DoubleVerify Holdings, Inc. (DV) Q2 2022 Earnings Report, Transcript and Summary

Hello, and welcome to the DoubleVerify's Second Quarter 2022 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Tejal Engman, Investor Relations. Please go ahead.

Good afternoon, and welcome to DoubleVerify's Second Quarter 2022 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 Form 10-Q and our annual report on Form 10-K. 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'll be referring to the slide deck posted on our website. With that, I'll turn it over to Mark.

Thanks, Tejal, and thanks, everyone, for joining us this evening. We're excited to have delivered outstanding second quarter and first half results. Building on solid organic growth we achieved in the first quarter, we delivered 43% revenue growth at 31% adjusted EBITDA margins in the second quarter, significantly exceeding our guidance. All 3 of our revenue lines delivered double-digit growth as we continue to upsell premium products to existing clients, drive activations by new clients, expand across geographies and launch on new media platforms. Additionally, our continued focus on innovation powered further moves into the gaming and retail media sectors, both fast-growing new areas of marketer spend. Our first half results exceeded our expectations and enabled us to raise our full year revenue and adjusted EBITDA guidance for the second time this year. We remain confident in our ability to deepen our engagement with blue-chip brand partners who provide a solid foundation from which we can further expand into new sectors and geographies. We continue to closely monitor ongoing macroeconomic and geopolitical uncertainty and engage regularly with our advertisers to stay apprised of evolving ad spend patterns. I've highlighted the resilience of our business on prior calls. But given the current macroeconomic climate, let me reiterate the business attributes that distinguish DV from most ad-supported tech companies. First, we are confident in our continued ability to win new customers and expand our relationship with current customers as the essential nature of our products protect brand equity and optimize media efficiency by reducing waste, thereby driving better outcomes and improving ROI on every dollar spent. Next, our fixed transaction fee business model insulates our revenues from CPM volatility, while our verify everywhere product strategy diversifies our revenue across platforms and verticals, making DV largely agnostic to shifts in ad spend. Our well-diversified customer base comprises the world's largest and most trusted brands with no single verticals driving more than 20% of revenue last year. And finally, we remain in the early stages of global market penetration with a vast and untapped TAM to sustain our long-term growth. I'd like to take a few minutes to discuss our second quarter growth drivers and catalysts for future momentum within the context of DoubleVerify's 3 key differentiators: our rapidly growing scale, our focus on market-defining innovation and the deep level of trust we have built with our customers as an unbiased and independent partner. Beginning with scale. Our drive to verify everywhere is providing substantial market momentum as our ubiquitous platform and partner integrations provide opportunities for future expansion and upsell, particularly for our activation business. On a year-over-year basis, second quarter revenue from our 2 premium activation products, Authentic Brand Suitability and Custom Contextual, grew 52% and over 200%, respectively, and combined represented approximately 52% of our programmatic activation revenue. Both products are unique to DoubleVerify, providing dynamic, identifier-independent solutions for marketers that ensure brand alignment and drive better advertising outcomes. As we've highlighted in prior quarters, our top 100 customers continue to activate Authentic Brand Suitability across new geographies. Banco Santander, Dell, Amazon, John Lewis, Vodafone and Mondelez recently launched ABS in incremental international markets, including Brazil, Japan, the U.K., Germany and France. Custom Contextual was activated in the second quarter by some of our large performance marketing advertisers such as Comcast as well as by mid-market, digitally native brands such as Canva. Success in activation and measurement go hand-in-hand, and our measurement data fuels a virtuous cycle in which postcampaign insights inform continuous optimization opportunities that can be acted upon in prebid applications. By using a consistent measurement currency for pre- and postcampaign solutions, we drive better results for advertisers across everywhere they invest their ad dollars. When we engage a client, we immediately introduce them to the performance opportunities embedded in this process, expanding our relationship with them across new geographies and new solutions that feed the cycle. In the second quarter, we closed multiple cross-sell, upsell and new logo opportunities, including British Airways, Taco Bell, Universal Parks, Roshfrans, Asda, Califia Farms, Infiniti and Smile Direct. Notably, 64% of our top 500 customers utilized DV for both measurement and activation in the second quarter, up from 58% a year ago. Our scale across key social media environments continues to grow in a sector that remains highly attractive to marketers. According to MAGNA Global, advertisers are expected to spend approximately 57% of their digital ad budgets, ex search, on social media in 2022. The demand for closer, safer consumer connections is driving a broad-based push for brand safety and suitability verification within social media's dynamic news feed environments, creating a meaningful growth opportunity for DoubleVerify. To support growing ad investments in social media platforms, we have developed news feed content classification technology that is highly scalable across different user-generated social feed environments. DV's recently launched unified social pipeline technology substantially decreases per platform engineering efforts and shortens the development time line to integrate brand safety and suitability solutions in news feed environments. In the second quarter, our unified social pipeline technology helped us secure an exclusive partnership with Reddit, one of the most visited websites in the United States, comprising over 100,000 active communities and a highly dynamic user-led environment. We are excited to be Reddit's first full suite verification partner, ensuring that ad campaigns meet quality criteria while maximizing impact in performance for advertisers. Unified social pipeline will also support development across the LinkedIn Audience Network. We are excited to announce today that we just signed a platform-wide agreement to provide brand safety and fraud prevention for all LinkedIn native ads across desktop, mobile web and in-app. This integration uses DV's technology and data to ensure that all campaigns activated to the LinkedIn Audience Network are brand-safe and fraud-free. In addition to these partnerships, we continue to build momentum on TikTok. The number of global advertisers using our brand safety solution on TikTok has grown by approximately 42% year-over-year, and we continue to develop end-to-end in-feed solutions in conjunction with the TikTok team. Finally, we remain on schedule for a summer launch of brand safety and suitability measurement for Twitter's news feed known as timeline. As we seek to scale our solutions into new sectors, we're excited to announce today a significant expansion into the gaming sector. In the second quarter, DoubleVerify began working with Twitch Ads on a solution to identify contextually brand-safe and suitable livestreamed content for clients on Twitch, an interactive livestreaming service and global gaming community. The solution is currently in a closed beta. And finally, we're continuing to scale on retail media networks, which are fast becoming the advertising venue of choice for outcome-driven brands. Today, DV partners with some of the largest retail media networks in the world, including Amazon, Walmart, Target, Macy's, Best Buy and Kroger. In the second quarter, we have sold prebid viewability products to the Walmart Media Group and launched our solutions with Asda, a leading supermarket chain with over 600 locations in the U.K. In the first half of 2022, we grew revenue from retail media networks by 160% year-over-year with the growth spread across all 3 revenue lines: activation, measurement and supply side. Based on their increasing appeal to marketers, we expect the success of retail media networks to drive further volume increases across our solutions. Turning to DV's market-leading innovation. Our solutions continue to evolve, delivering true ROI for advertisers throughout the media transaction from precampaign activation to postcampaign measurement. A great example is our new suite of precampaign social media activation tools powered by OpenSlate's brand suitability and contextual analysis engine. In the second quarter, 36 more brands adopted this new capability, providing early validation of the growth opportunity we identified when we acquired the OpenSlate technology late last year. Cross-selling precampaign social activation solutions to our existing postcampaign social measurement clients creates an optimization loop within walled gardens that is similar to the optimization loop we have created for the open Internet with Authentic Brand Suitability and post-bid measurement. The combination drives better outcomes for advertisers and more opportunities for growth for DV. Moving on to innovations in measurement. We are announcing today that we have launched a closed beta for DV's campaign automator solution and expect this product to be generally available by the end of this year. By fully automating advertising trafficking workflow, DV's campaign automator streamlines campaign verification management across leading ad servers. This capability lowers tag implementation costs for our clients and provides significant benefits relative to first-generation tagging tools. Designed to improve operational efficiency and minimize human error, DV's campaign automator will allow already stretched ad operations teams to dedicate more of their time and resources to campaign activation strategy and optimization. Continuing with our measurement suite. Our new freemium preview of authentic attention, named the DV Authentic Attention Snapshot, will launch later this month and allow DV clients to dynamically review high-level attention insights across their multi-platform campaigns. DV Authentic Attention Snapshot empowers clients to hone in on top and bottom performing campaigns; benchmark performance against their specific industries by media type, ad size, ad duration and device; and identify strategic campaign optimization opportunities all in real time. Attention is rapidly emerging as a key measurement metric. According to eMarketer, 98% of marketers believe that deeper attention metrics would help improve campaign performance and advertising outcomes. An example of Authentic Attention power to drive outcomes can be found in a recent trial with Vodafone Germany. Vodafone used DV Authentic Attention to measure and optimize the performance of their digital ad campaigns with the goal of increasing purchase intent. By implementing Authentic Attention, Vodafone identified in real time which ads were doing the heavy lifting to achieve their core KPIs. They then excluded underperforming sites and optimized creative and device type in real time. As a result, Vodafone found that high engagement ads drove over 2.5x higher qualified traffic and sales conversion rates compared to low engagement ads. Another industry-leading measurement innovation launched last quarter was our exclusive partnership with Scope3 to provide advertisers with a detailed picture of how their digital campaigns contribute to CO2 emissions. Concerns regarding the environmental impact of digital advertising are increasingly becoming top of mind for leading global brands. Our new campaign-based solution powered by Scope3 aims to assess the environmental impact of the extensive computing power involved in delivering programmatic ads. Through this exclusive partnership, DV will be the only company providing carbon emissions data alongside foundational ad performance criteria. To conclude on innovation, in addition to the exciting products I have just detailed, we have a robust pipeline of unique solutions and strategic partnerships that are focused on creating customer value, including an optimized DV Pinnacle user experience, the addition of cost data through DV Investment Metrics and Custom Contextual support for CTV. This brings me to our final differentiator, trust, which is core to the value we deliver to our customers and underpins our important role in the digital advertising ecosystem at large. We continue to focus solely on providing measurement and verification solutions to our customers, not selling ads, cloud services or other solutions, which may create bias in our engagements. We believe our independence and accreditations are key drivers of our nearly 80% win rate of recent opportunities. In the second quarter, 60% of our wins were greenfield, and 40% were competitive takeaways as advertisers opted to work with the verification company with the strongest and most accredited product suite and 0 conflicts of interest. Advertisers' trust in DV is also evidenced by our gross retention rate of over 95% and the strong growth in our average revenue per customer. We grew the total number of customers generating more than $200,000 of revenue by 38% year-over-year on a trailing 12-month basis. In a digital advertising environment that increasingly seeks stability and transparency, DoubleVerify's unmatched roster of accreditations and independent perspective has set us apart in the verification space and supported long-term sticky client relationships that continue to grow. To conclude, we've had a strong first half of the year and remain confident that our growing global scale, market-defining innovation and the legacy of trust will continue to solidify our client relationships and fuel steady growth that will outperform our competitors and the broader digital ad industry in 2022 and beyond. With that, let me turn the call over to Nicola.

Thank you, Mark, and good afternoon, everyone. We're pleased to have delivered strong revenue growth and profitability in the second quarter and first half of the year. While we have good visibility for the third quarter and are raising our full year revenue outlook by the magnitude of our outperformance in the second quarter, we continue to closely monitor the current macroeconomic and geopolitical uncertainty and engage in regular dialogue with our advertisers. Total revenue growth of 43% was driven by 60% growth in activation revenue, 23% growth in measurement revenue and 49% growth in supply side revenue. Advertiser revenue, which includes activation and measurement, grew 43% year-over-year and continues to be volume-led. In Q2 2022, MTMs were up 24% year-over-year. MTFs grew 10% year-over-year, primarily driven by improved premium product mix, followed by the impact of the programmatic display and video price bifurcation, which we initiated on our standard programmatic products in the first quarter of this year. Activation revenue was led by our premium-priced Authentic Brand Suitability product, which delivered 52% revenue growth due to continued upsells to an international expansion with existing ABS users. In addition, we continue to successfully sell ABS to new clients at the outset of their relationship with DV and drove a 20% year-over-year increase in the number of advertisers using the solution. Growth in non-ABS product revenue was the second largest contributor to activation revenue growth, followed by the impact of the price bifurcation of programmatic display and video impressions that was implemented during the first quarter. Similar to last quarter, our social activation solutions through OpenSlate performed in line with expectations. Turning to measurement. Revenue grew 23%, primarily driven by the ramping of new enterprise customers that were signed and highlighted last year in the first quarter of 2022, including Diageo, Norwegian Cruise Lines and Philip Morris. CTV and social measurement volumes grew 56% and 26%, respectively. CTV volumes continue to grow as we scale our industry-leading products such as our pioneering Fully-On Screen certification offering, an MRC-accredited attention measurement solution launched in 2020 that tests and evaluate leading CTV devices and apps to ensure ads are only displayed 100% on screen and when the TV screen is turned on. With regards to social measurement, DV's volume growth was particularly strong in the first half of 2021, driven by 2 of the world's largest CPG advertisers activating and expanding their geographic usage on our social solutions. As Mark mentioned, our long-term growth opportunities in social remains significant with new avenues for product expansion and coverage on platforms such as TikTok, Twitter, Reddit and LinkedIn. International measurement revenue grew 18% year-over-year with EMEA growth of 14% and APAC growth of 25%. In the second quarter, international measurement revenue growth was particularly impacted by the relative strength of the U.S. dollar. International represented only 26% of our full year 2021 measurement revenue, and we continue to see it as an opportunity for future growth. Supply side revenue grew 49%, driven by the ramping of new platform clients that were signed last year such as Yahoo! Japan, Amazon, the recently signed Twitch deal as well as new wins and expansion deals with publishers. Year-over-year growth also includes the impact of publisher and platform revenue from OpenSlate and from Meetrics. Overall, the acquisition of OpenSlate continues to perform in line with expectations of generating between $15 million to $18 million in revenue this year with a seasonality similar to our overall business. As Mark described, we are building our cross-sell momentum of our social activation solutions, which are expected to contribute more meaningfully in 2023. Shifting to expenses. Cost of revenue increased by $6.5 million, primarily driven by a revenue sharing arrangement with programmatic partners as activation revenue grew as a percentage of total revenue. Non-GAAP operating expenses for product development, sales, marketing and customer support and G&A, which excludes stock-based compensation expenses and other items for comparability, grew 32% versus our top line growth of 43%, reflecting the efficiency of our operating model as we scale. This was further supported by faster-than-expected integration of acquisitions and our overall cost discipline in the second quarter. As a result, adjusted EBITDA of $34 million and adjusted EBITDA margin of 31% exceeded the top end of our Q2 guidance. We continue to manage our operating expenses in line with our expected revenue growth. Most of our operating expense growth is due to increased head count costs. In the second quarter, we added 122 employees on a year-over-year basis. Our expense management is agile, and we plan to react swiftly should we see any significant changes in our operating environment. Finally, we delivered approximately $10 million of net income, a reflection of the attractive economics of our high-growth and high-margin software solutions. In the second quarter, we generated approximately $29 million of net cash from operating activities and ended the quarter with approximately $224 million of cash on hand with 0 long-term debt. The strength of the balance sheet remains an advantage for DV as rising interest rates negatively impact more leveraged companies and decreasing valuations provide opportunities to accelerate long-term growth through strategic investments, including M&A, that will advance our product and technology road map, open up adjacencies such as gaming and audio and expand our global footprint. We remain disciplined with regards to our capital allocation and believe the investment climate is likely to become more favorable over time. Now turning to guidance. We expect third quarter revenue in the range of $108 million to $110 million, which implies year-over-year growth of 31% at the midpoint. We expect third quarter adjusted EBITDA in the range of $32 million to $34 million, which implies a year-over-year increase of 25% and an adjusted EBITDA margin of 30% at the midpoint. For the third quarter, we expect stock-based compensation to range between $10 million and $11 million and weighted average diluted shares outstanding to range between 170 million and 172 million shares. For full year guidance, we expect revenue in the range of $448 million to $450 million, which implies a year-over-year growth of 35% at the midpoint. We expect adjusted EBITDA in the range of $136 million to $140 million, which implies a year-over-year increase of 26% and an adjusted EBITDA margin of 31% at the midpoint. Our guidance for the second half of the year reflects the potential impact of a pullback in digital ad spend and general prudence regarding macroeconomic uncertainty. As I mentioned earlier, we have raised our full year revenue guidance by the magnitude of our second quarter performance. Given our expectations of strong revenue growth this year, we intend to capitalize on a more favorable hiring environment in tech to add engineering and sales talent and continue our consistent investments in enhancing our machine learning capabilities and further building out the IT infrastructure to support our growth. As previously disclosed, we expect capital expenditures to range between $25 million to $35 million in 2022, including investments in office space around the world as we return to office with a significantly larger employee base. Based on the timing of spending on office renovations and relocations, we expect to incur most of our full year capital expenditures by the end of the third quarter. To close, we delivered a strong second quarter and first half, which reflects the resilience of our business. In this uncertain macroeconomic and geopolitical environment, we continue to engage with our clients regularly to ascertain their commercial outlook and spend as we successfully execute our plan for continued growth for the rest of the year. And with that, we will open the line for questions. Operator, please go ahead.

[Operator Instructions]. Our first question today is coming from Arjun Bhatia from William Blair.

Perfect. Congrats on a great quarter, guys. Mark, maybe I just want to start with you. It seems like you've obviously been talking to your customers. I'm curious, what are they saying about their outlook on ad spend in the back half of the year? And have you seen any change in that tone? And maybe for Nicola, in -- along those lines, how do you think about the visibility that you have just into your second half guidance? We're obviously in August here, so just a few more months to go, but would love to hear any further that you can show there.

Yes. Thanks for the question, Arjun. And it wasn't like we weren't expecting something around the macroeconomic environment, considering how much talk there is. Look, we came off an exceptionally strong first half, and we still think there's some strong momentum for our business going into the second half, which is why the Q3 numbers that we guided to still remain nice and strong. We've got relatively good visibility into the quarter, into Q3. So we feel good about that. But look, we are not -- as we've said, we're super resilient, but we are not totally immune to potential slowdowns in the space. And that's why we factored in some increased probability of a moderate pullback given the macroeconomic environment. We are in regular conversations with our advertisers to get a sense of what their spend will be. And the nice part for us, just to be very direct, is that we've got so much diversification across sectors, across different marketplaces and across platforms that even if there's a pullback in one type of spend, whether it's social or premium CTV, our implementation across ROI-driven platforms like programmatic, like mobile and others, I think, puts us in a good position. So look, we're going to weather the storm like other companies in the space, but we think we're in a really good position to do so based on [indiscernible]. Nicola, if you have anything else to add?

Yes. The only thing I would say, Arjun, is obviously, things can move very quickly. But we're guiding based on what we're seeing today. And I would qualify this as saying it's an assumption of a moderate slowdown. But things can move very quickly, and we could react to something that's steeper than what we have in the number. It's still a 35% growth rate for the year, which is a strong performance.

Got it. That's super helpful. And then just another one, if I can, on just the product pipeline, Mark. It seems like there's obviously a lot of innovation that's going on. You have a lot of new products that are either early in their launch or coming in the back half of the year and into '23. How do you just keep your customer-facing teams and your customers as well up to date on all the new stuff that you have coming? It's a good problem to have. But is there a sense that -- are there specific capabilities that you're prioritizing as you're talking to your customers that can drive growth and expansion with them in the back half and into '23 here?

Yes. It's an excellent question. And look, you bring up a really relevant point, which is our basket of goods continues to grow. And that adds a layer of complexity to our relationships with our advertisers, but it creates a great opportunity as well. That basket of goods has new solutions like attention that actually look at building new metrics, but also includes broader coverage of new sectors, like we've -- like as we've done with gaming and as we continue to [indiscernible]. When we move into new sectors, it's a relatively easier sell because we're taking core solutions and just expanding our coverage into new areas that makes a lot of sense for advertisers. As we launch new products, that obviously is a new challenge because we're adding another layer, another thing that an advertiser would want to for. And in that case, what we're finding is our ability to continue to bundle and create simple bundles like we have with, for example, ABS and measurement, which make a lot of sense working together, is really to our advantage. So I think for us, making full bundle or simple packages around the ultimate outcome, which is driving a better outcome for an advertiser, is how we approach the market. We found it's been incredibly successful, for example, with the growth of ABS and how we package [indiscernible] measurement. We think there's further opportunities to do that as we look at how our products work together.

Next question is coming from Youssef Squali from Truist Securities.

Excellent. And yes, you guys seem to definitely be bucking the trend here, which is great to see. So maybe a 2-part question for me. First, just on the visibility that you guys are seeing. Nicola, I think you mentioned this. But how much visibility do you typically have into the spend? Is it -- can you quantify that? Is it like 60 days, 90 days, 120 days? Any kind of quantification would be helpful and the linearity that you've seen throughout the quarter. And second, it seems like the outperformance was mostly from your core products, ABS and Custom Contextual. Can you maybe discuss demand trends for your newer products, like the prebid solutions, in particular, and your traction you're seeing upselling and cross-selling those?

Yes. Youssef, I'll take the first part of the question. As we've said in the past, we have greater visibility on the measurement side of the business. And that's about 3 months out based on blueprint information that the -- that our customers are providing to us so that we can actually tag and follow the campaign. So the visibility that we have into Q3 is really based on what we know the campaign flights are for our customers on the measurement side. Activation is obviously a lot more transactional. And so that's what we're basing our visibility on. The second part of your question was within the quarters, I mean, we basically are now 6 months into the year, and we have 2 quarters at 43% growth each quarter. The intramonth variability actually didn't impact the total top line revenue growth. So it's actually been fairly consistent.

Yes. And maybe I'll pick up on the kind of new product adoption. And look, I think we've got some really nice momentum in the -- with our new solutions we mentioned in the [indiscernible] and certainly around Custom Contextual's growth year-over-year of about 200% off relatively small base but still the kind of growth that we want to see there. I think attention continues to gain traction. I mean, we measured 250 campaigns in Q2 alone, and we continue to measure about 50 billion impressions each month on attention. We've done that, and we're now benchmarking across 12 different verticals. So attention is getting there. As we've always noted, it's going to take time. When we look at solutions like Custom Contextual, that's taking a core competency in a market that is comfortable with that, with contextual targeting. And it's a little bit easier of a launch. It's also an activation or a prebid product. So it's a little more seamless. With something like attention, we're building an entirely new category, which is super exciting and I think can be really big for us. It just takes a lot -- a longer time. But we're super confident on attention. We are the leaders in that space. We like the kind of interest that we're getting from advertisers on it. And I think although the dollars are small and the days are early, it shows a huge amount of potential for us.

Your next question is coming from Laura Martin from Needham.

Can you hear me okay, you guys?

Yes.

Can you hear? Fantastic. So I have 10, I'll ask 2. The first one is I want to talk about CTV. So I heard you say that CTV grew 52% or 56%, fabulous. But I'm questioning how big it is in the quarter. Are we up to 20% of revenue or is it smaller than that? Let's start with that question.

Yes. Laura, this is a -- it's single-digit share of revenue. It's still very small. The entire digital advertising share on CTV is also in the sort of 10%, 12%, 13%, and we are lower than that at this point.

Okay. So that sets up the B part of my question better, which is we held a measurement conference, as you guys know. And iSpot.tv came out and said they're doing $100 million in verification for CTV measurement. So my question is, are you guys getting outflanked in the connected television business by a private guy who's got exclusives on LG's CTV data, plus he's got VIZIO data? So can you talk about your competitive position going forward in CTV, please?

Yes. First off, I'd probably question how much of that $100 million is to measurement versus actual verify [indiscernible] they're doing $100 million in revenue. But beyond that, I think the core value prop here to DV, and we've always said this, is a single verification currency across multiple platforms, right? And so when we work with advertisers, they want to verify across social, across display, across mobile, across CTV. So we look at this as it's a small part of our business but a big asset and the fact that it's the ability for us to have one measurement metric, one verification metric across all platforms, which I don't think single-point solutions have. Whether if you're in the CTV measurement or verification business, that's all you got, right? And I think advertisers are looking for something that's more broad-based, that can allow them to verify everywhere. And I think we're in a good spot to do that. So I think we also have to look at the approach that different companies are taking in the verification space, whether it's using single sources like [indiscernible] capture or other types. We look to drive accredited, consistent metrics across every platform. And I think CTV is one of several that are [indiscernible] to us, but also one of several that are important to advertisers. So it's a very long answer, too. We're not getting outflanked. If anything, we're owning the broader space across multiple different types of platforms and delivering a single [indiscernible].

An excellent answer, Mark. My other one is on cookies, just to borrow some IQ from an expert. So Google pushed off cookies deprecation for another year until the second half of 2024. Is that good for you? Is it bad for you? And also, stepping back from just DoubleVerify, can you talk about how you feel -- is that good for the ecosystem? Or does it elongate the uncertainty of what happens after cookies? I'm just interested in your macro thoughts on cookies for the entire open Internet.

Yes. So I think we've gotten this question before, and we've always said cookie deprecation is neutral to positive to us. Because we -- our system works without identifiers in that -- cookie identifiers to build our metrics. So them going away doesn't have an operational impact on us but could have a positive impact on solutions like Custom Contextual targeting and other types of metrics like attention, which don't rely on individual trackers. So I think pushing that off a bit, does it hurt our business? Not really, because it ultimately will happen. And at the end of the day, whether through government intervention or commercial changes, identifiers and trackers across user [indiscernible]. From a macro perspective, it's a great question because so many -- even in our Investor Day, if you remember hearing it, like so many advertisers have already been preparing for this and building systems around clean rooms and first-party data and the ability to use other metrics. They feel like only delaying the inevitable of what they're already planning to do, right, which is start to move away from individual cookie-based retargeting, move away from audience-based targeting into areas where -- that are a bit more comfortable from a privacy perspective. Do I think people are going to take advantage of cookie -- being able to use cookies up until the last day they could use them? Absolutely. I mean, there's no doubt. Because if something works and you can still use it and you don't have to do additional work to make something else happen, you're going to do it. So -- but I do think so much groundwork has been laid to actually work without cookies that some of that is already just in motion and people are going to start to [indiscernible].

Your next question is coming from Michael Graham from Canaccord.

Congrats on the quarter, everyone. I just wanted to ask 2. The first is on ABS. I know you mentioned that a lot of the expansion in MTF was due to that product applying to some of your international customers. And I just wonder if you could update us on sort of where we are in the arc of ABS penetration in your overall business. And kind of second but related, your activation revenue grew 3x as fast as measurement. And that's kind of unusual for that kind of growth rate disparity to stay so high after activation has become the bigger part of your revenue mix. I'm just wondering if you could share any thoughts on how long you expect activation revenue to grow so much faster than the measurement.

Yes. So look, I think we continue to love ABS as the little engine that keeps on driving growth. We are excited about the fact that although we look at over 90% of our top 100 customers are using ABS and measurement, we still have a huge amount of opportunity in the next 100 plus. 64% of our top 500 customers use activation and measurement, up from 58% a year ago. That still leaves a big chunk of advertisers in that 100-plus customer base to go after. I think we've seen a significant amount of growth in there. And I think one of the things that we really loved about ABS is initially, we thought, hey, this is a premium product for big brands who are incredibly sophisticated. Once we tap that out, we'll start to see that slow. However, we're starting to see this now being an awesome product for midsized advertisers. It's growing globally as advertisers move dollars around the world and expand their usage around the world. So we still see a good amount of runway with ABS -- of growth to come from ABS. So we certainly are not -- don't want to be -- consider activation as a one-trick pony because we've got other things in activation that also continue to grow like Custom Contextual and other things in the pipeline. But I think -- we have ABS. We still have a good amount of room there. With regard to the activation growth versus measurement, I think activation is comprised of both prebid tools in programmatic as well as activation tools that we're using -- implementing in social from OpenSlate. So we've got a good array of solutions there that I think we've probably done just a bit more innovation on that side, which is allowing us to kind of drive growth there a bit faster. Measurement tends to be stickier, longer sales cycles, more consistent in growth. So like we like to keep that number -- it's probably more of a steady growth number. It's a bit less fluid but a bit more sticky, activation, which tends to be a lot of campaign-driven programmatic-type implementations. It can grow faster because it's a bit more fluid and more flexible. So I don't think that -- we still see strong runway on activation and on programmatic tools. Will that multiple of growth be that large moving ahead? I could see that slowing down at some point as measurement starts to stabilize and sticks where it is and as activation does as well. I don't know, Nicola, anything else to add?

The other thing I would say, Michael, is the wall garden measurement part of the business, we are still underpenetrated there, right? There is a large TAM there that still needs to be measured if you think about TikTok, just starting, if you think about opportunities on Meta. So I think we obviously follow where the dollars are going from our advertising perspective, but I think there's quite a bit still untapped on the measurement side.

The next question is coming from Andrew Boone from JMP Securities.

I'd like to start off with just performance products. With Custom Contextual ramping and Authentic Attention to begin testing, it sounds like, later this month, can you talk about how this widens your opportunity? Is this already bringing in clients with more lower funnel ad objectives? Or how do we think about that potential for that going forward? And then secondly, on international, you guys made significant personnel investments last year. Understood FX was a headwind this quarter. Can you talk about the progress in international? Is that helping you to take share? Or how do we think about the return on those investments today?

Sure. So on the performance tools, it's interesting because it's a little -- it actually plays in 2 different ways for us. It's definitely allowed us to bring in and attract some new clients, right? So those -- particularly around attention and contextual in which some folks that we haven't talked to before, who are looking to drive more, as you noted, bottom funnel results, that are looking to have more different ways to qualify content and placements to drive outcomes. And I think as we've always talked about, we've got this evolution of our business moving from protection to performance. And things like ABS are really good protective tools, right? They ultimately drive performance by getting the garbage out of the system. But things like Custom Contextual and Attention really look to refine what's left and optimize the spend against what works. By going further down on the funnel, we are attracting more -- a new breed of advertiser who is concerned not just with how safe their brand is, but with how well their ads perform ultimately overall and using our tools to do so. So it's -- the cool part about that is it just -- it does open us up to a new type of advertiser. And while we get in there, it allows us to sell all of our other stuff to them, too, which I think is -- which is great. Additionally, we look at these as add-on solutions to our core advertisers who are maybe less lower funnel but still looking to optimize performance. So brand suitability or brand safety still may be their #1 goal and may be driving brand. However, if they can continue to refine the performance of those campaigns by using this tool, it's a great add-on for them. So I think our performance tools have both attracted new types of customers which we can then sell our broader basket of goods and allowed us to appeal to some of our current customers who are saying, "Yes, this is great. We've always relied on you guys for verification and safety. Now I can look at you as also helping refine and drive a better outcome." So it's a great insight. We've -- I think we've benefited both from current clients and attracting new clients by pushing these new tools. And that's why product innovation is so important to us as we continue to grow over time. The second part of your question on international investment, I think you nailed it with the fact that last year, we leaned pretty heavily into sales and marketing resources, particularly outside of the U.S. We are definitely seeing the results of that in our continued growth in win rate, in our greenfield win rate, right? So when we look at a lot of our deals, they're not only outside the U.S., but there are global companies in which having a support and sales force outside the U.S. have been critical for us in closing the deals. So I think when you look at our growth, outside of U.S. growth is probably not even the best indicator of the return on investment from those resources. It's the size and scope and scale of some of the deals that we've done or that we've closed in the last quarter. And you look at some of the names on our list of new deals. So folks like British Airways, right, and Banco Santander, these are huge global clients that were supported by our global sales team. But they're also domestic clients as well, right? So I think the investments paid off well. And I think we've always said we were kind of underinvested outside of the U.S. I think we're at the right size of investment now to take advantage of bigger global deals, support those bigger global deals as well.

Yes. The only other thing I would add on the international is, yes, there are headwinds in the second quarter related to FX, which is not particular to us. But if you think longer term, if -- our view is that over 50% of spend is outside of the U.S., excluding search. And outside of the U.S., revenues last year was 26% of measurement. So there's a gap there that we see as an opportunity. As Mark said, the investments are made, and it remains a very large opportunity for us.

Your next question today is coming from Vasily Karasyov from Cannonball Research.

I wanted to ask a couple of questions about the new relationship you mentioned with the Walmart Media Group. So question number one, do I understand correctly that, that relationship would fall into the measurement bucket? And if that's not correct, can you please explain the nature of the relationship? And the second question is, so retail media, you talked about how -- what a great growth opportunity it is for you. As you know, one of your partners, The Trade Desk, is also doing a lot of work with Walmart Media with programmatic shopper marketing. So I was wondering if that's something that you see as an opportunity, too, and if you could tell us how you think about it in terms of your positioning and your prospects there.

Yes. So just in qualifying the Walmart Media Group expansion, it was -- it falls into our activation revenue. So this is some prebid viewability solutions with them so that it falls into activation revenue. And the neat part about -- just to take a step back, the interesting thing about our retail media network relationships, they really span all 3 revenue line items that we have. So some of these relationships are platform relationships in which we're providing a solution directly for the retail media network that they may use for people buying into them. Some of them are directly with the retailers themselves in ensuring that their spend that goes across or the buys that they do to retarget clients are safe and secure. And some of them are real measurement deals as well. So we've got -- the nice thing about our arsenal, for folks who are in the retail media space, their needs are varied. And our ability to supply all aspects of them, them as buyers, them as sellers and them as platforms, is all covered with our solution set, which is great. And that's why we get so excited about the space. With regard to the specific Trade Desk implementation, I think all of our solutions work really well with the activation or programmatic tools that are out there. And as I noted earlier, because we're able to implement data in programmatic platforms as a stand-alone in the platform itself or as a measurement metric that can be used across those retail media networks, we've got a lot of flexibility in how we work with each one of these advertisers. So we're not working directly with Trade Desk on what they're doing with Walmart. But we certainly have a great relationship with Trade Desk, a great relationship with Walmart. And I think, obviously, the strategy of those folks is to coordinate tools like ours with platforms like Trade Desk to drive the best outcomes they possibly can.

Your next question today is coming from Mark Murphy from JPMorgan.

This is Arti on for Mark Murphy. Congrats on the quarter. First question, when we look across the macro environment, we've heard from a lot of other software companies that they're experiencing some headwinds with new logo acquisition. Are you guys seeing any change in the structure between the land-and-expand motion?

It's a great question. I mean, obviously, when you are heading into potentially challenging times, the ability to close new clients is more challenging than the ability to upsell clients. And the key is that expand, and you balance the value of the expand with the challenges that you have with the land, right? Because customers become a bit less adventurous, which is great for us if we have a relationship with them because they're more willing to buy our solutions, to drive more volume through a solution that they have confidence with than they have in actually trying something totally new. So the fact that we've got these really sticky relationships with over 1,000 global brands, I think, and those are blue chip brands, really gives us a bulwark against heavy switching, the ability for those advertisers to switch, particularly in a challenging time. Does it make selling new customers -- I mean, on the flip side, does it make selling new customers a little tougher? It does, right? But the key is, can you leverage your expand so that it's greater than or equal to any declines in your land? And I think we're in a good position to do so. We've seen strong recurring revenue growth in the first half of the year. We continue to grow with our current customers, as we've noted, with upselling activation solutions to a larger percentage of them year-over-year. So I think we're in a good position to take advantage of maybe some of the increased caution of advertisers switching solutions and sticking with a singular platform that they can continue to expand with. So yes, I think it's a good insight. I think we're well positioned to weather any slowdowns in new acquisitions.

Got it. And then so the second one, given the broad industry exposure you guys have, are you guys seeing any divergences in terms of some verticals performing better than others?

So far, what we've seen is a return from very low points for CPG and travel. So those are comparatively performing better for us versus low points last year where it was still sort of COVID-impacted. The one industry where we're not seeing as much of a pickup is auto. It remains -- it is growing but not as fast as the others. But as -- more generally for us, not a single industry is above 20% of our revenue. So it's not a huge overweight one way or the other. But to answer your question, auto is the one that seems to still be sort of slower growing.

Your next question is coming from Eric Sheridan from Goldman Sachs.

Maybe two, if I can. If you were to continue to put up this kind of revenue outperformance between now and the end of the year, can you help us better understand how you think philosophically about allowing money to drop to the bottom line versus finding it in real-time ways to like invest it back in the business as we look out over the next couple of quarters? And then zooming out, how should we be thinking about the decision process for either organically investing in the business in '23 and beyond versus the comments you made about maybe inorganically doing some M&A that could speed up some of your longer-term agendas as we move out of this year and into next?

Yes. So Eric, I'll start. The -- we haven't changed our point of view that we are still in a very growth mode. And so the first priority will be to reinvest into the business. We do feel strongly that the results that we're showing this year are in part due to the investments that we made the year before and the year before. Even through COVID, we continued to invest. So falling to the bottom line is certainly not our priority in terms of additional revenue growth. It is more about investing. And the investments change, right, but they remain consistent in terms of dollars. We do keep our eye on a 30% margin, and it feels like it gives us enough leeway if things were to change quickly, to change trajectory. But we are looking to continue to invest. In terms of M&A versus operational investments, yes, of course, we keep looking at it. We have, as you know, over $220 million of cash. It does feel like the market is going to become a more favorable environment for acquisitions, but we're going to remain very disciplined as to which acquisition we go after because the organic growth is so strong and it gives us such an opportunity to continue to [indiscernible].

Yes. So just to add, one little bit of color there is I think the key word Nicola mentioned is scale. And we're going to continue to lean in this opportunity to scale the business. I think we've mentioned before that scale drives a virtuous cycle where as we grow bigger as a company, we get smarter. As we get smarter, we're able to deliver better results for our advertisers. As we deliver better results, we're able to retain and grow the advertiser base, which drives scale, right? And I think that virtuous cycle is something we're going to continue to feed, and we'll do so on a pragmatic basis. But we're certainly not going to stop that wheel from spinning. So I think scale is really important to us. We drive scale through acquiring new customers and by being innovative in covering new sectors, right? And those are innovations that -- those are investments that we'll continue to make as long as they make sense for us. And so right now, it's for the foreseeable future.

Your next question is coming from Mark Kelley from Stifel.

My first question was just on some of the newer channels that you're starting to accommodate. I guess what do you think moves the dial near term, whether it's gaming, audio, et cetera? And then the second question is on the Authentic Attention Snapshot that you talked about at the beginning. Is that something that you plan on offering indefinitely, that premium product? Or is it something that you'll do near to medium term just to get some folks interested in that product and then not really offer that?

Yes. Some great questions. Thanks for them, Mark. On the first side, we look at -- it's interesting. We look at sectors. And roughly speaking, in-game advertising and audio advertising are about the same size in billions as an advertising opportunity. For us, all of them -- it's kind of like the sum of the parts is greater than -- what do they say? The sum of the whole is greater than the individual parts, right? So when we look at our solution, having coverage across all of those different areas, whether it's gaming, audio, CTV, social, mobile, desktop, all of them together drive an incredibly high-value proposition for our solution. So we don't look at any individual one as being, okay, we're going to make X million dollars off of the gaming space or we're going to make X million dollars of audio. They become part of a bigger value prop that just says, as we look to verify everywhere, our solution becomes more and more valuable. It's used in more and more places, and it just makes us stickier with our clients. So think of each move into a new sector as both being something that is strategic because it creates a stickier relationship with our advertisers but also adds to that whole. And that whole pie just gets bigger and bigger. And it gets bigger not just from the fact that we added a new sector, but the value proposition to our clients goes up incrementally as well. It makes it harder to lose -- to shake us. So I think we're excited about gaming. We're excited about moving into audio. As Nicola mentioned earlier in the call on another question, CTV is still small, but it's an important part of that matrix. It's like if you don't have CTV coverage and you don't have gaming coverage, you're probably not going to end up getting a deal or staying with a customer over time. So they're essential to us. I think it's important for us to be everywhere. All of them add something to the overall revenue trajectory, but each one is not something in itself that I think is valuable. And that's why I always look at point solutions that only cover one sector as being incredibly short lived, right? If you're only doing measurement in CTV or you're only doing measurement across social or verification across social, like you're going to be -- you're not going to have a long tenure in this space. And for us, it's about stickiness, tenure covering everywhere. So I think that's the first part of your question. The second is on Snapshot. I think we're going to roll this out. We're going to see uptake on it. And really, this is a vehicle. It's an upsell vehicle for us to get attention socialized as it gets more standardized in the space. I think there is probably an option for us at some point to take Snapshot and enhance it even further and move it from a freemium solution to a paid solution. But I think for now, we're looking at it as a marketing investment to get attention metrics in front of our customers and sell them the full-fledged premium product down the road.

Next question is coming from Justin Patterson from KeyBanc.

Great. Two, if I can. First, just market volatility, I'm curious to see -- hear how you've heard about the pipeline for M&A changing. I imagine there's some companies that might be looking more for [indiscernible] these days at more attractive . And secondly, I just wanted to tease out a little bit more about the campaign automator. I realize it's closed beta now, but it seems like a broad [indiscernible] delivers a lot of to advertisers, add some efficiencies. And the same [indiscernible] that could deepen your relationships within there. Curious to hear how you think about that things like MTFs -- or excuse me, MTM, just number of transactions flowing through to customers and potentially sales opportunities over time?

Yes. I mean, I'll talk a little bit about the M&A front. And Nicola, please chime in. But I think obviously, choppy markets make great opportunities for buyers. And particularly when we're looking at what we call kind of road map accelerators, these may be little technical tuck-ins that aren't really businesses but are really cool features or things that we want to do to accelerate our move into a certain sector. A lot of those tend to be overvalued because they don't make a lot of money, but they're really essential and a larger kind of platform. And in markets like this, their expectations of value decline rapidly because they run out of funding because most of the time, they don't make much money. So I think in that sector, it provides a really interesting opportunity. And then as I noted earlier in another question, which is like single-point solutions allow us to extend our entire basket of goods that become increasingly challenging for an advertiser to just buy multiple of. If there's one thing that happens in choppy markets is that advertisers look to reduce overhead, and managing multiple solutions incurs overhead. So if you are a point solution and advertisers are looking at, "Hey, I have to manage 6 things or I can manage 3," you're going to get cut. So our ability to kind of bundle those point solutions into our package, make it easier for them to manage, I think, is a big advantage for us and also puts them -- those point solutions in a challenging position, which actually dovetails into the second part of your question, which is campaign automator. We think there's no better time for us to be launching this solution because it is all about creating a more low overhead implementation of tags across ad servers so that really, it's much more of a self-surface proposition. It not only lowers the advertiser's engagement, but it actually lowers our cost, too, because the amount of handholding we have to do with tag creation, tag management goes down. The amount of troubleshooting goes down. So I think this is a win for everybody. It's a win for the advertisers to streamline workflow, give them more self-service tools. It's a win for us because it takes less management to do so. So we're excited about it. Like I said, it's early, but we're hoping for a general launch in the second half of this year or later in the second half of this year. But we're really optimistic about its ability to lower the overhead costs and streamline the implementation process of our measurement tags. Nicola, anything to add on the M&A front?

No. I think Mark captured it. I think it is obviously going to be a better environment. The key for us is to remain just [indiscernible] the right solutions that are going to just accelerate our road map. So...

We have reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you. I just want to thank everyone for joining us today. We are super excited about our results in the first half of the year and looking forward to performance in the second half year as well. We'll talk to you all soon. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.