UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
EXCHANGE ACT OF 1934
For the quarterly period ended
or
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of Principal Executive Offices)
(
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading symbol | Name of Exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
☒ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 21, 2021, there were
TABLE OF CONTENTS
2
Note About Forward Looking Statements
This Quarterly Report on Form 10-Q (“Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included in this Quarterly Report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs, savings and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct.
You should read the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of our final Prospectus, dated April 20, 2021 and filed with the Securities and Exchange Commission (“SEC”), pursuant to Rule 424(b)(4) under the Securities Act, on April 22, 2021 (the “Prospectus”), for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. There may be other factors not presently known to us or which we currently consider to be immaterial that may cause our actual results to differ materially from the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.
“DoubleVerify,” “the DV Authentic Ad,” “Authentic Brand Safety,” “DV Pinnacle” and other trademarks of ours appearing in this report are our property and we deem particularly important to the marketing activities conducted by each of our businesses. Solely for convenience, the trademarks, service marks and trade names referred to in this report are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies' trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
Unless the context otherwise requires, the terms “DoubleVerify,” ‘‘we,’’ ‘‘us,’’ ‘‘our,’’ and the ‘‘Company,’’ as used in this report refer to DoubleVerify Holdings, Inc. and its consolidated subsidiaries. DoubleVerify Holdings, Inc. and its subsidiary DoubleVerify MidCo, Inc. changed their names from Pixel Group Holdings Inc. and Pixel Parent Inc., respectively, prior to the date of this report. All references to DoubleVerify Holdings, Inc. and DoubleVerify MidCo, Inc. are to these entities both prior to and after the name changes.
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DoubleVerify Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| As of |
| As of | |||
(in thousands, except per share data) | March 31, 2021 | December 31, 2020 | ||||
Assets: |
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Current assets |
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Cash and cash equivalents | $ | | $ | | ||
Trade receivables, net of allowances for doubtful accounts of $ | | | ||||
Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets, net |
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Deferred tax assets |
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Other non-current assets |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders' Equity: |
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Current liabilities |
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Trade payables | $ | | $ | | ||
Accrued expense |
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Income tax liabilities |
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Current portion of capital lease obligations |
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Contingent considerations current |
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Other current liabilities |
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Total current liabilities |
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Long-term debt |
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Capital lease obligations |
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Deferred tax liabilities |
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Other non-current liabilities |
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Contingent considerations non-current |
| — |
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Total liabilities | $ | | $ | | ||
Commitments and Contingencies (Note 11) |
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Stockholders’ equity |
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Common stock, $ | | |||||
Preferred stock, $ |
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Additional paid-in capital | | | ||||
Treasury stock, at cost, | ( | ( | ||||
Retained earnings |
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Accumulated other comprehensive income, net of income taxes |
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Total stockholders’ equity |
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Total liabilities and stockholders' equity | $ | | $ | |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
4
DoubleVerify Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended March 31, | ||||||
(in thousands, except per share data) |
| 2021 |
| 2020 | ||
Revenue | $ | | $ | | ||
Cost of revenue (exclusive of depreciation and amortization shown separately below) |
| |
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Product development |
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Sales, marketing and customer support |
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General and administrative |
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Depreciation and amortization |
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Income from operations |
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Interest expense |
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Other (income), net |
| ( |
| ( | ||
Income before income taxes |
| |
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Income tax expense |
| |
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Net income | $ | | $ | | ||
Earnings per share: |
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Basic | $ | | $ | | ||
Diluted | $ | | $ | | ||
Weighted-average common stock outstanding: |
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Basic |
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Diluted |
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Comprehensive income: |
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Net income | $ | | $ | | ||
Other comprehensive (loss): |
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Foreign currency cumulative translation adjustment |
| ( |
| ( | ||
Total comprehensive income | $ | | $ | |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
5
DoubleVerify Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
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| Accumulated |
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Other | ||||||||||||||||||||||||
Comprehensive | ||||||||||||||||||||||||
Additional | Income (Loss) | Total | ||||||||||||||||||||||
Common Stock | Preferred Stock | Treasury Stock | Paid-in | Retained | Net of | Stockholders’ | ||||||||||||||||||
(in thousands) |
| Shares | Amount |
| Shares | Amount |
| Shares | Amount |
| Capital |
| Earnings |
| Income Taxes |
| Equity | |||||||
Balance as of January 1, 2021 | | $ | | | $ | | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Foreign currency translation adjustment | — |
| — | — |
| — | — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Stock-based compensation expense | — |
| — | — |
| — | — |
| — |
| |
| — |
| — |
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Common stock issued upon exercise of stock options | |
| — | — |
| — | — |
| — |
| |
| — |
| — |
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Net income | — |
| — | — |
| — | — |
| — |
| — |
| |
| — |
| | |||||||
Balance as of March 31, 2021 | | $ | | | $ | | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Balance as of January 1, 2020 | | $ | | — | $ | — | — | $ | — | $ | | $ | | $ | ( | $ | | |||||||
Foreign currency translation adjustment | — |
| — | — |
| — | — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Stock-based compensation expense | — |
| — | — |
| — | — |
| — |
| |
| — |
| — |
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Common stock issued upon exercise of stock options | |
| — | — |
| — | — |
| — |
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| — |
| — |
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Net income | — |
| — | — |
| — | — |
| — |
| — |
| |
| — |
| | |||||||
Balance as of March 31, 2020 | | $ | | — | $ | — | — | $ | — | $ | | $ | | $ | ( | $ | |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
6
DoubleVerify Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) |
| 2021 |
| 2020 | ||
Operating activities: |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities |
| |||||
Bad debt (recovery) expense |
| ( |
| | ||
Depreciation and amortization expense |
| |
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Amortization of debt issuance costs |
| |
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Accretion of acquisition liabilities |
| — |
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Deferred taxes |
| ( |
| ( | ||
Stock-based compensation expense |
| |
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Interest expense (income) |
| |
| ( | ||
Change in fair value of contingent consideration |
| — |
| ( | ||
Offering costs | | | ||||
Other |
| ( |
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Changes in operating assets and liabilities net of effect of business combinations |
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Trade receivables |
| |
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Prepaid expenses and other current assets |
| |
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Other non-current assets |
| ( |
| ( | ||
Trade payables and other liabilities |
| ( |
| | ||
Accrued expenses |
| ( |
| ( | ||
Other current liabilities |
| |
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Other non-current liabilities |
| ( |
| | ||
Net cash provided by operating activities |
| |
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Investing activities: |
|
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Purchase of property, plant and equipment |
| ( |
| ( | ||
Net cash (used in) investing activities |
| ( |
| ( | ||
Financing activities: |
|
|
|
| ||
Payments of long-term debt | — | ( | ||||
Payments related to offering costs | ( | ( | ||||
Payment of contingent consideration related to Zentrick acquisition |
| — |
| ( | ||
Proceeds from common stock issued upon exercise of stock options | | | ||||
Capital lease payments |
| ( |
| ( | ||
Net cash (used in) financing activities |
| ( |
| ( | ||
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
| ( |
| ( | ||
Net increase in cash, cash equivalents, and restricted cash |
| |
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Cash, cash equivalents, and restricted cash - Beginning of period |
| |
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Cash, cash equivalents, and restricted cash - End of period | $ | | $ | | ||
Cash and cash equivalents | | | ||||
Restricted cash (included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets) |
| |
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Total cash and cash equivalents and restricted cash | $ | | $ | | ||
Supplemental cash flow information: |
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Cash paid for taxes |
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Cash paid for interest |
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Non-cash investing and financing activities: |
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Acquisition of equipment under capital lease |
| |
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Capital assets financed by accounts payable |
| — |
| | ||
Offering costs included in accounts payable and accrued expense | | |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
7
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
1. Description of Business
DoubleVerify is a software platform for digital media measurement, data and analytics. The Company’s solutions provide advertisers with a single measure of digital ad quality and effectiveness, the DV Authentic Ad, which ensures that a digital ad was delivered in a brand-safe environment, fully viewable, by a real person and in the intended geography. The Company’s software interface, DV Pinnacle, provides customers with access to data on all of their digital ads and enables them to make changes to their ad strategies on a real-time basis. The Company’s software solutions are integrated across the entire digital advertising ecosystem, including programmatic platforms, Connected TV (“CTV”), social media channels and digital publishers. The Company’s solutions are accredited by the Media Rating Council, which allows the Company’s data to be used as a single-source standard in the evaluation and measurement of digital ads.
The Company was incorporated on August 16, 2017, is registered in the state of Delaware and is the parent company of DoubleVerify Midco, Inc. (“MidCo”), which is in turn the parent company of DoubleVerify Inc. On August 18, 2017, DoubleVerify Inc. entered into an agreement and plan of merger (the “Agreement”), whereby the Company, formerly known as Pixel Group Holdings, Inc. and Pixel Merger Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of the Company, agreed to provide for the merger of the Merger Sub with DoubleVerify Inc. pursuant to the terms and conditions of the Agreement.
On the effective date, Merger Sub was merged with and into DoubleVerify Inc. whereupon the separate corporate existence of Merger Sub ceased and DoubleVerify Inc. continued as the surviving corporation.
Through the merger, the Company acquired
The Company has wholly owned subsidiaries in numerous jurisdictions including Israel, the United Kingdom, Germany, Singapore, Australia, Canada, Brazil, Belgium, Mexico, France, Japan, Spain, and Finland, and operates in
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Preparation and Principles of Consolidation
The accompanying Condensed Consolidated Balance Sheets as of March 31, 2021, the Condensed Consolidated Statements of Operations and Comprehensive Income, Cash Flows and Stockholders’ Equity for the three months ended March 31, 2021 and 2020 reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair presentation of the results for the periods shown in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules and regulations of the SEC for interim financial reporting periods. Accordingly, certain information and footnote disclosures have been condensed or omitted pursuant to SEC rules that would ordinarily be required under GAAP for complete financial statements. These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of December 31, 2020 and 2019 and for the years then ended and the accompanying notes thereto included in our Prospectus.
On March 29, 2021, the Company effected a
8
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
Use of Estimates and Judgments in the Preparation of the Condensed Consolidated Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expense during the reporting periods. Significant estimates and judgments are inherent in the analysis and measurement of items include, but not limited to: revenue recognition criteria including the determination of principal versus agent revenue considerations, income taxes, the valuation and recoverability of goodwill and intangible assets, the assessment of potential loss from contingencies, the allowance for doubtful accounts, and assumptions used in determining the fair value of stock-based compensation. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates. These estimates are based on the information available as of the date of the Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards.
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to accounts receivable. This guidance is effective for annual reporting periods beginning after December 15, 2022 for non-public entities, including interim periods within that reporting period. Early adoption is permitted and the update allows for a modified retrospective method of adoption. The Company is currently in process of evaluating the impact of this standard on the Company’s Condensed Consolidated Financial Statements.
Cloud Computing
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). This update was issued to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments in ASU 2018-15 are effective for annual periods beginning after December 15, 2020 for non-public entities, and interim periods within annual periods beginning after December 15, 2021. The update allows for a retrospective or prospective method of adoption. The Company is currently in process of evaluating the impact of this standard on the Company’s Condensed Consolidated Financial Statements.
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases Topic 842 (“ASU 2016-02”). The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2021 for non-public entities, with early adoption permitted. The update allows for a modified retrospective method of adoption. The Company is currently in process of evaluating the impact of this standard on the Company’s Condensed Consolidated Financial Statements.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) (“ASU 2019-12”). ASU 2019-12 issued guidance on the accounting for income taxes that, among other provisions, eliminates
9
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
certain exceptions to existing guidance related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. For non-public entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. Certain amendments included in the update allows for a retrospective, modified retrospective, or prospective methods of adoption. The adoption of this guidance is not expected to have a material impact on the Company’s Condensed Consolidated Financial Statements.
3. Revenue
The following table disaggregates revenue between advertiser customers, where revenue is generated based on number of ads measured for Direct or measured and purchased for Programmatic, and supply-side customers, where revenue is generated based on contracts with minimum guarantees or contracts that contain overages after minimum guarantees are achieved.
Disaggregated revenue by customer type is as follows:
| Three Months Ended | |||||
March 31, | ||||||
(in thousands) |
| 2021 |
| 2020 | ||
Advertiser - direct | $ | | $ | | ||
Advertiser - programmatic |
| |
| | ||
Supply-side customer |
| |
| | ||
Total revenue | $ | | $ | |
Contract assets relate to the Company’s conditional right to consideration for completed performance under the contract (e.g., unbilled receivables). Trade receivables, net of allowance for doubtful accounts, include unbilled receivable balances of $
4. Goodwill and Intangible Assets
There were
The following table summarizes the Company’s intangible assets and related accumulated amortization:
(in thousands) | March 31, 2021 |
| December 31, 2020 | |||||||||||||||
Gross Carrying | Accumulated | Net Carrying | Gross Carrying | Accumulated | Net Carrying | |||||||||||||
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | |||||||
Trademarks and brands | | ( | | | ( | | ||||||||||||
Customer relationships |
| |
| ( |
| |
| |
| ( |
| | ||||||
Developed technology |
| |
| ( |
| |
| |
| ( |
| | ||||||
Total intangible assets | $ | | $ | ( | $ | | $ | | $ | ( | $ | |
Amortization expense for each of the three months ended March 31, 2021 and March 31, 2020 is $
10
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
Estimated future expected amortization expense of intangible assets as of March 31, 2021, is as follows:
(in thousands) |
|
| |
2021 | $ | | |
2022 | | ||
2023 | | ||
2024 | | ||
2025 | | ||
2026 | | ||
Thereafter |
| | |
Total | $ | |
The weighted-average remaining useful life by major asset classes as of March 31, 2021 is as follows:
| (In years) | |
Trademarks and brands |
| |
Customer relationships |
| |
Developed technology |
|
There were
5. Property, Plant and Equipment
Property, plant and equipment, including equipment under capital lease obligations and capitalized software development costs, consists of the following:
As of | ||||||
(in thousands) | March 31, 2021 | December 31, 2020 | ||||
Computers and peripheral equipment |
| $ | |
| $ | |
Office furniture and equipment |
| |
| | ||
Leasehold improvements |
| |
| | ||
Capitalized software development costs |
| |
| | ||
Less accumulated depreciation and amortization |
| ( |
| ( | ||
Total property, plant and equipment, net | $ | | $ | |
For the three months ended March 31, 2021 and 2020, total depreciation expense was $
Property and equipment financed through capital lease obligations, consisting of computer equipment, totaled $
11
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
6. Fair Value Measurement
The following tables present the Company’s financial instruments that are measured at fair value on a recurring basis:
As of March 31, 2021 | ||||||||||||
Quoted Market | ||||||||||||
Prices in Active | Significant | |||||||||||
(in thousands) | Markets for | Significant Other | Unobservable | |||||||||
Identical Assets | Observable Inputs | Inputs | Total Fair Value | |||||||||
(Level 1) | (Level 2) | (Level 3) | Measurements | |||||||||
Assets: |
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Cash equivalents: | $ | | $ | — | $ | — | $ | | ||||
Liabilities: | ||||||||||||
Contingent consideration current |
| — |
| — |
| |
| | ||||
Contingent consideration non-current |
| — |
| — |
| — |
| — | ||||
Total contingent consideration | $ | — | $ | — | $ | | $ | |
As of December 31, 2020 | ||||||||||||
Quoted Market |
| |||||||||||
Prices in Active | Significant | |||||||||||
(in thousands) | Markets for | Significant Other | Unobservable | |||||||||
| Identical Assets |
| Observable Inputs | Inputs | Tota1 Fair Value | |||||||
(Level 1) | (Level 2) |
| (Level 3) | Measurements | ||||||||
Assets: |
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Cash equivalents: |
| $ | |
| $ | — |
| $ | — |
| $ | |
Liabilities: | ||||||||||||
Contingent consideration current | — | — | | | ||||||||
Contingent consideration non-current |
| — |
| — |
| |
| | ||||
Total contingent consideration | $ | — |
| $ | — |
| $ | |
| $ | | |
|
Cash equivalents, consisting of money market funds and time deposits, of $
Contingent consideration relates to potential payments that the Company may be required to make associated with a business combination. To the extent that the valuations of these liabilities are based on inputs that are less observable or not observable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for measures categorized in Level 3.
There were
The fair value of the component of contingent consideration related to achievement of revenue targets have been estimated using a Monte Carlo model to simulate future performance of the acquired business under a risk-neutral framework; significant assumptions include a risk-adjusted discount rate of
12
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
7. Long-term Debt
On October 1, 2020, DoubleVerify Inc., as borrower (the “Borrower”), and MidCo, as guarantor, entered into an amendment and restatement agreement with the banks and other financial institutions party thereto, as lenders, and Capital One, National Association, as administrative agent, letter of credit issuer and swing lender, and others, to (i) amend and restate the Prior Credit Agreement as defined in the Prospectus (the Prior Credit Agreement, as amended and restated on October 1, 2020, the “Credit Agreement”) and (ii) replace the Prior Credit Facilities (as defined in the Prospectus) with a new senior secured revolving credit facility (the “New Revolving Credit Facility”) in an aggregate principal amount of $
The New Revolving Credit Facility contains a number of significant negative covenants. Subject to certain exceptions, these covenants require the Borrower to comply with certain requirements and restrictions to, among other things: incur indebtedness; create liens; engage in mergers or consolidations; make investments, loans and advances; pay dividends or other distributions and repurchase capital stock; sell assets; engage in certain transactions with affiliates; enter into sale and leaseback transactions; and make certain accounting changes. As a result of these restrictions, substantially all of the net assets of the Borrower are restricted from distribution to the Company or any of its holders of equity.
The New Revolving Credit Facility has a first priority lien on substantially all of the assets of MidCo, the Borrower and Ad-Juster, Inc., the Company’s indirect subsidiary. The New Revolving Credit Facility requires the Borrower to remain in compliance with a maximum total net leverage ratio and a minimum fixed charge coverage ratio as defined in the Credit Agreement.
As of March 31, 2021, the maximum total net leverage ratio and minimum fixed charge coverage ratio is
As of March 31, 2021 and December 31, 2020, $
8. Income Tax
The Company’s quarterly income tax provision is calculated using an estimated annual effective income tax rate (“ETR”) based on actual historical information and forward-looking estimates. The Company’s estimated annual ETR may fluctuate due to changes in forecasted annual pre-tax income, changes in the jurisdictional mix of forecasted pre-tax income, and changes to actual or forecasted permanent book to tax differences (e.g., non-deductible expenses). In addition, the Company’s ETR for a particular reporting period may fluctuate as the result of changes to the valuation allowance for net deferred tax assets, the impact of anticipated tax settlements with federal, state, or foreign tax authorities, or the impact of tax law changes. The Company identifies items that are unusual and non-recurring in nature and treat these as discrete events. The tax effect of these discrete events is booked entirely in the quarter in which they occur.
During the three months ended March 31, 2021, the Company recorded an income tax provision of $
13
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
The COVID-19 (as defined herein) pandemic has a global reach, and many countries are introducing measures that provide relief to taxpayers in a variety of ways. In March 2020, the U.S. government enacted tax legislation containing provisions to support businesses during the COVID-19 pandemic (the “CARES Act”), including deferment of the employer portion of certain payroll taxes, refundable payroll tax credits, and technical amendments to tax depreciation methods for qualified improvement property. The CARES Act did not have a material impact on the Company’s income tax provision for the three months ended March 31, 2021.
A valuation allowance has been established against a small amount of certain net foreign deferred tax assets and US tax loss carryforward. All other net deferred tax assets have been determined to be more likely than not realizable.
The Company and its subsidiaries file income tax returns with the Internal Revenue Service (“IRS”) and various state and international jurisdictions. The Company’s Israeli subsidiary is under audit by the Israeli Tax Authority for the 2016-2018 tax years. This examination may lead to ordinary course adjustments or proposed adjustments to the Company’s taxes. Aside from this, the Company is not currently under audit in any other jurisdiction.
9. Earnings Per Share
The following table reconciles the numerators and denominators used in computations of the basic and diluted EPS for the three months ended March 31:
Three Months Ended | ||||||
March 31, | ||||||
2021 | 2020 | |||||
Numerator: |
|
|
|
| ||
Net Income (basic and diluted) | $ | | $ | | ||
Denominator: |
|
|
|
| ||
Weighted-average common shares outstanding |
| |
| | ||
Dilutive effect of share-based awards |
| |
| | ||
Weighted-average dilutive shares outstanding |
| |
| | ||
Basic earnings per share | $ | | $ | | ||
Diluted earnings per share | $ | | $ | |
Approximately
10. Stock-Based Compensation
Employee Equity Incentive Plan
On September 20, 2017, the Company established its 2017 Omnibus Equity Incentive Program (the “2017 Plan”) which provides for the granting of equity based awards to certain employees, directors, independent contractors, consultants and agents. Under the 2017 Plan, the Company may grant non-qualified stock options, stock appreciation rights, restricted stock units, and other stock-based awards up to
Options become exercisable subject to vesting schedules up to
Restricted stock units are subject to vesting schedules up to
14
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
A summary of stock option activity for the three-months ended March 31, 2021 is as follows:
Stock Option | ||||||||||
Weighted Average | ||||||||||
Remaining | ||||||||||
Number of | Weighted Average | Contractual Life | Aggregate | |||||||
Options | Exercise Price | (Years) | Intrinsic Value | |||||||
Outstanding as of December 31, 2020 |
| |
| $ | |
|
| $ | | |
Options granted |
| | |
| — |
| — | |||
Options exercised |
| ( | |
| — |
| — | |||
Options forfeited |
| ( | |
| — |
| — | |||
Outstanding as of March 31, 2021 |
| | $ | |
|
| $ | | ||
Options expected to vest as of March 31, 2021 |
| | $ | |
| — |
| $ | | |
Options exercisable as of March 31, 2021 |
| | $ | |
| — |
| $ | |
Stock options include grants to executives that contain both market-based and performance-based vesting conditions. There were
The weighted average grant date fair value of options granted during the three months ended March 31, 2021 and 2020 was $
The fair market value of each option granted during the three months ended March 31, 2021 has been estimated on the grant date using the Black-Scholes-Merton option-pricing model with the following assumptions:
2021 | ||
Risk - free interest rate (percentage) |
| |
Expected term (years) |
| |
Expected dividend yield (percentage) |
| — |
Expected volatility (percentage) |
|
The Company’s board of directors (the “Board”) did not declare or pay dividends of the Company’s common or preferred stock during the three months ended March 31, 2021 or during the three months ended March 31, 2020.
A summary of restricted stock unit activity for the three-months ended March 31, 2021 is as follows:
| Restricted Stock | ||||
Number of | Weighted Average | ||||
Shares | Grant Date Fair Value | ||||
Outstanding as of December 31, 2020 | | $ | | ||
Granted |
| |
| | |
Vested |
| — |
|
| |
Forfeited |
| — |
|
| |
Outstanding as of March 31, 2021 |
| | $ | | |
Expected to vest as of March 31, 2021 |
| |
|
|
As of March 31, 2021, unrecognized stock-based compensation expense was $
15
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
Total stock-based compensation expense recorded in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows:
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) |
| 2021 |
| 2020 | ||
Product development | $ | | $ | | ||
Sales, marketing and customer support |
| |
| | ||
General and administrative |
| |
| | ||
Total stock-based compensation | $ | | $ | |
11. Commitments and Contingencies
Accrued Expense
Accrued expenses as of March 31, 2021 and December 31, 2020 were as follows:
| As of | |||||
(in thousands) | March 31, 2021 |
| December 31, 2020 | |||
Vendor payments | $ | | $ | | ||
Employee commissions and bonuses |
| |
| | ||
Payroll and other employee related expense |
| |
| | ||
401k and pension expense |
| |
| | ||
Other taxes |
| |
| | ||
Total accrued expense | $ | | $ | |
Operating Leases
The Company and its subsidiaries have entered into operating lease agreements for certain of its office space, and data centers. The offices are located in the United States, Israel, Belgium, Finland, France and Singapore. The data centers are premises used to house computing and networking equipment. The data center leases are located within the United States, Netherlands, Germany and Singapore.
For the three months ended March 31, 2021 and March 31, 2020 office rent expense was $
Future minimum lease obligations are as follows:
| Year Ending | ||
(in thousands) | December 31, | ||
2021 | $ | | |
2022 |
| | |
2023 |
| | |
2024 |
| | |
$ | |
Capital Leases
As of March 31, 2021, the Company has
16
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
The following is a schedule of future minimum lease payments under these agreements (including interest) as of March 31, 2021.
| Year Ending | ||
(in thousands) | December 31, | ||
2021 | $ | | |
2022 |
| | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
Total |
| | |
Less: Amount representing interest |
| ( | |
Present Value of net minimum capital lease payments | $ | | |
Capital leases short term | $ | | |
Capital leases long term |
| | |
Total | $ | |
Contingencies
From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. The Company records liabilities for contingencies including legal costs when it is probable that a liability has been incurred and when the amount can be reasonably estimated. Legal costs are expensed as incurred. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, management does not believe that any of these proceedings or other claims will have a material effect on the Company’s business, financial condition, results of operations or cash flows.
12. Segment Information
The Company has determined that it operates as
The Company has not disclosed certain geographic information pertaining to revenues and total assets as it is impracticable to disclose, is not utilized by the Company’s chief operating decision maker to review operating results or make decisions about how to allocate resources, and would not be useful to users of the Condensed Consolidated Financial Statements to disclose such information.
13. Subsequent Events
On April 9, 2021, the Company entered into an arrangement with an affiliate of Tiger Global Management, LLC (the ‘‘Tiger Investor’’) whereby the Tiger Investor purchased $
On April 19, 2021 the Board and the stockholders of the Company approved the 2021 Omnibus Equity Incentive Plan (“2021 Equity Plan”). The maximum number of shares of common stock available for issuance under the 2021 Equity Plan is equal to the sum of (i)
17
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)
dividend equivalents, and other stock or cash settled incentive awards. Any shares covered by an award, or portion of an award, granted under the 2021 Equity Plan that expires or is forfeited, canceled, cash-settled, or otherwise terminated for any reason will again be available for the grant of awards under the 2021 Equity Plan.
On April 19, 2021, the Board and the stockholders of the Company approved its 2021 Employee Stock Purchase Plan (“ESPP”). The aggregate number of shares of common stock that will initially be reserved for issuance under the ESPP will be equal to the sum of (i)
On April 19, 2021, the Company approved
On April 23, 2021, the Company completed its IPO in which the Company issued and sold
On April 30, 2021, DoubleVerify Inc. paid the entire outstanding balance under the New Revolving Credit Facility of $
18
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report and our Prospectus. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in our Prospectus and elsewhere in this Quarterly Report on Form 10-Q.
Company Overview
DoubleVerify is a leading software platform for digital media measurement and analytics. Our mission is to increase the effectiveness and transparency of the digital advertising ecosystem. Through our software platform and the metrics it provides, we help preserve the fair value exchange in the digital advertising marketplace.
Our customers include many of the largest global advertisers and digital ad platforms and publishers. We deliver our suite of measurement solutions through a robust and scalable software platform that provides our customers with unified data analytics. We provide a consistent, cross-platform measurement standard across all major forms of digital media, making it easier for advertiser and supply-side customers to benchmark performance across all of their digital ads and to optimize their digital strategies in real time. Our coverage spans over 40 key geographies where our customers are located and covers all major purchasing channels, media formats and devices.
For the three months ended March 31, 2021, we generated 91% of our revenue from advertiser customers and for the three months ended March 31, 2020, we generated 90% of our revenue from advertiser customers. We derive revenue from our advertiser customers based on the volume of media transactions, or ads, that our software platform measures (“Media Transactions Measured”). Advertisers utilize the DV Authentic Ad, our definitive metric of digital media quality, to evaluate the existence of fraud, brand safety, viewability and geography for each digital ad. Advertisers pay us an analysis fee (“Measured Transaction Fee”) per thousand impressions based on the volume of Media Transactions Measured on their behalf. We maintain an expansive set of direct integrations across the entire digital advertising ecosystem, including with leading programmatic, CTV, and social platforms, which enables us to deliver our metrics to the platforms where our customers buy ads. Further, our services are not reliant on any single source of impressions and we can service our customers as their digital advertising needs change.
For the three months ended March 31, 2021 and March 31, 2020, 9% and 10% of our revenue, respectively, were generated from our supply-side customers to validate the quality of their ad inventory. We generate revenue from supply-side customers based on monthly or annual contracts with minimum guarantees and tiered pricing when guarantees are met.
COVID-19
Since January 2020, an outbreak of the 2019 novel coronavirus (“COVID-19”) has evolved into a worldwide pandemic. We modified operations in line with our business continuity plans. While certain of our facilities generally remain open, we are making extensive use of the work-from-home model at the moment. While COVID-19 has not had a significant impact on our results from operations to date, to the extent that demand for digital advertising declines, out results and financial condition may be materially and adversely impacted. On a daily basis, management is reviewing operations and there have been to date minimal interruptions in our customer facing operations.
Throughout the pandemic, the underlying demand for our products has remained relatively unchanged, with limited disruption to our new customer sales. For the three months ended March 31, 2021, we generated growth of 32% in total revenue as compared to the three months ended March 31, 2020. Our existing customer base has remained largely stable, and we have been able to maintain gross revenue retention rates of over 95% for the three months ended March 31, 2021. We define our gross revenue retention rate as the total prior quarter revenue earned from advertiser customers, less the portion of prior quarter revenue attributable to lost advertiser customers, divided by the total prior quarter revenue from advertiser customers, excluding a portion of our revenues that cannot be allocated to specific advertiser customers.
19
While the impact on our business has been limited to date, the pandemic has resulted in market disruptions and a global economic slowdown, the duration of which is highly uncertain and cannot be predicted, that may materially impact our results of operations and financial condition. See “Risk Factors—Risks Relating to Our Business—Economic downturns and unstable market conditions, including as a result of the COVID-19 pandemic, could adversely affect our business, financial condition and results of operations” in our Prospectus.
Components of Our Results of Operations
We manage our business operations and report our financial results in a single segment.
Revenue
Our customers use our solutions to measure their digital advertisements. We generate revenue based on number of ads measured for Direct or measured and purchased for Programmatic, and for supply-side customers, based on contracts with minimum guarantees or contracts that have tiered pricing after minimum guarantees are achieved.
For the three months ended March 31, 2021 and 2020, we generated 91% and 90%, respectively, of our revenue from advertiser customers. Advertisers can purchase our services to measure the quality and performance of ads purchased directly from digital properties, including publishers and social media platforms, which we track as Advertiser Direct revenue. Advertisers can also purchase our services through programmatic platforms to evaluate the quality of ad inventories before they are purchased, which we track as Advertiser Programmatic revenue. We generate revenue from advertisers by charging a Measured Transaction Fee based on the volume of Media Transactions Measured on behalf of our customers. We recognize revenue from advertisers in the period in which we provide our measurement solutions.
For the three months ended March 31, 2021 and 2020, we generated 9% and 10%, respectively, of our revenue from supply-side customers who use our data analytics to validate the quality of their ad inventory and provide data to their customers to facilitate targeting and purchasing of digital ads, which we refer to as Supply-Side revenue. We generate revenue from supply-side customers based on monthly or annual contracts with minimum guarantees and certain customers having tiered pricing when guarantees are met. We recognize revenue ratably over the contract term beginning on the date our product is made available to them, which typically begins on the commencement date of each contract.
The following table disaggregates revenue between advertiser customers (on both a direct and programmatic basis) and supply-side customers.