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:
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(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
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(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.
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 02, 2022, 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 Annual Report on Form 10-K, dated December 31, 2021 and filed with the Securities and Exchange Commission (“SEC”), pursuant to Section 13 or 15(d) under the Securities Act, on March 8, 2022, 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 Suitability,” “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.
3
DoubleVerify Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| As of |
| As of | |||
(in thousands, except per share data) | March 31, 2022 | December 31, 2021 | ||||
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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Operating lease right-of-use assets, net | | — | ||||
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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Operating lease liabilities, current | | — | ||||
Income tax liabilities |
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Current portion of finance 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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Operating lease liabilities, non-current | | — | ||||
Finance lease obligations |
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Deferred tax liabilities |
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Other non-current liabilities |
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Total liabilities | $ | | $ | | ||
Commitments and contingencies (Note 13) |
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Stockholders’ equity |
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Common stock, $ | ||||||
Additional paid-in capital | | | ||||
Treasury stock, at cost, | ( | ( | ||||
Retained earnings |
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Accumulated other comprehensive loss, 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) |
| 2022 |
| 2021 | ||
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 expense (income), net |
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Income before income taxes |
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Income tax (benefit) 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 income: |
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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)
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, 2022 | | $ | | — | $ | — | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||||
Foreign currency translation adjustment | — |
| — | — |
| — | — |
| — |
| — |
| — |
| ( |
| ( | ||||||||||
Shares repurchased for settlement of employee tax withholdings | — | — | — | — | | ( | — | — | — | ( | |||||||||||||||||
Stock-based compensation expense | — |
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| — | — |
| — |
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| — |
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Common stock issued to non-employees | | — | — | — | — | — | — | — | — | — | |||||||||||||||||
Common stock issued upon exercise of stock options | |
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Common stock issued upon vesting of restricted stock units | | — | — | — | — | — | — | — | — | — | |||||||||||||||||
Net income | — |
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| — |
| — |
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| — |
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Balance as of March 31, 2022 | | $ | | — | $ | — | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||||
Balance as of January 1, 2021 | | $ | | | $ | | | $ | ( | $ | | $ | | $ | | $ | | ||||||||||
Foreign currency translation adjustment | — |
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Stock-based compensation expense | — |
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Common stock issued upon exercise of stock options | |
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Net income | — |
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Balance as of March 31, 2021 | | $ | | | $ | | | $ | ( | $ | | $ | | $ | | $ | |
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) |
| 2022 |
| 2021 | ||
Operating activities: |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities |
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Bad debt expense (recovery) |
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Depreciation and amortization expense |
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Amortization of debt issuance costs |
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Non-cash lease expense | | — | ||||
Deferred taxes |
| ( |
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Stock-based compensation expense |
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Interest (income) expense |
| ( |
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Loss on disposal of fixed assets | | — | ||||
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 assets |
| ( |
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Trade payables |
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Accrued expenses and other liabilities |
| ( |
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Net cash (used in) provided by operating activities |
| ( |
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Investing activities: |
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Purchase of property, plant and equipment |
| ( |
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Net cash (used in) investing activities |
| ( |
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Financing activities: |
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Payment of contingent consideration related to Zentrick acquisition | ( | — | ||||
Proceeds from common stock issued upon exercise of stock options | | | ||||
Payments related to offering costs | ( | ( | ||||
Finance lease payments | ( | ( | ||||
Shares repurchased for settlement of employee tax withholdings | ( | — | ||||
Net cash (used in) financing activities |
| ( |
| ( | ||
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
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Net (decrease) 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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Right-of-use assets obtained in exchange for new operating lease liabilities | | — | ||||
Acquisition of equipment under finance lease | — | | ||||
Offering costs included in accounts payable and accrued expense |
| — |
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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 Holdings, Inc. (the “Company”) is a leading software platform for digital media measurement and analytics. Our mission is to create stronger, safer, more secure digital transactions that drive optimal outcomes for global advertisers. Through our software platform and the metrics it provides, we help preserve the fair value exchange between buyers and sellers of digital media. The Company’s solutions provide advertisers unbiased data analytics that enable advertisers to increase the effectiveness, quality and return on their digital advertising investments. The DV Authentic Ad is our proprietary metric of digital media quality, which measures whether a digital ad was delivered in a brand suitable environment, fully viewable, by a real person and in the intended geography. The Company’s software interface, DV Pinnacle, delivers these metrics to our customers in real time, allowing them to access critical performance data on their digital transactions. The Company’s software solutions are integrated across the entire digital advertising ecosystem, including programmatic platforms, 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 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 is headquartered in New York, New York and 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, 2022 and December 31, 2021, the Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2022 and 2021, the Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021, and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 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 Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2021.
8
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
In the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021, the Company changed the presentation in describing the changes in operating assets and liabilities by combining the lines for Accrued expenses, Other current liabilities, and Other non-current liabilities into a single line item. The Company further combined Prepaid expenses and other current assets and Other non-current assets into a single line item. Both the original and new presentations are in accordance with the applicable financial reporting framework and the change was applied retrospectively solely to enhance the comparability with the current Condensed Consolidated Statements of Cash Flows.
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 including, 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, assumptions in valuing acquired assets and liabilities assumed in business combinations, 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 Adopted Accounting Pronouncements
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU No. 2016-02"). This guidance amends the existing accounting considerations and treatments for leases through the creation of Topic 842, Leases, to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from such leases.
In July 2018, the 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. The 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 practical expedient offers an option to not separate non-lease components from the associated lease components when certain criteria are met.
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, and allow for modified retrospective adoption with early adoption permitted. The Company adopted the amendments on January 1, 2022 using the modified retrospective approach and elected the transition relief package of practical expedients by applying previous accounting conclusions under ASC 840 to all leases that existed prior to the transition date. There was no impact to retained earnings upon the adoption of ASC 842. As a result of the adoption, the Company did not reassess 1) whether existing or expired contracts contain leases, 2) lease classification for any existing or expired leases, and 3) whether lease origination costs qualified as initial direct costs. The Company did not elect the practical expedient to use hindsight in determining a lease term and impairment of the ROU assets at the adoption date. Additionally, the Company did not separate lease components from non-lease components for the specified asset classes. Furthermore, the Company did not apply the recognition requirements under ASC 842 to short-term leases, generally defined as a lease term of less than one year.
9
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
The Company has operating and financing leases for corporate offices, data centers, and certain equipment. The leases have remaining lease terms ranging from
The Company determines if an arrangement is a lease at inception and does not recognize a lease with a term shorter than 12 months. An ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are to be recognized at commencement date based on the present value of lease payments not yet paid over the lease term. As the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available on the adoption date in determining the present value of lease payments not yet paid. The incremental borrowing rate for United States dollar denominated leases was calculated by considering current market yields and the Company’s existing debt rates to determine a yield. In order to assess a premium or discount for the lease tenor and develop an incremental borrowing rate curve, the analysis compared the Company’s existing debt yield to the appropriate market yield curve corresponding to the Company’s secured rating. The curve one notch higher was used as the incremental borrowing rate focuses on secured borrowing rates, which tend to carry higher credit ratings when issued. The corporate yield curve was adjusted based on the Company’s implied incremental borrowing rate premium or discount at each tenor to reach a concluded incremental borrowing rate curve. Using the calculated United States dollar incremental borrowing rate, the international incremental borrowing rates were determined by adjusting for specific country risk.
The operating lease ROU assets include any lease payments made prior to the rent commencement date and exclude lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating lease transactions are included in Operating lease right-of-use assets, net, and Operating lease liabilities, current and noncurrent, within the accompanying Condensed Consolidated Balance Sheets. Finance leases, formerly known as (“f/k/a”) Capital leases, are included in Property, plant and equipment, net, Current portion of finance lease obligations, and Finance lease obligations within the accompanying Condensed Consolidated Balance Sheets. Refer to Note 7, Leases, for further information.
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 the process of evaluating the impact of this standard on the Company’s Condensed Consolidated Financial Statements.
10
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
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 method of adoption. The Company is currently in the process of evaluating the impact of this standard and its adoption 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 Measurement (f/k/a Advertiser – direct) or measured and purchased for Activation (f/k/a Advertiser – 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) |
| 2022 |
| 2021 | ||
Measurement (f/k/a Advertiser - direct) | $ | | $ | | ||
Activation (f/k/a Advertiser - programmatic) |
| |
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Supply-side customer |
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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. Business Combinations
OpenSlate
On November 22, 2021, the Company acquired all of the outstanding stock of Outrigger Media, Inc. (d/b/a “OpenSlate”), a leading independent pre-campaign contextual targeting platform for social video and CTV for a total purchase price of $
11
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
The Company prepared an initial determination of the fair value of the assets acquired and liabilities assumed as of the acquisition date using preliminary information. During the three months ended March 31, 2022, the Company has recognized measurement period adjustments to the purchase consideration and the allocation of the fair value of certain assets and liabilities assumed as a result of further refinements in the Company’s estimates. The effect of these adjustments on the preliminary purchase price allocation was an increase to Intangible assets, net of $
The acquired intangible assets of OpenSlate are amortized over their estimated useful lives. Based on facts and circumstances in existence as of the effective date of the acquisition, the useful life of developed technology and customer relationships intangible assets acquired were determined to be
The Company incurred acquisition-related transaction costs of $
The preliminary allocations of the purchase price for the 2021 acquisitions (OpenSlate and Meetrics GmbH) and purchase of controlling interest within less than a year of ownership are subject to revisions as additional information is obtained about the facts and circumstances that existed as of each acquisition date. The revisions may have a significant impact on our condensed consolidated financial statements. The allocations of the purchase price will be finalized once all the information that was known and knowable as of the acquisition date is obtained and analyzed, not to exceed one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to certain direct and indirect taxes and the finalization of working capital adjustments.
Zentrick NV
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 integrated 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 consisted of 1) $
With respect to payments due related to the Zentrick acquisition, the Company and the Zentrick selling stockholders reached an agreement on February 14, 2022 (the “Zentrick Early Termination Agreement”), for the early termination of the Zentrick Deferred Payment Terms and resolution of the contingent payments due for both the technical milestones and revenue targets. Pursuant to the terms of the Zentrick Early Termination Agreement, the Company made a payment of $
12
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
5. Goodwill and Intangible Assets
The following is a summary of changes to the goodwill carrying value from December 31, 2021 to March 31, 2022:
(in thousands) |
|
| |
Goodwill at December 31, 2021 | $ | | |
Measurement period adjustments | ( | ||
Foreign exchange impact | ( | ||
Goodwill at March 31, 2022 | $ | |
The following table summarizes the Company’s intangible assets and related accumulated amortization:
(in thousands) | March 31, 2022 |
| December 31, 2021 | |||||||||||||||
Gross Carrying | Accumulated | Net Carrying | Gross Carrying | Accumulated | Net Carrying | |||||||||||||
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | |||||||
Trademarks and brands | $ | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||
Customer relationships |
| | ( |
| |
| |
| ( |
| | |||||||
Developed technology |
| | ( |
| |
| |
| ( |
| | |||||||
Non-compete agreements | | ( | | | ( | | ||||||||||||
Total intangible assets | $ | | $ | ( | $ | | $ | | $ | ( | $ | |
Amortization expense for the three months ended March 31, 2022 and March 31, 2021 is $
Estimated future expected amortization expense of intangible assets as of March 31, 2022 is as follows:
(in thousands) |
|
| |
2022 (for remaining nine months) | $ | | |
2023 | | ||
2024 | | ||
2025 | | ||
2026 | | ||
2027 | | ||
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 | ||
Non-compete agreements |
|
There were
13
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
6. Property, Plant and Equipment
Property, plant and equipment, including equipment under finance lease obligations and capitalized software development costs, consists of the following:
As of | ||||||
(in thousands) | March 31, 2022 | December 31, 2021 | ||||
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, 2022 and March 31, 2021, total depreciation expense was $
Property and equipment under finance lease obligations, consisting of computer equipment, totaled $
7. Leases
The following table presents the cumulative effect of the changes made to the Condensed Consolidated Balance Sheet as of January 1, 2022 as a result of the adoption of ASC 842:
(in thousands) | December 31, 2021 | Adjustments due to ASC 842 | January 1, 2022 | ||||||
Prepaid expenses and other current assets | $ | | $ | ( | $ | | |||
Other non-current assets | $ | | $ | ( | $ | | |||
Operating lease right-of-use assets, net | $ | — | $ | | $ | | |||
Operating lease liabilities, current | $ | — | $ | | $ | | |||
Operating lease liabilities, non-current | $ | — | $ | | $ | | |||
Other current liabilities | $ | | $ | ( | $ | | |||
Other non-current liabilities | $ | | $ | ( | $ | |
14
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
The following table presents lease cost, cash paid for amounts included in the measurement of lease liabilities, weighted-average remaining lease terms, and weighted-average discount rates for finance and operating leases for the three months ended March 31, 2022.
| Three Months Ended | ||
(in thousands) | March 31, 2022 | ||
Lease cost: | |||
Operating lease cost (1) | $ | | |
Finance lease cost | |||
Depreciation of finance lease assets (2) | | ||
Interest on finance lease liabilities (3) | | ||
Short-term lease cost (1) | | ||
Total lease cost | $ | | |
| |||
Other information: | |||
Cash paid for amounts included in the measurement of lease liabilities | |||
Operating cash outflows from operating leases | $ | | |
Operating cash outflows from finance leases | $ | | |
Financing cash outflows from finance leases | $ | | |
Weighted-average remaining lease term - operating leases (in years) | |||
Weighted-average remaining lease term - finance leases (in years) | |||
Weighted-average discount rate - operating leases | |||
Weighted-average discount rate - finance leases |
(1) | Included in Cost of revenue, Sales, marketing and customer support, Product development and General and administrative expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. |
(2) | Included in Depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. |
(3) | Included in Interest expense in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. |
Maturities of lease liabilities for the remainder of 2022 and the years through 2028 and thereafter are as follows:
| March 31, 2022 | |||||
(in thousands) | Operating Leases | Finance Leases | ||||
2022 | $ | | $ | | ||
2023 |
| |
| | ||
2024 |
| |
| | ||
2025 |
| |
| | ||
2026 |
| |
| — | ||
2027 | | — | ||||
2028 and thereafter | | — | ||||
Total lease payments |
| |
| | ||
Less amount representing interest |
| ( |
| ( | ||
Present value of total lease payments | $ | | $ | |
15
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
ASC 840 Comparative Disclosures
The following tables, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, present the Company’s future minimum lease payments under ASC 840 for all operating leases as of December 31, 2021. Future minimum lease payments differ from the future lease liability recognized under ASC 842, as the operating lease liability recognized under ASC 842 discounts the lease payments while the minimum operating lease payments presented below are not discounted.
Operating Leases
| Year Ending | ||
(in thousands) | December 31, | ||
2022 | $ | | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 | | ||
Thereafter | | ||
$ | |
Commitments
On November 29, 2021, the Company entered into a non-cancellable contractual agreement to lease office space in New York, New York. The lease term for this office space commenced in January 2022 and will end in July 2038. The Company expects to move into the property in the second half of 2022 and at that time, the office space will become DoubleVerify’s new corporate headquarters.
Year Ending | |||
(in thousands) |
| December 31, | |
2022 | $ | — | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 | | ||
Thereafter | | ||
$ | |
16
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
8. 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, 2022 | ||||||||||||
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 | $ | | $ | — | $ | — | $ | | ||||
Liabilities: | ||||||||||||
Contingent consideration current |
| — | — | — |
| — | ||||||
Contingent consideration non-current |
| — | — | — |
| — | ||||||
Total contingent consideration | $ | — | $ | — | $ | — | $ | — |
As of December 31, 2021 | ||||||||||||
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 |
| $ | | $ | — | $ | — |
| $ | | ||
Liabilities: | ||||||||||||
Contingent consideration current | — | — | | | ||||||||
Contingent consideration non-current |
| — | — | — |
| — | ||||||
Total contingent consideration | $ | — |
| $ | — |
| $ | |
| $ | | |
|
Cash equivalents consisting of money market funds of $
As described in Note 4, Business Combinations, on February 16, 2022, pursuant to the terms of the Zentrick Early Termination Agreement, the Company paid the remaining balance of the contingent consideration referred to as the Zentrick Deferred Payment Terms.
17
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
9. 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, 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, 2022, the maximum total net leverage ratio and minimum fixed charge coverage ratio is
As of March 31, 2022 and December 31, 2021, there was $
10. 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.
18
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
During the three months ended March 31, 2022, the Company recorded an income tax benefit of $
A valuation allowance has been established against a small amount of foreign capital losses and certain U.S. tax loss carryforwards. All other net deferred tax assets have been determined to be more likely than not realizable. The Company regularly reviews its deferred tax assets for recoverability and would establish a valuation allowance if it believed that such assets may not be recovered, taking into consideration historical operating results, expectations of future earnings, changes in its operations, and the expected timing of the reversals of existing temporary differences.
The Company accounts for uncertainty in income taxes utilizing ASC 740-10, "Income Taxes". ASC 740-10 clarifies whether or not to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. It prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosures. The application of ASC 740-10 requires judgment related to the uncertainty in income taxes and could impact our effective tax rate.
DoubleVerify 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.
11. 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, 2022 and March 31, 2021:
Three Months Ended | ||||||
March 31, | ||||||
2022 | 2021 | |||||
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
19
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
12. 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.
On April 19, 2021 the Company established its 2021 Omnibus Equity Incentive Plan (“2021 Equity Plan”). The 2021 Equity Plan provides for the grant of stock options (including qualified incentive stock options and nonqualified stock options), stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, and other stock or cash settled incentive awards.
Options become exercisable subject to vesting schedules up to
Restricted stock units are subject to vesting schedules up to
A summary of stock option activity as of and for the three months ended March 31, 2022 is as follows:
Stock Option | ||||||||||
Weighted Average | ||||||||||
Remaining | ||||||||||
Number of |