UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
EXCHANGE ACT OF 1934
For the quarterly period ended
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EXCHANGE ACT OF 1934
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DoubleVerify Holdings, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2023
TABLE OF CONTENTS
2
Special Note Regarding 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,” “plan,” “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, for the year ended December 31, 2022 and filed with the Securities and Exchange Commission (“SEC”), on March 1, 2023, 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 this report. 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 and in the Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to publicly update or revise any 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 them 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) | September 30, 2023 | December 31, 2022 | ||||
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 expenses |
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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 consideration | | — | ||||
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 14) |
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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 |
| ( |
| ( | ||
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 September 30, | Nine Months Ended September 30, | |||||||||||
(in thousands, except per share data) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
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) expense, net |
| ( | |
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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)
Accumulated |
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Other | ||||||||||||||||||||||
Comprehensive | ||||||||||||||||||||||
Additional | Income (Loss) | Total | ||||||||||||||||||||
Common Stock | Treasury Stock | Paid-in | Retained | Net of | Stockholders’ | |||||||||||||||||
(in thousands) |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Income Taxes |
| Equity | ||||||
Balance as of January 1, 2023 | | $ | | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||
Foreign currency translation adjustment | — |
| — | — |
| — |
| — |
| — |
| |
| | ||||||||
Shares repurchased for settlement of employee tax withholdings | — | — | | ( | — | — | — | ( | ||||||||||||||
Stock-based compensation expense | — |
| — | — |
| — |
| |
| — |
| — |
| | ||||||||
Common stock issued upon exercise of stock options | | | — | — | | — | — | | ||||||||||||||
Common stock issued upon vesting of restricted stock units | |
| — | — |
| — |
| — |
| — |
| — |
| — | ||||||||
Treasury stock reissued upon settlement of equity awards | — | — | ( | | ( | — | — | — | ||||||||||||||
Net income | — |
| — | — |
| — |
| — |
| |
| — |
| | ||||||||
Balance as of March 31, 2023 | | $ | | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | ||||||||||||||
Shares repurchased for settlement of employee tax withholdings | — | — | | ( | — | — | — | ( | ||||||||||||||
Stock-based compensation expense | — | — | — | — | | — | — | | ||||||||||||||
Common stock issued under employee purchase plan | | — | — | — | | — | — | | ||||||||||||||
Common stock issued upon exercise of stock options | | | — | — | | — | — | | ||||||||||||||
Common stock issued upon vesting of restricted stock units | | — | — | — | — | — | — | — | ||||||||||||||
Treasury stock reissued upon settlement of equity awards | — | — | ( | | ( | — | — | — | ||||||||||||||
Net income | — | — | — | — | — | | — | | ||||||||||||||
Balance as of June 30, 2023 | | $ | | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | ||||||||||||||
Shares repurchased for settlement of employee tax withholdings | — | — | | ( | — | — | — | ( | ||||||||||||||
Issuance of common stock as consideration for acquisition | | | — | — | | — | — | | ||||||||||||||
Stock-based compensation expense | — | — | — | — | | — | — | | ||||||||||||||
Common stock issued upon exercise of stock options | | | — | — | | — | — | | ||||||||||||||
Common stock issued upon vesting of restricted stock units | | — | — | — | — | — | — | — | ||||||||||||||
Treasury stock reissued upon settlement of equity awards | — | — | ( | | ( | — | — | — | ||||||||||||||
Net income | — | — | — | — | — | | — | | ||||||||||||||
Balance as of September 30, 2023 | | $ | | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||
Balance as of January 1, 2022 | | $ | | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||
Foreign currency translation adjustment | — |
| — | — |
| — |
| — |
| — |
| ( |
| ( | ||||||||
Shares repurchased for settlement of employee tax withholdings | — |
| — | |
| ( |
| — |
| — |
| — |
| ( | ||||||||
Stock-based compensation expense | — |
| — | — |
| — |
| |
| — |
| — |
| | ||||||||
Common stock issued to non-employees | | — | — | — | — | — | — | — | ||||||||||||||
Common stock issued upon exercise of stock options | | | — | — | | — | — | | ||||||||||||||
Common stock issued upon vesting of restricted stock units | | — | — | — | — | — | — | — | ||||||||||||||
Net income | — |
| — | — |
| — |
| — |
| |
| — |
| | ||||||||
Balance as of March 31, 2022 | | $ | | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | ||||||||||||||
Shares repurchased for settlement of employee tax withholdings | — | — | | ( | — | — | — | ( | ||||||||||||||
Stock-based compensation expense | — | — | — | — | | — | — | | ||||||||||||||
Common stock issued under employee purchase plan | | — | — | — | | — | — | | ||||||||||||||
Common stock issued upon exercise of stock options | | — | — | — | | — | — | | ||||||||||||||
Common stock issued upon vesting of restricted stock units | | | — | — | ( | — | — | — | ||||||||||||||
Treasury stock reissued upon settlement of equity awards | — | — | ( | | ( | — | — | — | ||||||||||||||
Net income | — | — | — | — | — | | — | | ||||||||||||||
Balance as of June 30, 2022 | | $ | | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | ||||||||||||||
Shares repurchased for settlement of employee tax withholdings | — | — | | ( | — | — | — | ( | ||||||||||||||
Stock-based compensation expense | — | — | — | — | | — | — | | ||||||||||||||
Common stock issued upon exercise of stock options | | | — | — | | — | — | | ||||||||||||||
Common stock issued upon vesting of restricted stock units | | — | — | — | — | — | — | — | ||||||||||||||
Treasury stock reissued upon settlement of equity awards | — | — | ( | | ( | — | — | — | ||||||||||||||
Net income | — | — | — | — | — | | — | | ||||||||||||||
Balance as of September 30, 2022 | | $ | | | $ | ( | $ | | $ | | $ | ( | $ | |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
6
DoubleVerify Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended | ||||||
September 30, | ||||||
(in thousands) |
| 2023 |
| 2022 | ||
Operating activities: |
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| ||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities |
| |||||
Bad debt expense |
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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 |
| ( |
| ( | ||
Stock-based compensation expense |
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Interest expense |
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Loss on disposal of fixed assets | | | ||||
Impairment of long-lived assets |
| — |
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Other | | | ||||
Changes in operating assets and liabilities, net of effects of business combinations |
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Trade receivables |
| ( |
| ( | ||
Prepaid expenses and other assets |
| ( |
| ( | ||
Trade payables |
| |
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Accrued expenses and other liabilities |
| ( |
| ( | ||
Net cash provided by operating activities |
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Investing activities: |
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Purchase of property, plant and equipment |
| ( |
| ( | ||
Acquisition of businesses, net of cash acquired | ( | — | ||||
Net cash (used in) investing activities |
| ( |
| ( | ||
Financing activities: |
|
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Proceeds from revolving credit facility | | — | ||||
Payments to revolving credit facility | ( | — | ||||
Payment of contingent consideration related to Zentrick acquisition | — | ( | ||||
Proceeds from common stock issued upon exercise of stock options | | | ||||
Proceeds from common stock issued under employee purchase plan | | | ||||
Payments related to offering costs | — | ( | ||||
Finance lease payments | ( | ( | ||||
Shares repurchased for settlement of employee tax withholdings | ( | ( | ||||
Net cash provided by (used in) financing activities |
| |
| ( | ||
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
| ( |
| ( | ||
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 | $ | | $ | | ||
Cash paid for interest | $ | | $ | | ||
Non-cash investing and financing activities: |
|
| ||||
Right-of-use assets obtained in exchange for new operating lease liabilities, net of impairments and tenant improvement allowances | $ | | $ | | ||
Acquisition of equipment under finance lease | $ | | $ | — | ||
Capital assets financed by accounts payable and accrued expenses | $ | — | $ | | ||
Stock-based compensation included in capitalized software development costs | $ | | $ | | ||
Common stock issued in connection with acquisition | $ | | $ | — | ||
Liabilities for contingent consideration | $ | | $ | — |
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, the United Arab Emirates, Germany, Singapore, Australia, Canada, Brazil, Belgium, Mexico, France, Japan, Spain, Finland, Italy, and India, 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 September 30, 2023 and December 31, 2022, the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2023 and 2022, the Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022, and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 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, 2022.
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 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.
Cash and Cash Equivalents
The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. Pursuant to the Company’s investment policy, its surplus funds are kept as cash or cash equivalents in treasury bills, money market funds and savings accounts to reduce the Company’s exposure to market risk.
3. Revenue
The following table disaggregates revenue between advertiser customers, where revenue is generated based on number of ads measured for Measurement or measured and purchased for Activation, 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 |
| Nine Months Ended | ||||||||||
September 30, | September 30, | |||||||||||
(in thousands) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Activation | $ | | $ | | $ | | $ | | ||||
Measurement |
| |
| |
| |
| | ||||
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. Business Combinations
Scibids Technology SAS
On August 14, 2023, the Company acquired all of the outstanding stock of Scibids Technology SAS (“Scibids”), a global leader in artificial intelligence (“AI”) technology for digital campaign optimization. The acquisition combines DoubleVerify’s proprietary data with Scibids’ AI-powered optimization technology to provide advertiser customers with enhanced insights and control over their advertising performance.
9
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
The following table summarizes the components of the purchase price that constitutes the consideration transferred:
(in thousands) |
| ||
Cash, net of cash acquired | $ | | |
Common stock issued in connection with the acquisition |
| | |
Fair value of contingent consideration | | ||
Total | $ | |
The fair value of the Company’s common stock issued (
The purchase price includes a performance-based deferred payment that has a total maximum payout of $
As of September 30, 2023, Scibids Contingent Payment had a fair value of $
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
(in thousands) |
| Acquisition Date | |
Assets: | |||
Cash and cash equivalents | $ | | |
Trade receivables |
| | |
Prepaid expenses |
| | |
Other assets | | ||
Intangible assets: |
| ||
Technology |
| | |
Customer relationships |
| | |
Total intangible assets |
| | |
Goodwill |
| | |
Total assets acquired | $ | | |
Liabilities: |
|
| |
Trade payables | $ | | |
Other liabilities |
| | |
Deferred tax liability |
| | |
Total liabilities assumed |
| | |
Total purchase consideration | $ | | |
Cash acquired | ( | ||
Purchase consideration, net of cash acquired | $ | |
10
DoubleVerify Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data, unless otherwise stated)
The acquired intangible assets of Scibids will be amortized over their estimated useful lives. Accordingly, customer relationships will be amortized over
The goodwill and identified intangible assets are not deductible for tax purposes. The Company incurred acquisition-related transaction costs of $
The goodwill associated with Scibids includes the acquired assembled work force, the value associated with the opportunity to leverage the work force to continue to develop the future generations of AI technology assets, as well as the ability to grow the Company through adding additional customer relationships or new solutions in the future.
The preliminary allocations of the purchase price for Scibids are subjec