Good day, ladies and gentlemen, and welcome to the DoubleVerify Third Quarter 2021 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Tejal Engman, Investor Relations.

Good afternoon, and welcome to DoubleVerify's third quarter 2021 earnings conference call. With us today are Mark Zagorski, CEO; and Nicola Allais, CFO. Today's press release and this call may contain forward-looking statements that are subject to inherent risks, uncertainties, and changes and reflect our current expectations and the information currently available to us, and our actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings, including our S-1 registration statement. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release, which is available on our Investor Relations website at ir.doubleverify.com. Also, during the call today, we will be referring to a slide deck posted on our website. With that, I will turn it over to Mark.

Thanks, Tejal, and good afternoon, everyone. We are excited to share with you our third quarter results, expectations for the full year, and additional detail on recent strategic investments we’ve made. We grew the third quarter revenue by 36% to $83.1 million, achieving the top end of our revenue guidance range. We grew third quarter adjusted EBITDA by 82% to $26.4 million, representing 32% EBITDA margins and exceeding the top end of our guidance range. Advertiser Programmatic, Advertiser Direct and Supply Side revenue all delivered double-digit year-over-year growth. Our core revenue growth continues to be driven by our product success in fast-growing sectors such as Programmatic, Social and CTV and a global expansion strategy that’s winning large, enterprise clients in a growing number of international markets. We’ve had a great year so far. Revenue in the first 9 months of 2021 grew 37% year-over-year. Adjusted EBITDA grew 52% year-over-year. We were not impacted by Apple’s App Tracking Transparency changes because our measurement and pre-bid targeting solutions do not rely on cookies or individual identifiers. Additionally, because we verify, target and measure nearly everywhere that digital ad spent -- these dollars are spent, we are largely insulated from platform specific supply and demand fluctuations. Our fixed fee solutions follow the spend. In addition to generating strong core revenue growth, we are focused on investing in long-term strategic initiatives that expand our product leadership and deepen our coverage in fast-growing sectors. In doing so, we not only increase our potential TAM and create broader upsell opportunities with current clients, but we also further enhance our ability to optimize their advertising outcomes. On that front, we are excited to announce our second strategic investment of the year, the acquisition of OpenSlate, having just completed our acquisition of Meetrics in the third quarter. I…

Thank you, Mark and good afternoon, everyone. Let me begin with a review of our quarterly performance before discussing our 2021 outlook and providing additional color on the OpenSlate acquisition. Our revenue performance in the third quarter reflects continued broad based strength in advertiser, platform and publisher demand for DV products. Each revenue type grew sequentially from the second to the third quarter, which is seasonally weaker. For the third quarter, our revenues were $83.1 million, up $22.1 million or 36% year-over-year. On a sequential basis, third quarter revenue grew nearly 9% and outperformed the 7% sequential growth we delivered in 2019. Revenue was driven by strong volume or MTM growth for both direct and programmatic. Gross revenue retention remained above 95%. Advertiser Programmatic revenue grew 49% in the third quarter year-over-year primarily driven by continued ABS adoption, particularly on DV360. As Mark mentioned, ABS delivered 64% year-over-year revenue growth in the quarter and now represents over 50% of programmatic revenue. To date, we have been successful at upselling this premium product to our existing customers, and we are now focused on making ABS the cornerstone of every RFP for prospective enterprise clients as well. Advertiser Direct revenue grew 23% year-over-year driven in part by large existing enterprise clients, including Unilever and Amazon, expanding DV’s coverage to international markets. We also benefited from newly signed clients, including Airbnb, Target, and Sony, ramping up their business with us. On the Supply-side, we recognized new revenue from MoPub, Taboola and Tremor in the third quarter as we continue to expand partnerships with key platforms and publishers. Shifting to expenses, our cost of revenue increased by $4.4 million year-over-year in the third quarter, primarily due to an increase in costs from revenue-sharing arrangements with our Programmatic partners as Programmatic revenue grew as a…

[Operator Instructions] And our first question comes from Arjun Bhatia from William Blair. Go ahead, Arjun.

Yes. Thank you very much. I wanted to start maybe just with the OpenSlate acquisition. Can you just give us a sense for maybe the customer overlap that you have with OpenSlate? Obviously, the technology seemed complementary, but how many, if you can quantify in any way the number of joint customers. And then I would love to hear maybe just some commentary on the build versus buy, why did the acquisition make sense, and what's difficult about the technology itself that made this acquisition attractive? Thank you.

Yes. Thanks, Arjun. Great question. I mean, it's pretty clear hopefully that through the script that we are super excited about the OpenSlate acquisition. It is a differentiator in the market that allows us to be the only platform with really end-to-end pre-bid and post-bid measurements and verification across platforms like TikTok and YouTube. It really does expand our coverage footprint to give us unrivaled coverage across, obviously, the hottest platforms that are out there today. And it allows us to further live our story of being a single platform through which advertisers can come to and be confident that their investments are going to be protected and ads that will be delivered across a brand suitable and verified environment. Specifically, around customers, that's where we even get more excited. Whereas the OpenSlate technology is really awesome. There you had a -- as a relatively subscale company, their ability to sell to a lot of enterprise clients has just been a long time coming. Right now we have about client overlap of around 60 customers. And when you think about DoubleVerify working with over 1,000 brands worldwide, the way I look at it is we've got 940 more customers to sell to, which is a pretty awesome opportunity for us. So, there's some customer overlap, but it's really minimal. And for us, it's all about upselling. And we've had a really solid track record of upselling new solutions to current clients. So, A, that's super exciting. On the aspect of build versus buy, I think there's obviously a lot of considerations here and one of which is timing to market, and with specific time to market, timeliness to market. And we know that platforms like TikTok and YouTube are just booming. And since the pandemic started, the engagement on those platforms has only gotten greater. So, the ability to move very quickly with a solution that complements our post-bid measurement solution and helps optimize those outcomes for advertisers and do that without having to go through a build and wait for a time to build over while those platforms scale. I think that was the real selling point for us, which was moving quickly into markets to take advantage of those growth, getting stickier with our current clients when they're going to be making those decisions, and then starting to deleverage and use some of that dry powder that we have in a way that can really grow it exponentially over time.

Awesome. That's great to hear, and that's very helpful color, Mark. One more question if I can just on TikTok. Obviously, there's a lot of exciting things happening there. You have the new partnership. Now you have OpenSlate that gives you kind of a unique way to capture share there. Just give us a sense for how you're positioned to grow in the TikTok opportunity? And if there's any way you can help us frame the potential contribution over the next year or so now that you have some of these pieces in place to really attack that opportunity, that would be super helpful.

Yes. So, if you think about kind of the way that the products are lining up, we recently announced the launch of our viewability and fraud solutions across TikTok. OpenSlate was one of the first partners in on brand safety. So, we've kind of got all the bases covered there with regard to pre-bid, brand safety, and post-bid measurement and verification on the viewability side. So, when we look at the completeness of solution, it's really exciting there. When we think about that platform in particular, and if you just kind of do some back-of-the-envelope math, you figure it's about a third the size of Facebook now in active users in the Americas. Right now, between Facebook and YouTube, they make up about 15% of our total revenue. So take half of that or so for Facebook, gives you about 7.5%. If you say they're a third of Facebook, you could see potentially this business being anywhere from 3% to 4% of our total revenue after time. So, I think when we look at the opportunity on that specific platform, we think there's a comparable opportunity that we've seen with platforms like Facebook and YouTube just based on the scale of user engagement and the demand that we're seeing from our advertisers.

It's very helpful. Thank you very much, and congrats on the acquisition and the quarter.

Okay. Thanks.

And our next question comes from Andrew Boone from JMP Securities. Go, Andrew.

Hi. Good afternoon, and thanks for taking the questions. So, question number 1, first on Custom Contextual customers growing 60% quarter-over-quarter. That seems like a very good omen for 2022. So can you talk a little about the drivers behind the ads? And how do you move those customers more test budgets into something that's more persistent or is it more persistent today?

Yes. Thanks, Andrew, for the question. We like the traction the product is getting. And like all of our pre-bid or pre-filtering products, so ABS on the Programmatic side, what we've just done with OpenSlate and now Custom Contextual, it ties really nicely to our post-bid measurement, building this kind of optimization cycle over time. So we know that once people start using those pre-bid solutions, it helps fortify and leverage our post-bid solutions as well. So it creates this virtuous cycle. So on the Contextual side, we've seen a lot of client uptake. We know that first take is the uptake and then the volume after that. So, as we see the number of clients using it increase as we saw last quarter, 60% sequentially, we know that puts us in a good position for 2022 as now dollars start rolling off other solutions to our solution. The nice part about a lot of these, what we call, again, pre-bid solutions that are on Programmatic platforms, so ABS and then Contextual, is that the ability to move dollars to those solutions is pretty fluid. So, the stickiness comes with the post-bid measurement afterwards, but the fluidity of adoption and dollar flow into Contextual on the pre-bid side is pretty loose. And what that means is, we feel good about next year in Contextual's contribution to our growth next year as part of our overall pre-bid performance suite.

That makes sense. And my second question is around international. I think you talked about 60% growth in the quarter. Can you just provide a little bit more detail on just the go-to-market, whether that's more international kind of customers that are expanding into new markets or whether these are local wins? Just kind of help us understand the strength of international where you guys are finding success. Thank you so much.

Yes. I mean, look, we’ve been pretty upfront about saying that we think there's a good amount of white space in the international markets. It was one of the reasons why we acquired Meetrics and closed that deal in Q3. 50% of our -- 55%, excuse me, of our new hires so far this year are outside the U.S. and 40% of our headcount is outside of the U.S. right now. So it's a commitment we've made. And the reason why we've done so is for both of the reasons that you noted, our global clients are getting bigger. And by that, meaning, they're moving toward enterprise single-platform solutions, and they want those solutions to work wherever they are. So, whether it's a Unilever or a Mondelez, they're looking for a solution that can be leveraged in every market where they buy and sell advertising. So our ability to have people on the ground, to have support, and to have resources that can help optimize their spend in those markets is really critical. So, a, as we look at our international investments, it's to continue to further support our enterprise clients. But we get this nice residual impact as well when we put those people on the ground. What we're able to do is sell-through a significant number of local brands as well, so we get both. And both prongs --- both parts of that are prongs in our attack strategy. So, we cover the global clients through a team that we call GCAP, which is focused on enterprise clients around the world. And then we attack the local clients through the teams on the ground at end market. And if you think about some of the names that we mentioned in the call, there are the big guys that are international, so the Facebooks and the Disney Studios, etcetera. But then there's folks that are like, that are local. So Patek Philippe, which is obviously a French brand. The Afterpay and ANZ, which is in New Zealand, in Australia. So we look at -- and Sony Japan, another great one. We look at local brands as being an offshoot of what our enterprise client relationships enable us to do in those local markets.

Great. Thanks, Mark.

And our next question comes from Justin Patterson from KeyBanc. Go ahead, Justin.

Great. Thank you very much. Very impressive growth out of ABS. You did note the DSP additions during the quarter. Would love to hear more about just how we think about ABS's growth opportunity and just where you are in terms of client adoption from that product. So that's question number one. And then question number two, there's a lot of changes in the measurement ecosystem right now. I understand that iOS is not necessarily a headwind for your business. But I'm curious how everything from what's going on with measurement, so Nielsen, MRC, is creating opportunities for the business. Thank you.

Great. Great questions, Justin. Let me take on the ABS one first. I think that if you kind of put this in a baseball analogy, what inning are we in with ABS. I think in the Americas, as far as platform adoption, we're probably like in the seventh inning, right? We've got the big guys. We've got Google. We've got Trade Desk and Amazon all signed up with ABS. So, I think in the Americas, we are probably on the platform side well into the game. On the scale side, however, we think there's a significant amount of upside still to be made out of ABS just by volume and new client adoption on those platforms. So we've kind of got the showrooms open and now we are filling it with cars and people coming into those showrooms. So, I think we are probably still well into the early part of the game as far as how much volume can get on those platforms. And then one other consideration, too, is our next level of penetration on ABS, from a platform perspective, ties into the question Andrew just laid out, which is on a global perspective, we've got local DSPs that we would call them local here, but they're pretty dominant in the markets that they're in. And whether that's in APAC or parts of Eastern Europe or Middle East, there are significant platforms in those areas that we still need to get distribution across, I think, that can help those local clients, too. So that's still early going. So, net-net, we think there's a good amount of growth for ABS, both on a volume perspective and then outside of the U.S. from a platform distribution perspective. In regards to your second question, I mean, how much time do we…

Great. Thank you.

And our next question comes from Michael Graham from Canaccord. Go ahead, Michael.

Thank you. OpenSlate sounds exciting. Just a comment maybe on how long you think it will take to integrate that into the product set? And then, Mark, just on the guidance and sort of the impact from supply chain with some of the CPG advertisers, do you think this is coming at a time sort of toward the end of the year when we are setting budgets for next year? Like are you worried about that for budgets for next year? Are you hearing from the advertisers that they think a lot of this will be behind them by the time we sort of get into the new calendar year? Just any high level comments you have there would be helpful.

Sure. Thanks for the questions, Michael. So, on the integration process for OpenSlate, the nice part about the acquisition is that there's really no redundant functionality. So we don't have to rip anything out or rebuild anything that we've already created to work with OpenSlate. So we look at that integration will probably be over the next year or so, different levels of platform functionality integration. Light integration first with UIs will probably be shared and clients will be engaged with together from an operational perspective. But you're probably looking at a year for a full kind of system integration. And I think over that time, we will be working with our customers to ensure that the product that we put together between pre and post is something that actually helps them drive better results. So more to come there on that front. With regard to kind of the guide, and I will talk about this from a qualitative perspective and maybe Nicola can jump in on a quantitative perspective. But we have a good roster of CPG clients. They make up a decent chunk of our client base. But as we've said before, we don't have a heavy concentration in any one area. And we had talked, I think, a few quarters ago about travel and leisure and entertainment. The nice part is, we've seen those industries all come back in Q3, Q4. And we provided some caution around whether or not they'd come back, and we've seen a nice balance back there. CPG is the latest poster child for post-pandemic challenges. But the reality of it is, you bring up a great point is, we think this is pretty short-lived. As a matter of fact, we know it's short-lived. The indications that we're getting is early next year, they think they're going to shake off these supply chain issues, and we will be ready to move on. So, we don't see this as an ongoing drag in any way. We saw it as a relatively light temporal issue that we want to be cognizant of and we are not over concerned about it, but we want to certainly be aware of and then make sure that we are updating everybody around that. Nicola, anything to add?

Yes, Michael, the only thing I would add is, what Mark said is reflecting what we did, which is we took a modest change to the fourth quarter revenue guidance just to be cautious based on what we heard from our customers, right? So, this is not just a macro consideration, it's really what the CPG customers are telling us. And we are seeing it happening in October a little bit. And the guidance that we've put out there sort of assumes that, that will continue, not deteriorate for the rest of the quarter. And as Mark said, we are not hearing or anticipating this to continue to 2022.

Okay. Thank you, guys.

Thanks.

Thank you. And our next question comes from Matt Hedberg from RBC Capital Markets. Go ahead, Matt.

Thanks for taking my question, guys. Congrats on the results. Mark, I have a question for you. In terms of -- I'm thinking more like reopening and people getting out and traveling and whatnot. I mean, do you think that has an impact? I'm thinking from like your sales perspective. Building pipeline perhaps on the new customers, you guys have obviously done a good job on new customers throughout the pandemic. But sort of curious on your views as we think forward to 2022 in a bit more of a reopening phase?

Yes. It's a great question. Thanks, Matt. And it's one that we live every day. One of the things that we noted in the script is that Q3, we closed more new logos than we have any time in the year, right? And a lot of those closes are still being done remotely, right? These are brand-new clients, many of which we've never met before in person, and we are still closing deals. So, A, it's interesting how quickly the industry has adapted to buying and selling virtually because they know their spend is only increasing digitally, so they need to have that security and they need to have that performance drivers. So, I think when we look at the market opening up a bit, not that we need that to happen to drive pipeline because we don't, obviously. This year, we've closed 108 so far, 108 new logos this year, brand new. And that's pretty exceptional for our client. And I think that when we look at next year, we certainly want to do better. And we think we have the opportunity to do better with having people on the road. But we will see. I don't think that's going to be the deciding factor. We are going into the -- into 2022 with a really strong pipeline. We are super happy with where we sit today. I would say, I’ve only been here less than 18 months, but it's the best pipeline I've ever seen going into a new year. So that is an absolute statement I can make, and we feel good about it.

That’s great. I can hear in your voice and congrats from me on OpenSlate. Seems like a really, really nice complement to what is obviously a very, very diverse platform already. Thanks a lot, guys. Congrats again.

Got it.

Thank you. And our next question comes from Mark Murphy from J.P. Morgan. Go ahead, Mark.

Thank you. Hey, this is Pinjalim sitting in for Mark. Congrats on the quarter. Most of my questions have been answered, but one quick question on competition. You -- DoubleVerify is obviously strengthening its position with some of these acquisitions, OpenSlate, Meetrics, and whatnot. But would love to hear what are you seeing with respect to the competitive dynamics? How are your competitors kind of reciprocating or looking at you kind of becoming the leader in the market?

Yes. It's a great question. We are laser-focused on having the broadest verification across the most platforms in the most markets across the most media. The acquisition of OpenSlate continues down that journey. And our focus on being independent, free of the media transaction, and ensuring that we are the company that not only is the largest, but the least encumbered by any bias is a big deal for us. And I think we're well on that way. When you look at -- and that's resonating with the people that we're talking to, both our current clients and new clients. When we look at the competitive takeaways that we've been able to do, it's been pretty extraordinary, right? I think we shared some stats in the past about the last 18 months, I think we've won something like over 80% of our competitive tenders. When you look at some of the names we mentioned on this call. So, TD Bank and Sony Japan, Disney Studios and American Family Insurance, and Dropbox and Merck, these are all competitive sales -- competitive takeaways. So, I think from a competition perspective, we know that we haven't lost a top 100 client in the last 12 months. We continue to take clients away from our competitors. And we continue to live that mission of having an unbiased independent take with the most complete coverage across the most platforms of any other system out there. So, we feel good about where we stand against competition. And it's not just about feeling good, it's about delivering results, and we're delivering results, too.

That's great to hear. Nicola, one quick clarification. I think you said $16 million to $18 million from OpenSlate next year. Is there any contribution from OpenSlate or even Meetrics in Q4 at all?

For 2021, no, we haven't even closed the OpenSlate acquisition. So we're not banking on that at all, and Meetrics is not material.

Got it. Thank you.

And our next question comes from Youssef Squali from Truist Securities. Go ahead.

Yes, hi. This is Nick Cronin on for Youssef. Thanks for taking the question. So, volume has been the primary driver of growth for you. And as you look at pricing, particularly as media mix turns toward higher price CTV and other formats, how should we think about your ability to charge more per validated impression? Thanks.

Yes. So, you're right. MTM has been the main driver of our growth, but volume is what's been the main driver of our revenue generation. The fee part of our business, we have, up until now, look to stay on a fixed fee model because that allows our customers to not think of us as part of their decision as to where to verify or not. And that has allowed us to basically continue to grow with the volume. Now on the upsell opportunity, we are able to up charge when we have premium products, which is what we're able to do with ABS. And that overall has an impact that increases the MTF, our media transaction fee that we charge. You have a point around CPMs being higher and lower or our ability to charge more on a higher CPM. That opportunity remains. We know it's available and we obviously track it. But at this point, we are still focused on being able to measure more and more of the volume. The opportunity will remain there as more impressions move to higher CPM-based opportunities. The upsell opportunity for us is still really large, right? As Mark mentioned, being able to upsell to ABS, which is a premium-priced product, that opportunity is still large. Custom Contextual will behave the same way. Now that with the acquisition of OpenSlate, we will be able to add on more services to the same impression that we measure. So we see a lot of opportunity that way to increase the MTF.

Got it. That’s helpful. Thank you.

And there are no further questions. I would now like to turn the floor back over to CEO, Mark Zagorski, for closing remarks.

Thanks, everybody, for your questions. We can tell, the team here at DV is extremely enthusiastic about what the future holds for us. We continue to deliver strong revenue growth and profitability while executing key strategic initiatives, expand product leadership, deepen our coverage in fast-growing sectors and grow our global footprint. We expect to fuel our long-term growth trajectory and deliver better business outcomes for DV customers by driving media quality and performance everywhere. We appreciate your time and attention today and look forward to updating you all on future calls.