grew 26% year over year, driven by increased revenue from existing and new platform and publisher customers. Shifting to expenses, cost of revenue increased by $7 million year over year, reflecting continued growth and activation due to revenue sharing with partners, as well as ongoing investments in cloud infrastructure to support future scale. Revenue less cost of sale was 82% in the second quarter, and we expect it to remain within our target range of 80%-82% for the year as we invest to meet long-term demand. R&D expenses increased as we continue to invest in engineering talent, software, and services to support our product roadmap, including advancements in AI, the integration of Rockerbox, and continued development of DV Authentic Advantage. Sales and marketing expenses grew more modestly than revenue, highlighting operating leverage, and G&A included costs related to the Rockerbox acquisition and other strategic initiatives.

As we shared last quarter, we expect hiring to remain disciplined for the rest of the year as we prioritize product innovation, realign resources behind growth initiatives, and continue to optimize the business. Adjusted EBITDA was $57 million in the second quarter, driven by higher revenue and representing a 30% margin ahead of expectations. We generated approximately $50 million in net cash from operations compared to $36 million in the same quarter last year. Capital expenditures were approximately $10 million compared to $7 million in the same quarter last year. We ended the quarter with approximately $217 million in cash and cash equivalents and short-term investments. We remain committed to a prudent and strategic capitalization strategy as we balance investments in the business operations, evaluate M&A opportunities, and consider additional share repurchases. In the first half of 2025, we'll repurchase $82 million of stock.

As of June 30, $140 million remained available under the current authorization, and we will continue to evaluate buyback, including as a means to offset the dilution impact from our stock-based compensation program. Turning to guidance, we're raising full-year 2025 revenue growth to approximately 15% year over year, up from the prior guide of approximately 13% year over year. This increase reflects not only the first half outperformance, but also a higher growth outlook for each of Q3 and Q4. We're reaffirming full-year adjusted EBITDA margin guidance of approximately 32%, reflecting continued investment discipline alongside strong top-line momentum. For Q3, we expect revenue to range between $188 million and $192 million, representing a 12% year-over-year growth at the midpoint. We expect adjusted EBITDA to range between $60 million and $64 million, representing a 33% margin at the midpoint.

We expect stock-based compensation to range between $27 million and $30 million, and diluted weighted average shares outstanding to range between 167 million and 169 million shares. We are raising both Q3 and Q4 outlooks based on strong momentum from our existing advertiser base, driven by continued success in getting advertisers to attach new DV solutions and expand usage across channels and markets. At the same time, we're accounting for increasingly tougher year-over-year comparisons on new customer revenue growth in the second half and continued macroeconomic uncertainty. In parallel, we continue to convert a strong pipeline of new enterprise wins that are expected to scale in 2026 and beyond, further supporting our long-term growth trajectory.

Importantly, we continue to view 2025 as a transition year, as we are in the early stages of monetizing the large opportunities we outlined at Innovation Day, most notably Meta’s pre-screen suitability solution and DV Authentic Advantage. These social activation solutions require advertisers to go through testing, integrate them into existing workflows, and allocate budgets, processes that take time. As adoption ramps up, we expect monetization to build gradually, with more meaningful contributions beginning in 2026 and scaling into 2027. In conclusion, we delivered a strong second quarter with double-digit revenue growth across all three revenue lines, healthy profitability, and solid cash generation. We're raising full-year guidance to reflect stronger than expected performance in the first half and stronger second-half momentum, particularly as existing customers continue to expand through upsell-driven growth.

We ended a quarter continuing to carry no debt and with $217 million in cash and short-term investments, reinforcing the strength of our financial position. As we look to the second half, we remain focused on disciplined execution and on sustaining our growth momentum. With that, we'll open the line for questions. Operator, please go ahead.