DoubleVerify Holdings, Inc. Q4 FY2023 Earnings Call

Good afternoon, and welcome to DoubleVerify's fourth quarter and full-year 2023 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 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 annual report or our 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 good afternoon, everyone. 2023 was DoubleVerify's third year as a public company and one where we continued to deliver industry-leading revenue and profitability growth fueled by AI-powered product innovations that drove a higher ROI for our customers and accelerated DoubleVerify's global client expansion trajectory and market share gains. In 2023, we grew total revenue by 27% year-over-year to $572.5 million, and our platform measured over 7 trillion billable media transactions across a growing number of digital media properties, formats and devices. DoubleVerify’s continued expansion into new global markets and media environments fueled over $120 million of incremental revenue during the year and established our scale as not only a market differentiator but also a springboard for future revenue growth, especially internationally, where our measurement business grew over 40% last year. Our focus on topline growth in 2023 was matched by our commitment to profitability and cash flow generation. Our business generated a 33% adjusted EBITDA margin and approximately $120 million of net cash from operating activities in 2023, an increase of 26%, even as we invested in growing our global workforce, expanding our premium solution set and integrating a new acquisition, Scibids AI. In the fourth quarter, we ended the year with a revenue growth rate of 29% and adjusted EBITDA margins of 38%. This rare and winning combination of growth and profitability allows us to continue to invest in AI and automation, which, in turn, helps drive our global scale and connectivity and fuel market-leading product innovation. These are DoubleVerify’s core differentiators and the engines of our long-term growth. Before I discuss the numerous drivers of our strong performance and market share gains in the quarter and the year in detail, let me highlight the two growth areas I am most excited about for 2024 and beyond: social media solutions and Scibids AI. DoubleVerify’s social media verification solutions continue to add unique value in challenging advertiser environments and will only become more essential during the upcoming election season. We grew our top 700 customers’ adoption of DoubleVerify’s social measurement solutions by 10 percentage points in 2023 to 54%, helping propel the sector’s revenue growth to nearly 50% for the year. In addition, we grew fourth quarter social measurement revenue by 21% sequentially, and all of our new measurement wins in the fourth quarter signed up for social coverage. As social media gains a larger share of advertiser wallets, our position as one of the few companies scaled to operate independently across this media puts DoubleVerify in a unique and differentiated position. Scibids AI, which we acquired in the second half of 2023, has generated an incredible amount of excitement with current and prospective clients. We have integrated its sales functions into our commercial organization and started connecting its platform to our core solutions, essentially leveraging Scibids AI to transform the entire verification category. With Scibids, DoubleVerify has a unique value proposition that allows advertisers to protect their brand equity and reduce media waste while simultaneously improving core performance KPIs such as lower CPMs and higher reach. This seamless achievement of both protection and performance is a differentiator that is helping DoubleVerify win new deals. In fact, 40% of our large new logo wins since the beginning of this year are actively testing Scibids AI. With expanding Scibids coverage across key programmatic DSPs and major social media platforms, our customer adoption and scale will allow DoubleVerify to unlock entirely new performance marketing TAM. Speaking of wins, we are pleased to have delivered a banner fourth quarter for new customer wins with strong continued win momentum year-to-date. Fourth quarter to date, we’ve won several iconic and category-leading enterprise logos, including Pepsi, Walgreens, and Haleon. We maintained an 80% plus win rate across all opportunities in 2023, with 62% of our full year and 59% of our fourth quarter wins being greenfield, which we define as wins where the advertiser wasn't using third-party tools for the business that DoubleVerify won. These great Q4 wins add to the powerful roster of new deals we closed in 2023, which included: Air France, Uber, Ulta Beauty, General Motors, Total Energie, NFL, Rolex, Sam’s Club, Pizza Hut, Revlon, and Liberty Mutual. We work with approximately half of the world’s top 1000 advertisers and continue to acquire large new enterprise logos. Leading brands choose DoubleVerify not based on price, but because we offer proprietary and market-leading technology, unrivaled brand equity protection, and tangible ROI improvement. We also have the ability to significantly expand within the nearly 450 top advertisers that we currently do business with, as DoubleVerify's fees comprised less than half a percent of this cohort’s digital ad spend in 2023. We expect to double our share of their media spend over time as we: one, expand these valued customer relationships across geographies and media environments, and two, upsell them our broader integrated product suite of activation and measurement solutions. As mentioned last quarter, over half of our top 700 customers use less than four of DoubleVerify’s seven core products, not including Scibids, creating a vast expansion opportunity within our existing customer base. In addition, we have leaned into our customer acquisition and retention plan of building higher value, more strategic customer engagements that leverage our real-time data to drive superior customer outcomes and ROI. Over the last four years, DoubleVerify has more than doubled the number of customers and revenue while increasing our overall MTM and expanding the bundle of solutions our customers use from us. As media performance joins media quality protection as a core part of our superior value proposition, closed-loop optimization leveraging data partnerships like we have with Attain, fueled by data insights from Scibids AI and activated via proprietary solutions like ABS, will help us to further enhance our premium value position in the marketplace, elevate and differentiate the level of our customer engagements, and set DoubleVerify up for continued future market share growth. Clients like Lexus have used DoubleVerify premium solutions to reduce media waste, increase safety, and drive site traffic by 3.5x. DoubleVerify maintains and will continue to maintain our strong pricing and margin profile based on these higher levels of strategic customer engagement, driven by the measurable ROI that our premium solutions deliver. In the fourth quarter and early this year, we achieved product and platform expansion milestones that we expect will fuel our growth in 2024 and beyond, across all major media environments: social, CTV, retail media networks, and the open web. Let me discuss these in the context of our core differentiators, namely: our rapidly growing global scale and connectivity and our market-defining innovation, both powered by our advancements in AI and automation. Beginning with social, we increased social measurement revenue by 62% year-over-year in the fourth quarter and by 48% for the full year, significantly outperforming our competitors as well as the growth rate of the broader social ad sector. During 2023 and the beginning of 2024, we meaningfully expanded our measurement coverage across key social platforms, widening our global scale and connectivity across this vital media environment. According to Magna Global, social media advertising made up more than 60% of digital ad spend ex-search in 2023, yet only 15% of DoubleVerify’s total revenue was attributable to social measurement in 2023. As we continue to expand our product coverage across key social platforms, we expect customer adoption of DoubleVerify’s solutions across social media to fuel revenue growth for years to come. On Meta, we’re pleased to announce that following our successful beta tests in the fourth quarter, we launched DoubleVerify’s brand safety and suitability measurement on Facebook and Instagram Feeds and Reels in the first quarter of 2024. This release is in general availability. For the first time, global advertisers are able to activate DoubleVerify’s AI-powered classification technology to protect their brand equity and comprehensively measure media quality on Facebook and Instagram Feeds and Reels, creating greater transparency across some of the most engaging user-generated content environments in the world. To date, customers have reacted enthusiastically to this launch, and impression volumes on Meta have increased by 51% in the first eight weeks of 2024 compared to the same prior year period. On YouTube, following our launch of viewability and invalid traffic measurement across YouTube Shorts in the third quarter of 2023, we launched brand safety and suitability measurement capabilities across YouTube Shorts inventory in the fourth quarter, providing media measurement across a greater volume of ad impressions on YouTube. In addition, we continued to expand TikTok brand safety and suitability measurement across the most important markets in Latin America and Europe and further widened our TikTok APAC market coverage. We currently support brand safety and suitability across 32 markets, which cover 91% of global digital ad spend, excluding China and India. Our scale and recent product innovations across social media and short-form video are powered by DoubleVerify’s Universal Content Intelligence, a proprietary AI classification engine that enables us to verify video content faster, more accurately, and cost-effectively than any of our competitors, having a direct, positive impact on our gross margins as we scale. By using predictive AI versus the more basic frame-by-frame process others use, we are able to lower video analysis costs and scale faster. Our solution most recently enabled the rapid rollout of new social markets and suitability categories, as exemplified by this month’s launch of TikTok brand suitability in Japan, as well as our first-to-market release of suitability categories by industry verticals. This advanced capability provides DoubleVerify with a strong comparative advantage in social media content analysis, where video comprised a whopping 67% of all social content in 2023, according to Magna Global, and in which we exhibited our speed to market leadership on the Meta News Feed brand safety launch earlier this year. Turning now to CTV, where ad-supported streaming continues to gain momentum, DoubleVerify grew its CTV measurement volumes by 34% in the fourth quarter and by 33% for full-year 2023, significantly outperforming 2023 CTV ad spend growth of 16%, according to Magna Global estimates. CTV comprised approximately 5% of our total impression volume in 2023, in line with its nearly 5% share of digital ad spend, excluding search. Building on DoubleVerify's existing CTV solutions that allow verification at the app level, we will soon be providing advertisers with more granular content-level transparency down to the show level, including program genre, ratings, classifications, and more. We are in advanced dialogue with three of the top 10 streaming platforms to provide brand safety and suitability measurement and content performance insights at the program level across OTT campaigns. We believe content-level transparency at scale across major CTV platforms will be a catalyst for mass adoption of brand suitability measurement on CTV, enabling DoubleVerify to enhance the long-term value we deliver to, and can extract from, this high CPM media environment. And we continue to protect our customers' CTV media investments from fraud by leveraging DoubleVerify’s industry-leading Fraud Lab and extensive CTV platform integrations. This week, in conjunction with Roku, we announced the discovery and mitigation of a new CTV fraud scheme we are calling Cyclone Bot due to its scale, aggression, and velocity. We estimate Cyclone Bot is generating 250 million false ad requests per day across 1.5 million devices, largely eluding traditional fraud detection methodology. Roku’s proprietary watermark technology provided a crucial element in helping identify and mitigate the attacks, saving our combined customers millions in wasted ad spend. Fraud is still a challenge for CTV buyers, and DoubleVerify is still the leader in protecting our clients from sophisticated fraud schemes. Turning to Retail Media, we generated approximately $23 million of retail media revenue across all three business lines in 2023, achieving 60% year-over-year growth and significantly outpacing the sector’s 15% growth rate as reported by Magna Global. Our global scale and connectivity across retail media continues to expand, with DoubleVerify’s measurement tags now accepted on over 75 of the key global retail media networks and sites, including 14 of the top retail media platforms and 62 major retailers. DoubleVerify has a strong value proposition for both onsite, or owned and operated retail media, as well as offsite, or audience extensions. Invalid traffic is significantly higher on owned and operated retail media sites than on traditional media due to an abundance of traffic from competitive price scrapers, while overall violation rates are 129% higher on offsite retail media inventory than on owned and operated sites. On the product innovation front, we are working with Criteo to provide an industry-leading solution that measures onsite quality metrics for retail media. Through this upcoming integration, DoubleVerify will provide invalid traffic, brand suitability, and viewability measurement on Criteo’s network of retail media partners, ensuring that marketers are maximizing engagement across this critical channel. Finally, on the open web, our innovations advancing our brand suitability solutions continue to be a key market differentiator, as exemplified by our most premium-priced solution, Authentic Brand Suitability. ABS grew by 48% in 2023 and contributed $182 million to our topline in the full year. In Q3 2023, we launched an industry-first made for advertising, or MFA, solution to provide our advertisers the ability to identify and avoid MFA content, which has exploded since the launch of easily accessible generative AI tools. This quarter, we advanced that tool by leveraging AI-based auditing to launch a more granular, tiered Made For Advertising measurement and pre-bid avoidance solution. This second-generation solution addresses MFA in a more surgical and brand-specific way, giving advertisers more control over balancing quality, performance, and reach. DoubleVerify continues to have the only solution in the market today that can be enabled directly by a customer in their brand safety and suitability profile for measurement and connected to pre-bid avoidance via ABS. It’s another great example of DoubleVerify’s innovation leadership, and customer adoption is increasing steadily. DoubleVerify’s brand suitability tools are more valuable than ever during election years, when advertisers need to closely monitor challenging political content globally and in real-time. DoubleVerify’s Election Task Force has been providing actionable data insights and analysis to protect brand equity and safeguard media investment since 2022, giving DoubleVerify a differentiated, deep set of experience to deliver real value for our customers seeking to navigate an evolving media landscape. We’re also pleased to be expanding our industry-leading Universal Attention segments to Amazon and Viant’s DSPs. Our attention pre-bid segments are gaining early momentum, and our attention measurement business is now growing steadily, with 2023 delivering over 180% growth in impression volumes. Before I wrap up and Nicola shares details on our strong 2023 financial results and 2024 outlook, let me conclude with three key takeaways from my remarks today. First, DoubleVerify continues to significantly outgrow the digital advertising industry and is gaining market share across every digital media environment: social, CTV, retail media, and the open web. Second, DoubleVerify will continue to win, because of the customer value we create through our unmatched global scale and connectivity and our market-defining product innovation, both powered by our proprietary AI that allows the most efficient analysis of vast amounts of data. Every day, DoubleVerify analyzes 1.3 billion minutes of video, close to 275 million social posts, approximately 8 million web pages, and over 22 million hours of audio content. And finally, we remain focused on growing and realizing our solid pipeline of new and expansionary deals, becoming more engaged with our current client base that will further drive our market share and create an even stronger long-term trajectory. The fundamental drivers that have powered our growth over the last three years remain strong and intractable. With that, let me hand the call over to Nicola.

Thank you, Mark, and good afternoon, everyone. DoubleVerify delivered industry-leading fourth quarter and full-year 2023 revenue growth and profitability, demonstrating continued strong operational execution through a year challenged by geopolitical and macroeconomic uncertainty. Fourth quarter total revenue growth of 29% was driven by 32% growth in activation, 30% growth in measurement, and 5% growth in supply side. Our activation and measurement businesses which are driven by advertisers were a combined 93% of our total fourth quarter revenue. Advertiser revenue grew 31% in the fourth quarter driven by 25% growth in volume or MTM, and 5% growth in pricing or MTF on a year-over-year basis. In addition, Scibids performed in line with our expectations. MTF growth accelerated sequentially from 2% in the third quarter to 5% in the fourth quarter due to a continued mix shift towards premium priced solutions, followed by the impact of the ABS display and video price bifurcation, which was completed across all major DSPs in the third quarter. ABS revenue grew 45% year-over-year in the fourth quarter, driven by volume growth of 34% and MTF growth of 9% year-over-year. Approximately two-thirds of the year-over-year growth in ABS came from existing ABS customers expanding their usage to more brands and to more markets, while a third of the growth came from customers who activated the solution for the first time. Fourth quarter measurement revenue grew 30%, driven by social revenue growth of 62%. International measurement revenue grew 43% in the quarter, with EMEA growth of 45% and APAC growth of 39% year-over-year. International revenue comprised 29% of measurement revenue, up from 26% in the fourth quarter of 2022. Supply side revenue grew 5%, largely driven by growth in new publisher customers in the fourth quarter. For full-year 2023, revenue growth of 27% was driven by activation revenue growth of 31% and measurement revenue growth of 25%. Social revenue grew 48% in 2023 and comprised 43% of our measurement revenue, up from 37% in the prior year. With spend on social platforms expected to continue to represent approximately 60% of digital ad budgets excluding search in 2024, our social measurement revenue continues to have a long runway for growth. Supply side revenue growth of 5% was driven by increased publisher revenue. For the full-year 2023, advertiser revenue growth was primarily driven by volume growth. We measured 7 trillion billable transactions, a 25% year over year increase in MTM, while average fee per thousand impressions increased to $0.075, a 3% year over year increase in MTF. We expect volumes to remain the primary driver of our growth as we continue to verify more digital ad impressions through product innovation and channel and geographic expansion, and we expect MTF to remain stable. Our approach on pricing is to lead with our product offering of unique and differentiated solutions including ABS, social pre-screen, and now Scibids. Our ability to continue to upsell existing clients and acquire new clients to the full suite of products has yielded an overall increase in MTF over the last four years, including a 5% increase in Q4 2023. Moving to expenses, cost of revenue in the fourth quarter increased by 32%, primarily driven by an increase in revenue sharing arrangement costs with programmatic partners driven by activation revenue growth. We delivered 83% revenue less cost of sales in the fourth quarter, up from 82% in Q3 as we eliminated some duplicative data center costs. Total non-GAAP operating expenses, which exclude stock-based compensation and other items for comparability, grew 24%, compared to 29% revenue growth, reflecting the efficiency of our operating model as we scale. Finally, we delivered $65 million of adjusted EBITDA or 38% margin and $33 million of net income in the fourth quarter. For full-year 2023, cost of revenue increased by 37%, primarily driven by an increase in revenue sharing arrangement costs with programmatic partners driven by growth in activation revenue. We delivered 81% revenue less cost of sales. Going forward, we continue to expect revenue less cost of sales to range between 80% to 82% as we balance data center cost savings with continued investments in cloud optimization and scaling our infrastructure. Total non-GAAP operating expenses represented 49% of total revenue as compared to 51% in full-year 2022. Non-GAAP product development costs grew 28%, sales, marketing and customer support grew 16%, and G&A grew 15% compared to the prior year. We delivered full-year adjusted EBITDA of $187 million, representing a 33% adjusted EBITDA margin and $71.5 million of net income as our business continues to combine high revenue growth with high profitability. We ended 2023 with 1,101 employees, up from 902 at the end of 2022. Nearly half of our headcount growth was attributable to R&D where we continue to invest in our engineering and product resources. Moving to cash flow, we generated approximately $120 million of net cash from operating activities in 2023, which represented an operating cash flow to adjusted EBITDA ratio of 64%. Capital expenditures were approximately $17 million in 2023. Finally, we ended the year with $310 million of cash on hand and zero long-term debt. In 2023, we achieved a net revenue retention rate of 124%, maintaining an over 120% NRR for the last five years, while our gross revenue retention remained above 95% also for the fifth year in a row. We grew the average revenue from our top 100 customers by 42% year-over-year to $3.7 million. We also grew the number of advertisers generating more than $1 million of revenue by 19% year-over-year to 93. We grew the number of advertisers generating more than $200,000 of revenue by 18% year-over-year to 290. We have long-term relationships with our customers and remain deeply embedded in their marketing plans. Our top 75 customers have worked with us for over seven years, while our top 50 and our top 25 have been DoubleVerify clients for over eight years. As Mark mentioned, we have maintained an 80% plus win rate across all opportunities and have a strong pipeline of new and expansionary deals that will continue to support our long-term growth trajectory. Now, let’s talk about 2024 and guidance. For the first quarter of 2024, we expect revenue in the range of $136 million to $140 million, a year-over-year increase of 13% at the midpoint, and adjusted EBITDA in the range of $33 million to $37 million, representing a 25% adjusted EBITDA margin at the midpoint. Our growth rate in the first quarter reflects a slow start by brand advertisers and a slow ramp by recently signed new customers, which will catch up in the second half based on large new customers’ seasonal spend and usage patterns. We are guiding to full-year 2024 revenue in the range of $688 million to $704 million, a year-over-year increase of 22% at the midpoint, and adjusted EBITDA in the range of $205 million to $221 million, representing a 31% adjusted EBITDA margin at the midpoint. We expect the quarterly share of our full-year revenue to be more second half weighted in 2024 than in prior years, as we expect fast-growing, already contracted new customer revenue to ramp in the second half of the year. We continue to expect Scibids AI to contribute between $15 million to $17 million to full-year 2024 revenue. The midpoint of our guidance implies an approximately $124 million increase in revenue in full-year 2024, a testament to the accelerating demand for DoubleVerify’s solutions by existing and new customers across more geographies and media environments. Similar to last year, we expect the key drivers of DoubleVerify’s 2024 revenue growth to be increased authentic brand suitability usage and adoption in activation, social measurement revenue growth, increased international adoption of our measurement solutions, Scibids AI, and new customer acquisition. Our guidance reflects measured contribution from new revenue opportunities in 2024 including incremental revenue from increased customer adoption on Meta, Authentic Attention, CTV activation and measurement. We expect stock-based compensation expenses for the first quarter of 2024 in the range of $19 million to $21 million. For the full year, stock-based compensation expense is expected in the range of $91 million to $96 million. Weighted average fully diluted shares outstanding for the first quarter are expected in the range of $175 to $177 million. We anticipate capital expenditures, including capitalized software, to range between $20 million and $30 million for 2024 as we continue to invest in new product innovation to support future growth. With zero debt and a strong cash balance, we are well-positioned to drive further business expansion and long-term growth in 2024. And with that, we will open up the line for questions. Operator, please go ahead.

The first question comes from Matt Swanson with RBC Capital Markets.

Yes. Great. It was great to hear about some of these big investment areas, social being up 62% for Measurement, international coming up, CTV coming up. But just kind of maybe for a balance from a year-over-year perspective. Do you mind kind of touching on some of the areas of your business that maybe were headwinds to those overall growth rates, and particularly kind of topic de jure right now? Is pricing coming up more from a competitive standpoint?

Yes. Thanks for the question, Matt. And everyone, thank you for your patience. I know that was a long call before you got to your questions, but we had a lot of news to share. Let me take the second part of your question head-on. We are not seeing pricing pressure period. Nicola mentioned we saw MTFs actually increase full year last year and Q4 last year. And when we close new deals, of which we announced some great ones. We're not closing them based on price. We close them based on stronger technology, unique tools like ABS, our continued social expansion that's driven by the most efficient AI video recognition out there. So we're not seeing pricing pressure. We are not addressing or going after new business with an aggressive price structure. And to be clear, we're winning new deals and taking market share at MTFs that increased last year.

Yes. No, that's really helpful. And I guess moving to the second question, I'll kind of revisit a piece of the first. But Nicola, when you're thinking about guidance, can you give us some of this color and, it certainly is not lost on us that we like to think of things as kind of core-core or maybe not counting our chickens before they hatch. But we went through so many secular tailwinds between social and retail media, the ramp in international, the retail media, Scibids. How are you thinking about just kind of balancing these opportunities as we look out through the year, kind of how you're thinking about the impact that had on your guidance?

Yes, as we've consistently stated, we focus on a core-on-core perspective for the year. For us, core-on-core includes ongoing growth in ABS, which accounted for two-thirds of our growth last quarter, a period of strong overall performance due to existing customers increasingly utilizing ABS for their impressions. Core-on-core anticipates continued growth from our existing ABS customers and further expansion in social media. It's worth noting that the growth rate we observed in 2023 primarily stemmed from English language content on platforms like TikTok, presenting a significant growth opportunity as we introduce new languages. Additionally, we expect the major growth drivers we experienced in 2023 to persist into 2024. It's important to clarify that the Meta opportunity, which we've discussed in previous quarters, is considered in a measured way for 2024, and while we believe there's considerable upside, we are cautious about how it will affect our forecast, focusing on our core-on-core message. Furthermore, Authentic Attention presents another opportunity for potential upside if we see acceleration in adoption, which could positively influence our guidance, along with similar expectations for CTV.

And the next question comes from the line of Justin Patterson with KeyBanc Capital Markets.

Two, if I can. First, just unpacking the guidance. A little bit more from the prior line of questioning. Could you help us understand a little bit more of just the slower start to the year? Typically, we thought about U.S. being a little more immune to some of the macro pressures in there. I believe you called out brand advertisers starting a little bit more slowly this year. So just would love to hear a little bit more you're seeing there, both from the Activation and Measurement side, and then I'll pause there and follow-up after.

Yes. So, what we said, what we're seeing is a slow ramp of our new contracted wins. And these are very large enterprise wins. And until we get in with the client to understand how the product is being rolled out, it's difficult to see how it's actually going to ramp. So that is item one. Item two is a slow start for existing brand advertisers. It's isolated to certain advertisers. It feels specific to their spending pattern. It doesn't feel like a macro item at all. This is a slow start that we expect will ramp as we get into the future quarters. The combination of those two slow starts is what's reflected in our Q1 outlook. The ramp that we expect is really based on what we know to be a relationship with a large enterprise client. It will ramp once our solutions are actually deployed across their entire global spend. We will see the benefit of it. So the ramp is really based on that happening rather than overweighting on, say, Meta opportunity, as I was discussing before. It remains core-on-core. It's just added spend coming later than originally anticipated.

Got it. That's helpful. And then for the next question, I just wanted to go back to the tech platform and the very healthy gross margins. You're saying, I know for short-form video that you're pretty unique towards how you're approaching brand safety there. As we think about just short form scaling up over the next few years, how do you think about just some of the efficiencies on the tech platform providing more room to invest around the next growth opportunities for DoubleVerify going forward?

Thank you, Justin. We've discussed our significant investments in R&D over the past 12 to 18 months, particularly in comparison to our competitors. We're beginning to see these efforts pay off. In terms of growth, our emphasis has been on short-form video, which currently constitutes over 60%, nearing 70%, of our total volume. To grow in the social space, we must focus on social video. We've built the necessary tools to analyze this video effectively, utilizing AI for predictive modeling, ensuring high accuracy that complies with social platform standards, and can scale significantly. Getting this right is crucial. As noted, we're projecting healthy gross margins, despite much of our growth coming from video. Our R&D and video analysis investments are proving successful, as the growth in this sector hasn't led to any additional deterioration in our gross margin due to hosting or technical costs associated with video analysis. This is a significant achievement for us.

The next question comes from the line of Raimo Lenschow with Barclays.

This is Frank on for Raimo. Any way to quantify what you're embedding in the guide from the Meta opportunity? And what are some of the key metrics that you point us to for evaluating the progression on that opportunity?

We have talked about a growth rate of over 50% year-to-date. This growth is attributed to several factors. We launched on Instagram and Facebook Reels last year, which increased our inventory. Additionally, we rolled out the News Feed opportunity in late January. Last year, Facebook and Meta contributed approximately 7% of our total revenue, which was about $40 million based on last year's $500 million revenue. If we maintain a growth rate of around 50% this year, we could see an increase of approximately $20 million from all the Meta properties. This potential relies on sustaining our growth rate, and we have year-over-year comparisons to consider, noting that we initiated our Reels launch in the middle of last year, alongside the new News Feed feature. Thus, we anticipate seeing significant opportunities with Meta across these new initiatives.

And the next question comes from the line of Youssef Squali with Truist Securities.

One, starting with the Uniqlo. I think you mentioned that you believe MTF should remain stable. I'm not sure you were referring if that was a kind of a formal outlook for 2020 for it because I think you mentioned that before you start talking about the outlook. But the point is out of that 22% growth in the revenue guide for 2024, can you maybe help us parse out volume versus price and MTFs are to remain stable? Why is that considering the mix shift going on? And then I have a quick follow-up.

Yes. So Youssef, what we mentioned in the remarks is that we anticipate most of the growth to come from volume. That shouldn't be a surprise to anyone, right? The MTM is really driving the continued growth of the business. From an MTF perspective, we grew in Q4 of '23. We grew full year 2023. The growth that we saw was based on a mix shift towards premium-priced products. It's slightly offset by the fact that we're expanding internationally quite aggressively. But overall, it did increase. The statement we made is we do not expect those to go down based on us needing to lower the price of the products that we have in the market. The likely, our expectation is that we will continue to see strong MTF because we're able to continue to upsell premium-priced products. And our perspective is not that we have to necessarily reduce the MTF on other products.

Awesome. That's very clear now. And just on the linearity of the year as we look throughout 2024. Typically, your Q1 is maybe 21%, 22% of revenues. I think based on your guide, it looks more like high teens. So, and I understand kind of the color you just given at around the brand advertisers, some of the large new enterprises coming on. But maybe help us think through how, where you, when do you make up the shortfall in Q1? Does Q2 kind of retract and do we see kind of a nice uptick in Q2? Or does it, is it more linear across the three quarters?

Yes. I think what we're going to see is we said it in our remarks, it is going to be heavier weighted towards the second half of the year versus the first half of the year. It's probably 1 to 2 points in terms of revenue share between the first half and the second half. So you can kind of see sort of the ramp starting after Q1 if you take that as a guide.

And our next question comes from the line of Arjun Bhatia with William Blair.

Yes. Perfect. Maybe if I can start on some of the large customer wins that you talked about that are signed and contracted but haven't started recognizing revenue from those yet. In Q4, Q1, is that larger than it's been in historical periods? Or maybe if we compare to 2023 and 2022, have you seen a greater activity of larger customers that are taking longer to ramp? Just maybe expand on that a little bit, if you could, please.

Yes, it's a great question, Arjun. We see this periodically when we nail a couple of large businesses. If you remember, Q2 of last year, we closed a couple of really big deals. They started a little bit slower than we expected, and it created a bit of a drag. I think as we start moving into these large enterprise global customers like Pepsi and Haleon, et cetera, they do take a bit of time to scale up. And as Nicola noted, we are learning over time that the bigger the customer, and whether or not they're launching globally all at once or they're launching market by market, there is a bit of a drag that creates some level of predictability challenges for us. That being said, I think I would say this year, pipeline and the deals that we closed in the pipeline were pretty comparable to last year. Last year, we closed a bunch of big deals coming into the year. And we see this kind of ebb and flow of big deals coming in. And I think that's, it's just the nature of the game. We're talking a couple of million dollars here or there on the edges, which I know makes a big difference for how we look at the year. But as Nicola noted when we provided the guide for the year, we're guiding based on core-on-core growth on pipeline deals that are closed and we expect to ramp. So we know that these are going to come in. They're just coming in a bit slower than we would have hoped.

Okay. That's very helpful, Mark. And then if I can maybe just revisit the pricing aspect a little bit. Obviously, I know you've said you don't want to compete on price and you have a superior product to be able to do that. But when you have a competitor in market that is using aggressive pricing tactics, how do you think you might respond if that continues into the future? Is there enough of ROI differential that you can continue to compete on product? Or do we have to go down this price route at some point?

Yes. So it's a great ask. And I think the way we look at this is, if we were just competing on the same products that did the same things and delivered the same results, then, yes, we'd have to look at price, but we're not. We're looking at a differentiated set of solutions. Everything from Scibids optimization to what we do on ABS, which no one else has, to even now the speed and efficacy of our social business, which if you look at how our social grew versus how some others in the markets grew, grew twice as fast. If we had the same product in social, how are we growing twice as fast in social, right? So it really is a strategy of saying the investments we made in product and in R&D over the last 12 to 18 months are allowing us to charge a premium. And the solutions that are basic that go head-to-head with each other, sure, if we just have those, you'd end up in a pricing situation. We're not there as exemplified by increasing MTFs in Q4 and for the full year last year. And that's why we're being very clear in saying, we're not going out there and attacking deals on price. It doesn't mean that we aren't competitive. It doesn't mean that we don't get into the market. But if you look at our greenfield wins, still close to 60%. That means we're winning new deals, not going out and just trying to take share from our competitors by driving price. We’re winning deals based on functionality and winning deals on differentiation.

And the next question comes from the line of Michael Graham with Canaccord Genuity.

My two quick questions are: number one, on ABS. You mentioned 45% growth and also called it out as an expected source of strength in 2024. And can you just frame out how much penetration you think is left with your customers? I mean, you mentioned that a lot of your customers are sort of increasing their deployment of that product. So maybe just frame out how much you think is left there? And then just a quick one on how the election year might have factored into your full-year guidance would be helpful to understand.

That's a great question, Michael. I hope everything is okay with you. I can hear sirens in the background, and it's quite loud, so I apologize for that. ABS continues to be a strong area for us. It's important to note that 65% of our top 500 customers are utilizing ABS, which means there are still over a third of them who haven’t adopted it yet. Moreover, in terms of our growth last quarter, 66% originated from existing ABS users. This demonstrates that when we add a new top 500 customer, they also continue to grow, expanding into new markets and lines of business. We saw significant expansions with existing ABS customers such as Amazon, Pfizer, and Walmart. There's still considerable growth potential in this area, which speaks to the effectiveness of our product. Regarding your question on elections, we didn't factor anything related to elections into our guidance. We see it as somewhat unpredictable. While I can aim to generate more demand for our solutions due to potentially divisive content, we also recognize it might deter traditional advertisers from purchasing impressions. Overall, we view it as neutral for our business. As Nicola mentioned, we are not relying on uncertain factors for growth; we are focusing on areas we know we can predict and that are already in our pipeline.

The next question comes from the line of Andrew Boone with JMP Securities.

Mark, you talked about the $20 million from Meta. And I know that we've asked you this in the past. But if you think about Meta and more of a medium-term opportunity, can you come back and help size the overall potential of brand safety on Meta?

It's a great question, Andrew. I think it's a bit early for us to size out Meta, the brand safety aspect on its own. In combination with the other things we've launched across, we know there's significant growth opportunity for sure. We do know, and we've said this before, only about half of our top 100 customers use us for measurement across Meta today, whereas across YouTube, another incredibly popular social platform, we are over 90% penetrated. So I think that the addition, we've said this in the past, the addition of News Feed coverage is certainly going to attract new customers into social. I don't think we've factored that fully into it as of today. And again, we're being measured in how we look at that growth trajectory of that solution. But net-net, the addition of coverage of Instagram Reels and now the News Feed make Meta a really strong driver and a strong growth catalyst. We've seen it in the last year end up the year with social growing at 62% and Meta was a big part of that. And then, Mark, we've talked about in the past couple of quarters kind of Scibids and its opportunity to bring on new customers. Can you just update us there now as the product has been longer through your sales force and is maturing in terms of your go-to-market? What are you seeing there in terms of that being a new own ramp for customers? Yes. The interesting aspect of Scibids is that we've discussed it as a solution we've had for years, yet we've only implemented it for about a quarter. It's generated significant excitement. Currently, 40% of our new customer acquisitions this year are exploring Scibids, which is substantial. Considering the almost 50% attach rate of this new product to new contracts is impressive. We're cautious about how we envision the growth of this business, but it is a key differentiator for us. It helps us rise above pricing challenges and allows us to maintain a premium service for our customers. We're confident in its appeal, as it offers something unique that DoubleVerify brings to the table. As I mentioned during the call, it’s transforming our approach to verification. We're not only viewing Scibids in isolation, but also assessing how we can integrate it with tools like pre-screening on social video and other social networks. It’s an exciting toolkit that we believe has considerable potential for continued development.

The next question comes from the line of Matthew Cost with Morgan Stanley.

You talked about the slower start to the year for existing brands. But I wonder if we zoom out and just think about the behavior of brand advertisers versus performance advertisers. Is there any difference that you would call out that you've seen in 4Q and into 2024 in terms of the willingness of brand versus performance to lean into the product offerings, whether that's adopting new products or expanding usage of one that they already use?

It's a great question. I think that for us, and I'm not going to paint the entire brand advertiser category in one way because that's not what we're saying. I think we just had some selected customers who had slower growth in the first couple of months of the year. I don't think there's anything brand versus performance that we really would talk about, other than that a handful of retail and CTV clients that we had had a slower start to the year. So I don't think there's a ton to look there into there on brand versus performance.

And the next question comes from the line of Brian Pitz with BMO Capital Markets.

Mark, you mentioned Scibids before. Maybe just an update, further update there around your pre-bid MFA Avoidance Announcement, perhaps an opportunity on the broader pre-campaign planning and activation market. As you see it, just maybe some of the early customer feedback? I know you said it's still early.

Yes. Thanks, Brian, for the question. I mean if you've hung around the ad space for the last 8 to 12 months, MFA has probably been the hottest topic out there besides really bad generative AI tools. I think that the MFA area is one in which advertisers first looked at using a Meet Clever to attack. And I think that was at the detriment of a lot of great publishers, particularly marginalized publishers who are being excluded from media buys. And where we approach this and saying, look, MFA is not this monolithic definition of content. Advertisers need to interpret based on specific rules what they are comfortable with. And that was the launch of our MFA pre-bid product set, the second Gen that we just launched this week, which basically allows advertisers to tier how they filter out content to, and they can do that in addition to exclusion lists or any other specific sites they want to have. But what it does is it allows them to balance reach, performance, and specific sites that they also want to include in those lists. And the feedback has been great. We had some coverage recently in the press about advertisers who are certainly looking for more of a scalpel than a Meet Clever, and this fits that bill perfectly. The cool part about this as well, as this plugs right into our ABS tool set. So again, we've got a differentiated and powerful tool set in ABS, and now we've made it even more powerful by plugging MFA tiers into there, allowing advertisers to dynamically optimize what they're doing on the upfront as well. So we're pretty fired up about MFA. We're fired up about what we've been able to do different than our competitors and how it plugs into a tool that's totally proprietary to us.

Got it. And then just maybe a quick political follow-on to an earlier question. How big of a problem is avoiding misinformation or fake news for your clients, particularly as it relates to ad placement next to UGC videos?

This is something that we started talking about in 2020. We launched officially our political news task force in 2022, but really hadn't been going before then. And in which we hear from customers all the time. I mean these ebbs and flows, but one thing we do know and we saw this in the 2022 mid-terms is that during heated elections, no surprise, we see not only more inflammatory news and political content, but we see more hate speech, we see more disinformation. And in more competitive races and this isn't just national, but local, the more competitive the race is in the state, the higher instances we see of things like hate speech. That becomes scary for advertisers. And again, going back to the MFA discussion I have, in the past, their choice was, well, I am using Meet Clever and just block news. I want to be away from UGC. I want to be away from news. I'm going to shut things off. We're giving them a scalpel again so that the legitimate news, legitimate content and UGC that doesn't violate those areas of misinformation, disinformation, inflammatory news and politics and hate speech isn't excluded. So it’s some place where advertisers are leaning into. Again, we don't see it as a category in its own that's going to drive business for us. We think it is just another value-add that our solution provides that makes us sticky with our customers.

And the next question comes from the line of Brian Fitzgerald with Wells Fargo.

Maybe one little differential when you think about third-party cookies and probably Sandbox after looking over the back and forth between the IV Tech Labs and Google. It seems as though there is still some work to be done there in terms of allowing for verification on the new on-device auctions. Could you talk about your preparations there and how you think about both the risks and the opportunities around on-device auctions? How you think cookie deprecation pans out for you guys?

Yes, for sure, Brian. So we've been obviously prepping for this for a long time. We're fully engaged with kind of multiple working groups that are working on Google's Privacy Sandbox, and we're pretty confident that we'll have a seamless transition of services as the Sandbox and the deprecation of cookies become implemented over time. There's a lot of moving parts, but this is one thing where Google has been pretty open and leaning in and making sure that they become good partners to the ecosystem. And we've had a relationship with Google on multiple levels for many years. The Sandbox, the Privacy Sandbox, although not perfect, is certainly going to be a place where we're going to be able to deliver our services and solutions, and we're working with the right people to make sure that happens.

And the next question comes from the line of Omar Dessouky with Bank of America.

You seemed quite confident regarding ABS and indicated that new contract wins were influencing the lower guidance for the first quarter. Can we assume that these newly contracted wins are increasing their measurement volumes at a slower rate compared to past performance and that they are still in the early stages of upselling?

Yes. I think that's exactly right, Omar. The onboarding process for large enterprise clients would start on the Measurement side. And so that's where you're going to see the initial impact of their ramp, and that will leave the Activation and the upsell opportunity for the premium price product for the second phase.

Okay, great. As you look into 2024, which region will contribute the most to the growth in Activation revenues? Additionally, can you share if there are any differences in market structure internationally that might make it a less high-growth market compared to the U.S.?

I mean the international markets are, for us, this is a high-growth area just because the opportunities for us to go after Greenfield opportunities is still greater, right? There's just more opportunities outside of the U.S. than they are in the U.S. And so if you look at our growth for the rest of the world is 43% in the fourth quarter of '23. So it is spread across both EMEA and APAC. There was a bit of a disjointed growth trajectory for those two areas, the year prior to last one when the macro was a different environment. But right now, we're seeing growth in all areas of the rest of the world.

So I was just trying to hone in specifically on Activation. So your comments apply to that segment as well?

Yes, I think actually, the patterns don't really change too much between Measurement and Activation in terms of the opportunity that we have internationally.

The next question comes from the line of Laura Martin with Needham & Company.

Great. I have two. So following up on your Scibids answer that you said 40% of your new customers are testing Scibids. What I like best about that acquisition is they got paid as a percent of revenue where it's historically DoubleVerify has always gotten paid on a fixed fee per 1,000 impressions. My question is, as these new customers are adopting Scibids or at least testing it, are they still getting paid as a percent of revenue? So does that sort of lend revenue diversification to your business model over time? I guess that's my question.

Okay. Great hearing from you, Laura. Yes, they are still pursuing a percentage of media model. And I like the way you framed it as kind of revenue-type diversification. We've always thought of ourselves as transactional SaaS, which is fixed and has its pluses, but as you know, in this space, when CPMs go up, it can also have a potential negative as well. So having them as a percentage of revenue, I think, is an interesting opportunity for us. We get to take advantage of some of those increased CPMs that we may see down the road.

Okay. Fantastic news. And then my second question is on, one of the things I see going on in, for these big brands, like you call on the biggest 100 brands. And one of the things I see them doing is trying to tie connected television all the way down to performance like full funnel. And I think that's what we see in Amazon's AVOD addition to its streaming tier and Walmart's acquisition of VIZIO. So my question to you is as these big brands that are your core customers do more to drive their, all of their advertising in the performance, even what's historically been top of funnel rather than just CTV based. Is that good for you or is that bad for you, DoubleVerify?

It's a great question. I don't think, I think — I want to say it's neutral. And by that, if we look at where we've come from all the other platforms we're on, so social, mobile, open web. All of those have performance capabilities and performance-type advertisers and brand-type advertisers. CTV will eventually start to look at that in the same way as you noted, connecting a closed-loop aspect of it. And I think that our core value proposition in those places is very similar to the core value proposition that we'll see in CTV, which is ensuring that spend, whether it's evaluated on a closed-loop batch basis or on some type of brand metric is secure, fraud-free, viewable, and brand safe. So I think it doesn't really change the value proposition. And the cool thing for us is since we are integrated into all the top 10 CTV platforms at the app level. If there's an opportunity for us, for example, to start looking at driving performance through a tool like Scibids, we're already there, and we've already kind of built those hooks and those connections. So I think down the road, it could be something interesting for us. But net-net, I think it's more of the same that we've seen across other media types.

And our final question comes from the line of Mark Murphy with JPMorgan.

This is Arti on for Mark Murphy. Just a touch base again on the certain brand advertisers that are kind of starting a little bit slower this year. Is there any kind of common thread between them, whether it's kind of what's causing that geography, industry, anything along those lines worth kind of discussing?

No. I mean, look, we're not going to pin this to macro. I don't think it's a macro thing. It's a bit anomalous. We have a couple of retailers that are having a tough go of it, a CPG company is having some issues regarding ramping up spend based on some challenges they have. It's not really anything I think we can pin to either a vertical in any way or a macro in any way. It just happens to be a handful of customer spending slower than they did last year.

That's very helpful. And then just a follow-up, and I know it's early on, but with Scibids are you guys able to kind of use that new set of solutions to speak with customers that maybe you just weren't speaking, didn't make sense to before that you can now? I'll step back into the queue.

100%. So in some cases, and we may have mentioned before, we're even talking to folks who aren't using our core measurement solutions right now. But they know that there's pretty much not another great optimization opportunity like this around. So it gets our foot in the door with them as well. So it does, it's spun a lot of conversations. And as we noted, even with folks we are talking to, almost 50% of them so far this year, the new deals we closed are testing it. So it's a good uptick and a good attach rate. Great. Thank you all for joining us today. And as always, we'd like to thank our customers, our team partners, shareholders and all the stakeholders that help make 2023 a record year for DoubleVerify and who will be supporting our growth for years to come. We're excited about the prospect of another great year of growth driven by our unmatched global scale and differentiated technology. Have a great night, everybody.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.