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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)                                                                                                                                                                                         

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-40349

DoubleVerify Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

82-2714562

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

233 Spring Street

New York, NY, 10013

(Address of Principal Executive Offices)

(212) 631-2111

(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

Common Stock, par value $0.001 per share

DV

New York Stock Exchange

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     No 

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).    Yes      No  

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

Non-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      No  

As of July 26, 2021, there were 157,851,204 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

TABLE OF CONTENTS

0

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Page

Part I

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

4

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

4

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and six months ended June 30, 2021 and 2020

5

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

31

Item 4.

Controls and Procedures

31

Part II

OTHER INFORMATION

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

Signatures

37

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)

June 30, 2021

December 31, 2020

Assets:

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

330,355

$

33,354

Trade receivables, net of allowances for doubtful accounts of $6,889 and $7,049 as of June 30, 2021 and December 31, 2020 respectively

85,555

94,677

Prepaid expenses and other current assets

 

14,106

 

13,904

Total current assets

 

430,016

 

141,935

Property, plant and equipment, net

 

17,572

 

18,107

Goodwill

 

227,349

 

227,349

Intangible assets, net

 

112,780

 

121,710

Deferred tax assets

 

82

 

82

Other non-current assets

 

2,303

 

2,151

Total assets

$

790,102

$

511,334

Liabilities and Stockholders' Equity:

 

Current liabilities

 

Trade payables

$

4,122

$

3,495

Accrued expense

 

25,460

 

25,419

Income tax liabilities

 

670

 

1,277

Current portion of capital lease obligations

 

2,021

 

1,515

Contingent considerations current

 

1,717

 

1,198

Other current liabilities

 

2,101

 

1,116

Total current liabilities

 

36,091

 

34,020

Long-term debt

 

 

22,000

Capital lease obligations

 

3,618

 

3,447

Deferred tax liabilities

 

28,243

 

31,418

Other non-current liabilities

 

2,734

 

3,292

Contingent considerations non-current

 

 

462

Total liabilities

$

70,686

$

94,639

Commitments and contingencies (Note 13)

 

Stockholders’ equity

 

Common stock, $0.001 par value, 1,000,000 shares authorized, 157,768 shares issued and outstanding as of June 30, 2021; 700,000 shares authorized, 140,222 shares issued and 125,074 shares outstanding as of December 31, 2020

158

140

Preferred stock, $0.01 par value, 100,000 shares authorized and zero shares issued and outstanding as of June 30, 2021 and 61,006 shares authorized, issued, and outstanding as of December 31, 2020. Liquidation preference: $350,000 as of December 31, 2020

 

 

610

Additional paid-in capital

670,674

620,679

Treasury stock, at cost, zero shares and 15,146 shares as of June 30, 2021 and December 31, 2020, respectively

(260,686)

Retained earnings

 

48,017

 

54,941

Accumulated other comprehensive income, net of income taxes

 

567

 

1,011

Total stockholders’ equity

 

719,416

 

416,695

Total liabilities and stockholders' equity

$

790,102

$

511,334

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

4

DoubleVerify Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

Three Months Ended June 30, 

Six Months Ended June 30, 

(in thousands, except per share data)

    

2021

    

2020

    

2021

    

2020

Revenue

$

76,524

$

53,020

$

144,110

$

104,239

Cost of revenue (exclusive of depreciation and amortization shown separately below)

 

12,291

 

7,655

 

22,494

 

14,965

Product development

 

15,120

 

10,906

 

29,299

 

21,237

Sales, marketing and customer support

 

19,580

 

12,833

 

35,114

 

25,152

General and administrative

 

32,017

 

8,262

 

43,852

 

18,958

Depreciation and amortization

 

7,440

 

6,146

 

14,497

 

12,080

(Loss) income from operations

 

(9,924)

 

7,218

 

(1,146)

 

11,847

Interest expense

 

297

 

936

 

687

 

2,100

Other expense (income), net

 

49

 

198

 

 

(122)

(Loss) income before income taxes

 

(10,270)

 

6,084

 

(1,833)

 

9,869

Income tax expense

 

2,298

 

2,006

 

5,091

 

3,351

Net (loss) income

$

(12,568)

$

4,078

$

(6,924)

$

6,518

(Loss) earnings per share:

 

 

Basic

$

(0.08)

$

0.03

$

(0.05)

$

0.05

Diluted

$

(0.08)

$

0.03

$

(0.05)

$

0.04

Weighted-average common stock outstanding:

 

 

 

 

Basic

 

149,596

139,756

137,355

139,748

Diluted

 

149,596

146,541

137,355

146,927

Comprehensive (loss) income:

 

 

Net (loss) income

$

(12,568)

$

4,078

$

(6,924)

$

6,518

Other comprehensive (loss) income:

 

 

Foreign currency cumulative translation adjustment

 

355

 

231

 

(444)

 

78

Total comprehensive (loss) income

$

(12,213)

$

4,309

$

(7,368)

$

6,596

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

5

DoubleVerify Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Accumulated

    

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

140,222

$

140

61,006

$

610

15,146

$

(260,686)

$

620,679

$

54,941

$

1,011

$

416,695

Foreign currency translation adjustment

 

 

 

 

 

 

(799)

 

(799)

Stock-based compensation expense

 

 

 

 

2,538

 

 

 

2,538

Common stock issued upon exercise of stock options

180

 

 

 

 

538

 

 

 

538

Net income

 

 

 

 

 

5,644

 

 

5,644

Balance as of March 31, 2021

140,402

$

140

61,006

$

610

15,146

$

(260,686)

$

623,755

$

60,585

$

212

$

424,616

Foreign currency translation adjustment

355

355

Stock-based compensation expense

4,714

4,714

Common stock issued upon exercise of stock options

871

2

2,907

2,909

RSU vested

217

Conversion of Series A preferred stock to common stock in connection with initial public offering

5,190

5

(61,006)

(610)

(15,146)

260,686

(260,081)

Issuance of common stock in connection with initial public offering

9,977

10

269,380

269,390

Issuance of common stock in connection with the private placement concurrent with the initial public offering

1,111

1

29,999

30,000

Net loss

(12,568)

(12,568)

Balance as of June 30, 2021

157,768

$

158

$

$

$

670,674

$

48,017

$

567

$

719,416

Balance as of January 1, 2020

139,721

$

140

$

$

$

283,457

$

34,488

$

(67)

$

318,018

Foreign currency translation adjustment

 

 

 

 

 

 

(153)

 

(153)

Stock-based compensation expense

 

 

 

 

802

 

 

 

802

Common stock issued upon exercise of stock options

32

 

 

 

 

70

 

 

 

70

Net income

 

 

 

 

 

2,440

 

 

2,440

Balance as of March 31, 2020

139,753

$

140

$

$

$

284,329

$

36,928

$

(220)

$

321,177

Foreign currency translation adjustment

231

231

Stock-based compensation

1,140

1,140

Common stock issued upon exercise of stock options

58

51

51

Net income

4,078

4,078

Balance as of June 30, 2020

139,811

$

140

$

$

$

285,520

$

41,006

$

11

$

326,677

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

6

DoubleVerify Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Six Months Ended

June 30, 

(in thousands)

    

2021

    

2020

Operating activities:

 

  

 

  

Net (loss) income

$

(6,924)

$

6,518

Adjustments to reconcile net (loss) income to net cash provided by operating activities

 

Bad debt expense

 

199

 

1,748

Depreciation and amortization expense

 

14,496

 

12,080

Amortization of debt issuance costs

 

147

 

142

Accretion of acquisition liabilities

 

 

36

Deferred taxes

 

(3,175)

 

(3,096)

Stock-based compensation expense

 

7,252

 

1,942

Interest expense (income)

 

9

 

(42)

Change in fair value of contingent consideration

 

57

 

(899)

Offering costs

21,801

1,058

Other

 

62

 

621

Changes in operating assets and liabilities net of effect of business combinations

 

Trade receivables

 

8,518

 

(47)

Prepaid expenses and other current assets

 

(284)

 

855

Other non-current assets

 

(299)

 

3

Trade payables and other liabilities

 

541

 

2,057

Accrued expenses

 

121

 

(2,978)

Other current liabilities

 

827

 

(2,680)

Other non-current liabilities

 

(1,120)

 

148

Net cash provided by operating activities

 

42,228

 

17,466

Investing activities:

 

 

Purchase of property, plant and equipment

 

(3,513)

 

(4,562)

Net cash (used in) investing activities

 

(3,513)

 

(4,562)

Financing activities:

 

  

 

  

Payments of long-term debt

(22,000)

(189)

Deferred payment related to Leiki acquisition

(2,033)

Deferred payment related to Zentrick acquisition

(50)

(50)

Payment of contingent consideration related to Zentrick acquisition

 

 

(601)

Proceeds from common stock issued upon exercise of stock options

3,447

121

Proceeds from issuance of common stock upon initial public offering

269,390

Proceeds from issuance of common stock in connection with concurrent private placement

30,000

Payments related to offering costs

(21,708)

(1,107)

Capital lease payments

(804)

 

(874)

Net cash provided by (used in) financing activities

 

258,275

 

(4,733)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

13

 

(80)

Net increase in cash, cash equivalents, and restricted cash

 

297,003

 

8,091

Cash, cash equivalents, and restricted cash - Beginning of period

 

33,395

 

11,342

Cash, cash equivalents, and restricted cash - End of period

$

330,398

$

19,433

Cash and cash equivalents

330,355

19,038

Restricted cash (included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets)

 

43

 

395

Total cash and cash equivalents and restricted cash

$

330,398

$

19,433

Supplemental cash flow information:

 

  

 

  

Cash paid for taxes

 

3,305

 

7,777

Cash paid for interest

 

525

 

1,654

Non-cash investing and financing activities:

 

  

 

  

Conversion of Series A preferred stock to common stock in connection with the initial public offering

610

Treasury stock reissued upon the conversion of Series A preferred stock to common stock

260,686

Acquisition of equipment under capital lease

 

1,518

 

973

Capital assets financed by accounts payable

 

 

76

Offering costs included in accounts payable and accrued expense

89

100

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 100% of the outstanding equity instruments of DoubleVerify Inc. resulting in a change of control at the parent level.  The merger resulted in the application of acquisition accounting under the provisions of Financial Accounting Standards Board (“FASB”) Topic Accounting Standards Codification (“ASC”) 805, Business Combinations.

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 one reportable segment.

On April 23 2021, the Company completed an initial public offering of its common stock (“IPO”). See Footnote 12, Stockholders’ Equity.    

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 June 30, 2021 and December 31, 2020, the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and six months ended June 30, 2021 and 2020, the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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 the Company’s Prospectus.

8

DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)

On March 29, 2021, the Company effected a 1-for-3 reverse stock split (‘‘reverse stock split’’) of its outstanding common stock, par value $0.001 per share (“common stock”), and a proportional adjustment to the existing conversion ratio of its then-outstanding Series A Preferred Stock, par value $0.01 per share (“preferred stock”). Accordingly, all share and per share amounts for all periods presented in these Condensed Consolidated Financial Statements and notes thereto, have been adjusted retrospectively, where applicable, to reflect this reverse stock split.

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.

9

DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)

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 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. In July 2018, FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, ("ASU No. 2018-10") to further clarify, correct and consolidate various areas previously discussed in ASU 2016-02. FASB also issued ASU No. 2018-11, Leases: Targeted Improvements ("ASU 2018-11") to provide entities another option for transition and lessors with a practical expedient. The transition option allows entities to not apply ASU No. 2016-02 in comparative periods in the financial statements in the year of adoption. The amendments in ASU No. 2016-02, ASU No. 2018-10 and ASU No. 2018-11 are effective for fiscal years beginning after December 15, 2021 for non-public entities and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. 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 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

    

Six Months Ended

June 30, 

June 30, 

(in thousands)

    

2021

    

2020

    

2021

    

2020

Advertiser - direct

$

31,662

$

23,707

$

59,203

$

45,894

Advertiser - programmatic

 

37,880

 

24,128

 

71,792

 

47,979

Supply-side customer

 

6,982

 

5,185

 

13,115

 

10,366

Total revenue

$

76,524

$

53,020

$

144,110

$

104,239

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 $26.6 million and $44.9 million as of June 30, 2021 and December 31, 2020, respectively.

10

DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)

4.    Business Combinations

On February 15, 2019, the Company acquired all of the outstanding stock of Zentrick NV (“Zentrick”). Zentrick, headquartered in Ghent, Belgium is a digital video technology company that provides middleware solutions that increase the performance of online video advertising for brand advertisers, advertising platforms and publishers. This acquisition integrates technology into the Company’s suite of products related to advertising viewability specifically on video formats, a growing segment of the advertising market and critical for the delivery of verification services to social platforms and CTV. The aggregate purchase price consists of 1) $23.2 million paid in cash at closing, which excluded closing adjustments of approximately $0.2 million paid in April 2019 2) $0.1 million in holdback payment of which 50% was payable 12 months after the closing date, and the remaining 50% was payable 24 months after the closing date and 3) up to $17.3 million of performance-based deferred payments that comprises two components. The first component has a $4.0 million maximum payment related to four milestone tranches of $1.0 million each based on achievement of certain product milestones (“technical milestones”). The second component has a total maximum payment of $13.0 million and varies based upon certain revenue targets in fiscal 2019, 2020, and 2021 (“revenue targets”).

Under the terms of the deferred payment, a portion of the technical milestones and revenue targets have been accounted at fair value as contingent consideration in the business combination with the remaining portion being accounted for as compensation expense under ASC 710, Compensation - General.

As of June 30, 2021, the technical milestone and revenue target components of the contingent consideration had a fair value of $1.2 million and $0.5 million, respectively, and is recorded in Contingent Considerations Current in the Condensed Consolidated Balance Sheets. The Company recorded a $0.1 million unrealized loss for the change in fair value in the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income for the three and six months ended June 30, 2021, respectively. The Company recorded a $0.1 million unrealized loss and $0.9 million unrealized gain for the change in fair value in the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income for the three and six months ended June 30, 2020, respectively.

As of June 30, 2021, the technical milestone and revenue target components treated as compensation cost total $1.1 million included in Other Current Liabilities in the Condensed Consolidated Balance Sheets. $0.1 million and less than $0.1 million were charged to the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and six months ended June 30, 2021, respectively. Less than $0.1 million and $0.2 million were charged to the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and six months ended June 30, 2020, respectively.

5.    Goodwill and Intangible Assets

There were no changes to the goodwill carrying value from December 31, 2020 through June 30, 2021. The foreign exchange impact on goodwill was immaterial for the period.

The following table summarizes the Company’s intangible assets and related accumulated amortization:

(in thousands)

June 30, 2021

    

December 31, 2020

Gross Carrying

Accumulated

Net Carrying

Gross Carrying

Accumulated

Net Carrying

    

Amount

    

Amortization

    

Amount

    

Amount

    

Amortization

    

Amount

Trademarks and brands

11,690

(2,985)

8,705

11,690

(2,562)

9,128

Customer relationships

 

102,220

 

(32,006)

 

70,214

 

102,220

 

(27,720)

 

74,500

Developed technology

 

63,205

 

(29,344)

 

33,861

 

63,210

 

(25,128)

 

38,082

Total intangible assets

$

177,115

$

(64,335)

$

112,780

$

177,120

$

(55,410)

$

121,710

Amortization expense for three months ended June 30, 2021 and June 30, 2020 is $4.4 million and $4.5 million, respectively. Amortization expense related to intangible assets amounted to $8.9 million and $9.0 million for the six months ended June 30, 2021 and June 30, 2020, respectively.

11

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 June 30, 2021, is as follows:

(in thousands)

    

    

2021

$

8,930

2022

17,860

2023

17,825

2024

16,205

2025

14,273

2026

9,777

Thereafter

 

27,910

Total

$

112,780

The weighted-average remaining useful life by major asset classes as of June 30, 2021 is as follows:

    

(In years)

Trademarks and brands

 

11

Customer relationships

 

8

Developed technology

 

4

There were no impairments identified during the six months ended June 30, 2021 or June 30, 2020.

6.     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)

June 30, 2021

December 31, 2020

Computers and peripheral equipment

    

$

16,695

    

$

14,577

Office furniture and equipment

 

1,115

 

1,124

Leasehold improvements

 

9,266

 

9,267

Capitalized software development costs

 

11,247

 

8,382

Less accumulated depreciation and amortization

 

(20,751)

 

(15,243)

Total property, plant and equipment, net

$

17,572

$

18,107

For the three months ended June 30, 2021 and 2020, total depreciation expense was $3.0 million and $1.7 million, respectively. For the six months ended June 30, 2021 and 2020, total depreciation expense was $5.6 million and $3.1 million, respectively.

Property and equipment financed through capital lease obligations, consisting of computer equipment, totaled $12.3 million and $10.7 million on June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021 and December 31, 2020, accumulated depreciation related to property and equipment financed through capital leases totaled $8.9 million and $7.6 million, respectively. Refer to Note 13, Commitments and Contingencies.

12

DoubleVerify Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data, unless otherwise stated)

7.     Fair Value Measurement

The following tables present the Company’s financial instruments that are measured at fair value on a recurring basis:

As of June 30, 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:

    

  

    

  

    

  

    

  

Cash equivalents:

$

9,808

9,808

Liabilities:

Contingent consideration current

 

1,717

 

1,717

Contingent consideration non-current

 

 

Total contingent consideration

$

$

$

1,717

$

1,717

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:

    

 

  

    

 

  

    

 

  

    

 

  

Cash equivalents:

 

$

2,474