DoubleVerify Holdings, Inc. Q1 FY2024 Earnings Call

Greetings and welcome to the DoubleVerify First Quarter 2024 Financial Results Conference Call. As a reminder, this conference is being recorded.

Good afternoon, and welcome to DoubleVerify's First Quarter 2024 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 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 will be referring to the slide deck posted on our website. With that, I'll turn it over to Mark.

Thanks, Tejal, and thank you all for joining us today. I'm excited to discuss our solid first quarter performance and to share the substantial product and business development progress we've achieved so far this year, setting a robust foundation for future growth and success. From scaling our independently accredited core verification solutions across leading social and CTV environments to increasing customer adoption of our key performance solutions, Scibids and Authentic Attention, DV is excelling across multiple growth vectors. And in the process, we're evolving our core value proposition to include protection and performance of media spend, solidifying our market leadership and driving sustained business growth. In the first quarter, we exceeded the top end of our guidance ranges on revenue and adjusted EBITDA, achieving solid revenue growth, profitability and cash flow. We grew first quarter revenue by 15% year-over-year to $141 million with double-digit revenue growth across both Activation and Measurement. We delivered $38 million of adjusted EBITDA, representing a 27% margin and grew net cash from operating activities by nearly 50% year-over-year to $32 million. I'd like to begin my comments today by highlighting an evolving trend that's become increasingly prominent in recent months, the role that digital video is playing in driving ad impression growth. More specifically, we're seeing ad spend increase in social video and CTV, which are 2 of DB's fastest-growing media environment. Advertisers, particularly DB's large brand advertisers, value these environments for their audience addressability, expansive scale across the purchase funnel and measurable performance outcomes. We're at a pivotal point with the ongoing increase in digital video has emerged as a key catalyst for digital advertising growth. As reported by MAGNA Global, although global programmatic ad spend grew 10% in 2023, this growth rate would have been 5% if you excluded CTV. Similarly, the MAGNA data highlights that video comprised nearly 70% of social content in 2023. And the IAB expects social video to grow by 20% year-over-year, faster than any other type of media. DV is primed to capitalize on this trend in social media, where video comprised 81% of our social measurement impression volumes in Q1. Our AI-powered Universal content intelligence technology excels in measuring video content with unmatched efficiency and accuracy and underpins our growth trajectory across all video environments. Today, social media is the leading driver of DV's impression volume and revenue growth. Our newly launched brand safety and suitability measurement capabilities on platforms like Meta, YouTube and TikTok are accelerating this growth trajectory, particularly in international markets where our brand suitability language footprint continues to grow. We grew our social measurement revenue by 51% year-over-year in the first quarter, following 48% growth in the full year 2023. Most of our social media revenue growth was driven by existing DV advertisers who increased their usage of our social measurement solutions. In addition, we increased the number of top 100 customers leveraging our solutions across Meta, YouTube, TikTok, Pinterest and Snap compared to last year. We're especially enthusiastic about the increase in ad spend on social media platforms, giving DV strong competitive advantage in this media environment. In contrast to the old web, social platforms have limited partnerships with verification and measurement companies. In addition, the technical integrations required by social platforms are complex and demand substantial infrastructure and expertise to handle efficiently. DV distinguished itself by providing the most comprehensive independently accredited solutions across social platforms while simultaneously supporting the largest scale across the entire Internet, spanning both social media platforms and the open web. We see multiple layers of growth in our social media business, starting with measurement and increasingly extending to activation. In measurement, there is ample opportunity to grow our social revenue by expanding our verification and performance products across new geographies and driving existing customer adoption. Let me take a moment to outline some recent developments in social measurement. On Meta, we currently have over 40 DV advertisers testing our recently expanded brand safety and suitability measurement solutions, including 9 of DV's top 100 customers who have never activated us on Meta. Our Meta volumes have expanded across large advertisers as we grow our scale and enhance our measurement capabilities across the platform. We launched DV's brand safety and suitability measurement on Facebook and Instagram feeds and reels in 7 languages in January and expanded to 18 more languages later in the quarter. Together, these 25 languages cover markets representing over 90% of global digital ad spend ex-China. Furthermore, we expanded our viewability and fraud measurement coverage to include Explore on Instagram, an area within the Instagram app that is dedicated to content discovery. We offer immediate quality measurement across key areas on Facebook and Instagram and are continually improving our coverage across some of the most engaging, user-generated content environments in the world. On TikTok, where nearly half our first quarter revenue came from EMEA and APAC markets, we're scaling our solutions across the platform by expanding our brand safety and suitability measurement capabilities to additional languages in markets. This year, we've already introduced brand safety and suitability measurement in key TikTok markets like Japan and Brazil and broadened our Spanish coverage to include our 4 Central American countries where TikTok is launched. As a result, we now provide brand safety and suitability solutions on TikTok in 36 markets, representing over 90% of total digital ad spend ex-China and India. Moreover, we've introduced 16 new brand safety and suitability categories to complement TikTok's latest inventory filters, vertical sensitivity, and category exclusion. With our expanded coverage and solutions on TikTok, advertisers can confidently verify and protect their ad spend allocation across all regions. While our social media revenue is currently driven by measurement, the progress we've made in extending our industry-leading pre-screen activation and optimization solutions across social platforms points to a substantial opportunity to monetize social impressions further. This trajectory mirrors DV's business evolution on the open web 15 years ago, where we started enabling measurement solutions and progressively introduced premium priced activation solutions. Measurement data feeds our activation solutions, enabling advertisers to optimize media spend effectively. We are excited to continue to build upon our robust social media measurement data foundation, which, when coupled with our activation capabilities, will establish closed-loop verification and optimization that's tailored for the expansive social media market. Shifting focus to CTV. The IAB predicts CTV advertising to grow by 12% in 2024 to $22.7 billion, outpacing total media growth by 32%. DV's CTV measurement growth continues to outperform the market with CTV impression volumes growing by 45% year-over-year in the first quarter. In activation, we see a significant portion of programmatic spend growth being driven by CTV and online video. However, our attachment rate to CTV activation impression volumes has room to grow because this premium priced inventory is largely acquired through private marketplaces or within programmatic guarantees or programmatic direct deals, where DV solutions are implemented more selectively. To take advantage of this dynamic, DV is focused on increasing the attachment rate of our solutions to programmatic CTV impressions at scale and maximizing their monetization potential. We've been working on enhancing our proposition for CTV by driving greater transparency for key DV data sets, namely brand safety, suitability, viewability, and fraud at the showroom. Show-level transparency has been limited in programmatic CTV purchases, both in direct data deals and, to a greater extent, in programmatic options until now. Driven by advertiser demand, streaming publishers are warming up to selectively providing the more granular data and transparency needed to satisfy advertisers and significantly amplify DV's value in this premium-priced media landscape. As we mentioned on our last call, we partnered with a leading streaming network to introduce our pioneering program level measurement solution for advertisers on OTT devices, including CTV. This groundbreaking development in streaming verification will empower advertisers to measure and optimize for brand safety and suitability as well as content performance at the granular level. This is a win-win for all involved. Advertisers gain invaluable transparency and insights, DV, CTV, and OTT solutions see broader attachment rates, and the streaming companies receive increased, more premium budget allocation. As major streaming companies adopt this level of transparency, it will catalyze others to follow suit swiftly. We believe that achieving content transparency at scale will not only drive widespread adoption of brand suitability measurements on CTV and the broader OTT market, which spans all devices but will also fuel our CTV and OTT activation volumes in the future. Ultimately, this progress will also enable DV to better align our fees for CTV activation and measurement with the higher value of CTV ad impressions. Today, DV leads the market with its premier CTV activation measurement solutions. We've achieved MRC accreditation for video viewability and CTV and broadened accreditations for our CTV prebid data segments to include property level brand suitability, contextual and fully on-screen segments. Moreover, DV has the widest CTV coverage, including media quality authentication on Amazon's owned and operated ad-supported OTT and CTV inventory. Brands can leverage DV's fraud detection, NGO measurement, and app level suitability across devices, including desktop, mobile, and CTV. Additionally, DV enables marketers to gauge viewability and attention on Amazon's owned and operated ad-supported CTV inventory. Finally, we continue to innovate rapidly in CTV where attention measurement is gaining traction. Recognizing its value, platforms are leveraging attention data as a selling point similar to how ratings are used to sell TV inventory. With DV's authentic attention metrics, platforms can emphasize not only impression level verification and attention data, but also exposure and engagement across CTV content. This approach highlights high attention shows, maximizing the efficacy of TV inventory. Recently, DV partnered with Netflix to deliver a CTV attention measurement report using DV's CTV authentic attention to compare Netflix to other AVOD apps and FAST channels. This exciting development is just the beginning of DV authentic attention's pioneering advancements in CTV, which fueled a tripling of attention revenue and advertiser adoption in the first quarter compared to Q1 last year. We are gaining solid momentum with this differentiated measurement offering and look forward to updating all of you on our ongoing progress. We see significant potential for unlocking value with DV's solutions in the CTV space. By expanding our solutions at the show level, we expect higher attach rates and a more rewarding value proposition for DV in an underpenetrated segment that accounts for a large share of programmatic revenue growth. Moving on to the topic of accelerating customer wins. We won numerous RFPs in the first quarter and have a robust new customer acquisition pipeline. DV boasts an impressive list of blue-chip clients, working with nearly half of the top 1,000 advertisers in the world. In addition to our previously announced first quarter wins, which included the global advertising business of Pepsi and Haleon, we closed additional new logos in the first quarter, including McAfee, Mars, Heineken, Levi Strauss and Dolce & Gabbana in the United States; Carlsberg in Europe; and SoftBank, New Balance and Aon Financial in Japan. We've also signed meaningful expansions with existing clients including Vodafone, Audible by Amazon, Pepsi and Bacardi adopting ABS across global markets as well as Sanofi and Beiersdorf scaling our social solutions. Our win rate across all opportunities remains above 80%, with 62% of our first quarter wins being greenfield, which we define as wins where the advertiser wasn't using third-party tools for the business that DV won. New client wins play into our successful land-and-expand strategy through which we grew the number of advertiser customers generating more than $200,000 over the last 12 months by 12% in the first quarter, with nearly 60% of our top 700 customers, using less than half of our 7 core products; the opportunity to expand within our existing customer base remains significant. Having covered social and CTV, let's move to the open web and touch upon retail media and Scibids AI. Our global scale and connectivity across the retail media environment continue to expand. DV's measurement tags are now accepted on 82 of the key global retail media networks and sites, including 15 of the top retail media platforms and 67 major retailers. Approximately half support DV measurement on their owned and operated sites, while 2/3 support DV measurement on their off-site networks. As a result, we grew our first-quarter retail media measurement revenue by more than 45% year-over-year. Finally, on Scibids AI, we're at an exciting inflection point with the adoption of custom bidding solutions to drive scalability and performance, and optimizing programmatic advertising campaigns is gaining real traction. Since acquiring Scibids AI, we have successfully sold the solution to 19 DV customers, of which 8 are among DV's top 100 advertisers. Moreover, we've engaged numerous large advertisers who, until now, weren't DV customers. Currently, we are in discussions with most DV customers and global prospects leveraging our global sales team to cross-sell this powerful solution that can utilize DV core verification assets. This early success is rooted in DV Scibids AI's capability to consistently deliver strong advertising returns with an average return on investment of $4 for every $1 invested in Scibids. Moreover, it delivers an average media cost savings of nearly 40%. It's also worth noting that marketers currently spend nearly one-fourth of their time manually optimizing campaigns, a task that Scibids AI can significantly streamline and improve, thereby enhancing overall marketing efficiency and effectiveness. Like authentic attention, DV Scibids represents another important step in DV's evolution: to expand our client engagement to not only protect their media spend but also help it to perform as well. To conclude, we are witnessing strong growth in digital video, including CTV, social video, and online video. We see this growth characterized by increasing ad spend on social video and CTV, which is primarily acquired through private marketplace for programmatic guaranteed and direct deals. For advertisers, this is meant navigating through a more closed ecosystem, leading to greater fragmentation, complexity, and challenges in implementing scalable strategies, interpreting data, evaluating performance, and establishing trust across various networks. Strong, independent verification of closed ecosystems is essential to maintaining accountability and sustaining buyer confidence. DV has extensive experience in harnessing the power of AI, machine learning, and data science as well as building trusted, scalable solutions integrated across all platforms, whether open or closed. We measure data that correlates with the business outcomes advertisers aim to achieve, and we can activate that measurement data to help advertisers drive better outcomes. All of this leaves DV well positioned to play a pivotal role in shaping the evolving future of digital advertising. Our growth drivers of product upsell, channel expansion, customer acquisition, and growth and international expansion remain intact, and we continue to see a large growing business opportunity for our expanding set of verification and performance solutions across new markets, platforms, and customers. With that, let me hand the call over to Nicola.

Thanks, Mark, and good afternoon, everyone. Our first quarter results exceeded the top end of our revenue and adjusted EBITDA guidance ranges, driven by all 3 of our revenue lines, activation, measurement, and supply side gaining momentum in March. Total revenue grew 15% in the first quarter to $141 million, primarily driven by 16% advertiser revenue growth, which continues to be volume-led. In the first quarter, media transactions measured, or MTM, increased 18% year-over-year. Measured transaction fees, or MTF, declined 2% year-over-year, primarily due to product mix, as activation revenue, which is premium priced to measurement, represented a smaller share of total revenue relative to the prior year period. We anticipated this mix shift given the strength in social and international revenue and the impact of reduced programmatic spending by a handful of large retail and CPG advertisers we referenced last quarter. While we expect MTS on a per product basis to remain stable, we expect total MTS to continue to reflect the impact of the mix shift towards measurement relative to more premium price activation. Activation revenue increased 13% compared to the prior year, and ABS, which represented 55% of activation revenue in the quarter, increased 12% year-over-year. 85% of ABS' growth in the quarter was driven by new advertiser spend and by upselling ABS to existing DV customers. ABS is activated by over 90% of our top 100 advertisers, and by over 60% of our top 500 advertisers. Moving forward, we're focused on new advertiser spend and upselling ABS to existing DV customers as the primary driver of ABS' growth. Scibids continues to build momentum with existing customers and prospects and continues to meet our performance expectations. Turning to measurement, revenue increased 19% versus the prior year, primarily driven by existing customer expansion on social. Social revenue increased 51% year-over-year and represented 49% of measurement revenue in the quarter. Social measurement growth continued to be led by Meta and YouTube, which, together, accounted for 80% of our first quarter social measurement revenue, with TikTok being a distant third. As Mark mentioned, nearly half of our first quarter TikTok revenue was sourced from EMEA and APAC markets. Growth in social drove international measurement revenue, which increased 40% compared to the prior year and now represents 31% of total measurement revenue, up from 26% in the first quarter of 2023. Finally, supply side revenue grew 8% in the first quarter, driven by the early signing of new platform deals. Shifting to expenses, cost of revenue increased by approximately $3 million, primarily due to an increase in cloud services costs as we further invest in scaling the infrastructure required to support our growth, followed by an increase in cost from revenue-sharing arrangements with programmatic partners tied to higher programmatic revenue. Revenue, less cost of sales of 81% in Q1 '24, was in line with our expectations. Research and development expenses increased due to investments in AI and machine learning engineering resources. Sales and marketing expenses increased as we invested in additional resources to promote and sell our most recent product launches, including Scibids, around the globe. G&A expenses remained relatively stable year-over-year as our growing scale drives leverage on this operating expense line. Adjusted EBITDA of $38 million in the first quarter represented a 27% margin and was ahead of plan, primarily due to higher revenues. We delivered net cash from operations of approximately $32 million compared to $21 million in the same period in the prior year. Capital expenses were approximately $6 million compared to approximately $4 million in the first quarter of 2023. We ended the quarter with $302 million in cash on hand. And in addition, we invested in the quarter approximately $32 million in treasury bills and maturities over 3 months to capitalize on favorable interest rates. This short-term investment is reflected as a use of cash and including the investing activities in the cash flow statement. Including this investment, cash and short-term investments were $334 million at quarter end. Turning to guidance. We are lowering our full year guidance primarily due to uneven spending patterns by the select large retail and CPG advertisers that we mentioned last quarter. These customers are heavy users of our activation solutions, including ABS. And our lower revenue expectation from this cohort accounts for most of the change in our full year guidance. Additionally, we expect more of our existing and new customers' ad spend to be allocated to social and CTV. While we earn a lower fee in social media measurement today, we see a significant opportunity to upsell our social activation and optimization capabilities going forward. As for CTV, Mark mentioned that we have been working on enhancing our solutions by providing show-level transparency, which will increase the attach rate to CTV impression. We expect second quarter revenue in the range of $152 million to $156 million, which implies year-over-year growth of 15% at the midpoint. We expect second quarter adjusted EBITDA in the range of $41 million to $45 million, which represents a 28% margin at the midpoint. For the second quarter, we expect stock-based compensation to range between $23 million and $26 million and weighted average diluted shares outstanding to range between 175 million and 177 million shares. For full year 2024 guidance, we expect revenue in the range of $663 million to $675 million, which implies a year-over-year growth of 17% at the midpoint. We expect adjusted EBITDA in the range of $199 million to $211 million, which represents a 31% margin at the midpoint. Our full year guidance reflects the following key assumptions: first, we anticipate more moderate growth throughout the year from the select retail and CPG advertisers we identified as slow starters at the beginning of the year. While we saw an improvement in March, April's performance showed slower pacing. And as a result of this variability, we assume these select advertisers will spend unevenly for the rest of the year. Second, we expect a moderation in overall growth as we see current and new customers allocating more of their budgets to social and CTV. Third, the newly onboarded large global advertisers we mentioned last quarter are now performing in line with our expectations. We expect their continued ramp-up in the second half of the year to contribute to a sequential acceleration of our year-over-year growth in the second half of the year. Overall, we expect the second half of the year to contribute approximately 56% of our total revenue, broadly in line with last year. Finally, as in prior years, we expect the fourth quarter to deliver the highest quarterly share of total revenue, ranging between 30% and 32%. We remain measured in our full year revenue expectations for the following opportunities: adoption by existing advertisers of our measurement solutions on Meta, which now includes brand safety, accelerated revenue growth from the extension of TikTok into non-English speaking markets, and accelerated revenue growth from Scibids, authentic attention, and on CTV. In conclusion, we delivered a solid first quarter with double-digit revenue growth, robust profits, and substantial cash flow, ending the quarter with zero debt and $302 million of cash on hand. Our focus remains on driving execution to build growth momentum throughout the remainder of the year.

And our first question comes from Matt Swanson with RBC Capital Markets.

We have a lot of good metrics in the quarter, right? Attention, triple; social, 51; CTV, 45; Retail Media, 45; International, 40. Could you just maybe go a little bit more into the parts of the business that didn't perform as well? Because obviously, those numbers are all quite a bit higher than overall revenue growth. So maybe drilling down a little deeper beyond those handful of CPG and retail companies.

Matt, thanks for the question. In addition to that, we also saw great growth outside of the U.S. that was a positive. And so we do see some bright spots. Now obviously, where we saw some challenges is where our activation business, which has been such a powerhouse over the last several quarters. And I think a lot of that was driven by those core customers who are heavily leaned into our activation solutions, including ABS. So I think there is definitely some drag on the activation side of our business, as we noted, considering this is the first quarter that I can remember in which activation actually grew slower than measurement. And I think that's obviously, a very large part due to those customers who we saw the drag in Q1. We're projecting them to remain relatively even through the year is the first part. And the second is obviously a good amount of spend is starting to head towards social, in which we got a lower attach rate at this stage for some of our previous solutions although we're seeing a pretty big measurement upswing. So the bright spots continue to be social, international and some of the areas on that side of the business. Where we saw drag was pretty early in activation, which, again, those core customers who did slow down and we expect them to be uneven for the year, have a high concentration of spend.

Yes, that's really helpful. And then I think it might just be helpful to kind of go over 2 of the things that were investor focus is coming out last quarter. And one, it didn't show up at all, obviously, in measurement. But just any commentary around the pricing environment competitively. And then maybe on the second, like you said the same companies as before, but just that there hasn't been any contagion of spreading out beyond kind of those retail CPG customers we identified.

Yes. I'll take that one. So I'll start with the second one. The answer to that is no, it is the same cohort of advertisers where we're seeing just uneven patterns of spend. They actually really saw nothing in March but seen in April. And so we feel it's the right thing to do to take our numbers down for the year assuming they will remain fairly uneven for the year as a cohort. So this is not a growing number of advertisers. On the first question for MTF, what we saw this quarter is an overall decline on MTF because the mix has shifted towards measurement. And as we've always said, activations command higher premium priced products. And so as more volume is shifting to measurement, you will feel on the MTF, the impact of lower price points on social, lower price points or international in general. The third product, pricing, has remained stable. And that's really the part that we can follow the MTF mix shift to sort of a byproduct of where the advertisers are spending.

And our next question comes from Andrew Boone with JMP Securities.

Mark, can you talk about the early learnings from Meta brand safety and what advertiser conversations are like currently in terms of adoption and demand for the product?

Yes, thanks, Andrew. We're engaged with nearly all of our top customers on the Meta brand safety solution. In the last call, we mentioned that around 40 to 45 clients were testing it. The positive news is that we are starting to conclude those tests and activate some of those clients. We have a few who are currently running it, many of whom are new, and the feedback has been very encouraging. They appreciate having the complete suite of solutions available. As we mentioned previously, we've also introduced new features on Instagram. Everything is progressing as anticipated. We discussed expecting a significant increase in the second half of this year. However, as Nicola pointed out in his guidance comments, we are still preparing for a moderate impact on the business as a result. Overall, we are seeing good traction, which aligns with our goals. Meta has fully committed to this partnership, as evidenced by our initial launch in a few languages, which has now expanded to over 20 languages by the end of the quarter, indicating their belief in the importance of this collaboration and their desire to keep working with us.

And then, Mark, just as a follow-up for that to help us maybe try to quantify the qualification of strong demand on Meta. Is there anything you guys are seeing in terms of violation rates or anything else, again, that you can discuss maybe in broad strokes that suggest that, hey, advertisers need to be implementing a brand safety tool within social media UGC environment?

I can't speak specifically about Meta, but we recognize that all social platforms face brand safety and suitability challenges. These tools are designed to address those issues. The growing interest and demand for these solutions stem from the increasing investment in social networks, as we have observed. Advertisers seek reassurance in these environments. Overall, I believe the solutions are functioning as intended by providing enhanced transparency not only regarding brand safety and suitability but also concerning viewability and invalid traffic. This is evident in the over 50% growth we experienced in social this quarter, indicating that many will continue to rely on these tools.

Our next question comes from Arjun Bhatia with William Blair.

Maybe for Mark to start. It seems like, obviously, social is a little bit of a headwind here. But when you think about getting more attached with prebid, I guess, how is product parity for DV solution and what you have in social from a prebid perspective versus what you have with ABS and programmatic? And then just help us understand maybe what tools you have at your disposal to actually increase those attach rates on the social side. And maybe chop away at some of these headwinds that I see impacting you.

Yes, that's a great question, Arjun. In the slides we presented, we indicated some level of pre-screen controls across a few social networks. However, it's not as extensive in activation compared to measurement, and the variety of tools we have varies. Currently, our pre-screening for social is primarily focused on YouTube and TikTok, which are the main sources of application. I believe there is an opportunity to expand on both platforms, and we are also looking into enhancing our optimization and activation efforts. We have some work ahead of us, with most of it centered around sales rather than product development. Currently, less than 20% of our top 700 customers are utilizing our social pre-screening, indicating a clear opportunity for upselling. We also need to improve our product offerings and coverage, but I do believe there is potential for continued growth in this area.

Okay. Sticking to that theme, it’s clear that in the advertising landscape, more funds are being directed towards media, whether that’s social or CTV. You have implemented some premium pricing on certain video solutions. However, when you consider the advertising landscape moving forward, there is a significant disparity. How do you view pricing as a factor for those more premium impressions, given the notable gap that still exists between the advertising systems and what you are offering?

Yes. We've talked about this in prior calls, and it's a great point. I think we are still leaving money on the table based on the pricing structure that we have on video. And I think it becomes a bigger factor as more dollars move there. So I think we've got an opportunity to drive pricing at the level our value is that we're not taking advantage of. But I do think there's an opportunity for us to do that. We've done it a bit, as we said, in some of our activation solutions when we bifurcated between displaying video on some of the platforms. I think we have an opportunity as well to look at both activation and measurement pricing as those CPMs in video become higher and the demand for video becomes greater, pushing them up.

And our next question comes from Raimo Lenschow with Barclays.

This is Frank on for Raimo. Despite the trim guidance, it still implies a step-up in the growth rate throughout the year. With that, what's giving you the most confidence there? And within this, how much does Meta ramping factor in, especially relative to your Q4 view?

Yes, I'll take that question, Frank. So if you just step back and look at what we're expecting in the second half versus the first half of the year, we expect the second half to contribute about 56% of total revenue, which is in line with what we saw last year. So there is always more revenue in the second half of the year than there is in the first half. So that's one way to look at the numbers. We have assumed the continued ramp-up in the second half. Part of that is based on the ramping that we're seeing from the new large global advertisers that we had already mentioned last quarter, they are now performing in line with our expectations that there is a slow start. So that is one of the parts of the equation. The other part I would say related to that is additional new advertisers are large global enterprise advertisers that are likely to take our premium price products, which will have an impact on activation off of what we saw in the first quarter. So those are the 2 large ones. I think if you think about other questions the other way, we thought it was the right thing to do to take down the contribution from the cohort of advertisers just to be on the safe side based on the volatility of their spend. What is not yet in the second half, and we spoke about this on the prepared remarks, we have not assumed a meaningful contribution from the Meta brand safety solutions. That has not changed. It's always been our view that it will take time for that to provide meaningful contributions to our numbers, but that could go faster than we expected based on the stats that Mark shared in terms of the pickup on that solution. TikTok is also now available in a lot of non-English languages. It is providing some growth, but again, it could go faster than we had expected. And Scibids is performing to expectation and that has proven to be very successful in terms of testing. So there are factors that are not included in what we've shown in the second half guidance. But overall, it's 56% of the full year revenue, which is smaller total we did last year.

Our next question comes from Tim Nollen with Macquarie.

Mark, I'd like to pick up on your comments on the opportunity in CTV. And I thought it was very interesting discussing how a majority of CTV deals are still done on insertion orders, not through private marketplaces, but that, that is changing. And actually, the role that DV can play in helping bring about that change to CTV. I just wonder if you could expand a bit more on that. Is this comment and efforts you're getting from your advertiser base to move toward that, that you can offer more attribution tools that can help move that market to be more biddable programmatically driven? I just think it's a very interesting concept. I'd love to hear some more color on that, please.

Thank you for the question. I have been closely monitoring the issue of transparency in CTV buying, which has resulted in a traditional approach to purchasing—specifically, private and programmatic guaranteed buys. These methods lack innovation, do not leverage data effectively, and miss out on the potential of programmatic technologies that companies like Trade Desk and others utilize. We see an opportunity to offer the same level of detailed transparency and safety in performance applications that are available on a page level across the open Internet. We have begun to collaborate with certain publisher partners to acquire what we term show-level data. This will enable us to deliver measurement and detailed insights for advertisers, enhancing their sense of transparency and encouraging more sophisticated buying approaches. We are just beginning in this area, and I believe we could be among the first to genuinely engage in it, creating future opportunities for us. The detailed nature of this data will significantly contribute to this growth. Importantly, we are not just promoting our own interests; we believe this is beneficial for all parties involved. It enhances the experience for publishers by enabling safer, premium buying options and assists platforms in using their existing tools to improve these transactions. It also benefits us through higher engagement rates. Additionally, another intriguing aspect is the potential for attention measurement in CTV. We’ve seen this interest not only with solutions we've launched but also through collaborations like the study Netflix conducted with us on attention metrics across their platform. CTV is exploring new methods for measuring and selling impressions, as traditional reach and frequency metrics do not resonate in the digital realm as they did in linear television. We have demonstrated promising results in attention metrics, and despite our current scale being small, we have successfully tripled our business year-over-year, which highlights an exciting opportunity in CTV and OTT applications. However, we are still in the early stages of fully capitalizing on this potential.

And our next question comes from Eric Sheridan with Goldman Sachs.

Maybe 2, if I can. In terms of the components of the advertising dynamic that is leading you to lower the guide for this year. Can you maybe unpack a little bit of how much of that trajectory you now see as sort of a permanent downtick? Or it's just delayed or deferred and there could be elements where some of that on the category side come back as we go through the year? That would be question one.

Yes, Eric, I'll start. Regarding the impact from this group of advertisers, I want to clarify that no one has stopped using the service. The situation is really about how individual advertisers are changing their spending patterns, and not due to specific client issues. We don't view this as a lasting downturn, but rather as an inconsistent pattern of spending that will affect the rest of the year and influence our guidance. This is the largest factor affecting the revised guidance we mentioned today. We believe these fluctuations in spending will lead to adjustments. Also, no one has disengaged from the solution; they are simply spending less overall. Looking towards next year, we are expecting strong growth rates in social and international segments, which should persist. In social, for instance, we are experiencing a 51% growth rate this quarter compared to 48% last year, although the impact from the launch of Meta's brand safety efforts is still minor. This presents a significant opportunity for us. Social growth is expected to maintain a healthy pace, and international revenues, now over 30% of our measurement revenue, will benefit from social trends. International spending exceeds 31% of the total, which shows room for further growth. Moving forward, we might see the cumulative effect of reduced advertising spend and a shift of more dollars to our ABS activation, which remains in the 12% growth range this quarter. This premium-priced product is successful and unique in the market, and as we secure new deals, we anticipate an increase in that growth rate as well.

Yes. Looking ahead to the second half of the year, we have a strong list of customer wins that will begin to materialize, along with a solid pipeline as previously mentioned. Our win ratio for opportunities remains stable, and we observed that nearly two-thirds of these wins are from new customers. I believe these factors will help address the gaps created by larger customers with inconsistent spending in the latter part of the year.

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

I want to clarify a few things. First, I understand that the large select advertisers you mentioned last quarter contributed to the lower outlook for the second half of the year. How many of these advertisers were there? Can you also remind me which sectors they belong to? Additionally, I have a follow-up question regarding CTV.

Yes. So we said it's a handful of advertisers. They are all in our top 100. Just to give you a sense of the scale, the average spend on the top 100 is over $3 million, and these are advertisers that are towards the top of the top 100 for us. They are in the retail and CPG space. As we said in the first quarter and we'll repeat it here, these are spending patterns that are tied to specific issues at the advertiser. This is not tied to the segments of our product, it is that these clients are going through their own issues that has led them to do some belt tightening around advertising spend.

I apologize, but I thought I heard after the last quarter that one of the advertisers was in the health care sector. Can you comment on that at all? It doesn’t seem to fit with either CPG or retail. Please correct me if I’m mistaken.

I think we did. I think we quoted retail and CPG. These are retail and CPG clients not healthcare.

Okay. Got it. Okay. And then just a question on CTV now. I'm getting a little bit of a sense that there is a shift in ad spending towards CTV. It's a market that I think is fairly small for you at the moment. Does the product market fit within CTV differ for your advertisers as compared to the markets that you've traditionally focused on? Also, how is the competitive environment different among CTV verification firms as compared to your bread and butter, if at all?

Yes. So on the latter half, the competitive set isn't any different. Actually, it's even more limited because the ability to verify and measure within CTV is a pretty heavy lift and like any walled garden or kind of closed environment, partners only platforms only work with a handful of folks. For example, Netflix when they rolled out, they worked with 2 verification partners and one measurement partner when they launched, right? So I think a competitive set is even more limited than it is on the open web. With regard to product market share, I think that's something that we were kind of alluding to in the comments, but really, there's 2 aspects to it. The first is current product market fit with the way most CTV is being bought and sold, which is through programmatic guarantees and through limited kind of direct buying. That provides a lower attach rate for us due to the fact that it's really a one-to-one buy in many cases, and there's not data or targeting or verification applied. Where we see that evolving, however, is where the opportunity lies, which is as CTV inventory becomes much more prevalent. And the balance goes from limited CTV inventory to an overabundance of inventory in the same way we saw it in the open web, the same way you saw it in mobile. I think there's a change in the dynamics of how CTV will be bought and sold. More of it will be programmatic, more of it will be open market or more open PMPs or private marketplace packages, in which there's a better product market fit for us and a better attach rate for us. That will be enhanced as we get more granular on our ability to measure on a show level. So I think the opportunities there go from being a relatively small opportunity today as far as the overall volume and percentage of revenue to one which is greater and commensurate with the percentage that CTV is taking of the overall ad market. So again, I think there's some evolution of how CTV's bought and sold, that will be a positive attach rate driver to our product. And then there's some evolution in the actual product to the measurement products that we're building to be able to do so on a show level basis in the same way we do in the open web.

Our next question comes from Michael Graham with Canaccord.

You've mentioned this several times, but it seems that the decline in retail CPG ad spending is primarily related to their overall advertising budgets rather than a shift away from your products or increased competition. I wanted to ask about the competitive landscape and whether you've noticed any changes there. Additionally, despite lowering your revenue guidance, you've managed to maintain consistent EBITDA margin guidance. I'm interested in understanding what factors are allowing you to sustain your profitability levels.

Thanks, Michael. So I'll take the first part, Nicola will take the second. On the competitive dynamics, I mean, I think as we mentioned last quarter, we have been with a lot of the same competitors for over a decade, and that dynamic remains as it always has been, which is robust but certainly has not devolved into any type of pricing competition or pricing. We were very clear about that. In the first quarter, we remain steadfast in our position that there's nothing happening that it hasn't happened in the past, which is great products win customers, great service keeps customers, and we always are very competitive with the folks out there. So they have not played a role in the slowness and even sensing those core customers that we saw. So they're not taking. Our competitors haven't taken chunks of that business or our competitors haven't caused that slowness to happen. So the environment remains as it always has been. We've not, as Nicola noted, seen a degradation on per product pricing between activation and measurement. So those dynamics remain the same.

Yes. Regarding the second question, our business is highly profitable. You can observe this in the cost of sales, which is only 1% of revenue. The trends we are experiencing are consistent with those we noted at the start of the year, as we are beginning to realize some advantages from AI and machine learning in our innovation processes. We are committed to ongoing innovation and are also benefiting from economies of scale in general and administrative costs. Overall, the advantages of our business model are allowing us to maintain our 31% margin while we continue to invest in the company.

And our next question comes from Mark Kelley with Stifel.

I wanted to ask a question just about bigger picture, just guidance philosophy. Win rate above 80%, sounds like the RFP pipeline is pretty robust. You mentioned 40-plus advertisers kind of evaluating Meta brand safety. I guess when you take a look at all of the visibility that you do have to any of those, I guess, what's the right way for us to think about how you embed that into the full year guide? That's my first question. And then the second one is just more of a clarification. The commentary about slower pacing in April. I just want to make sure that, that is a comment that's focused on the retail and CPG clients and not a broader statement about what you're seeing at the corporate level.

Yes, Mark, I'll begin with your second question. You are right; that statement referred to this group of advertisers, which is why we've decided to take a year down due to the volatility we've noticed in that group. They are among our top 100 material clients. This relates to the approach we’ve taken regarding guidance, similar to our methods in previous quarters, aligning closely with our observations at the time we provide guidance. Therefore, we believed it was appropriate to factor in the impact of these advertisers in our guidance. While there is positive momentum in various areas of the business that we expect to continue, we are taking a cautious view of the second half of the year because this group of advertisers significantly affects our current guidance. Their influence constitutes the vast majority of the impact reflected in today’s projection.

Our next question comes from Justin Patterson with KeyBanc Capital Markets.

Great. I was hoping you could elaborate a little bit more on just the spending from large customers. I appreciate that there's some uneven spending there, a few large ones in retail and CPG cutting, but it's also a pretty robust brand advertising market. You started some nice trends around social within there. So just trying to get a better understanding of how macro is playing in this and perhaps that there might be a little bit of crowding out from a more price inflationary versus impression-having market.

Yes, I think we will reiterate what we mentioned in the first quarter because it still holds true. We are encountering issues that are unique to certain clients. We discussed this previously, as some of these clients are undergoing corporate restructuring, which is leading them to reduce their advertising expenditures. We do not view this as a wider macroeconomic issue. Additionally, as I mentioned in response to an earlier question, we have not observed this affecting other clients at all. Therefore, we do not consider this to be a macro factor; it is very much specific to these advertisers.

Yes. We introduced a new element that's raising concerns about moderated growth, which is the transition of spending to social media from the open web and the broader Internet. This shift in spending reflects the growth we're experiencing in our business, which as we mentioned, is primarily coming from social platforms. However, this area is not as lucrative for us compared to our activation businesses. Therefore, we are observing some impact as investment diverts to connected TV or social media. We frequently referenced connected TV during the call because we believe there's significant potential there. Yet, as you and many analysts have pointed out, we are still undervalued in that sector. We need to focus on aligning our value proposition with the pricing of those impressions, something we've discussed before and will continue to prioritize.

And our next question comes from Matthew Cost with Morgan Stanley.

I have 2. I'll start with one just on the large customers. I guess last quarter, you articulated kind of the same headwinds and uneven spend that you saw from the NIM that you're talking about now. I guess, how are you getting confident at this point now that 3 months later, it's a little bit worse than you thought it was when you guided last time? How are you getting confident that it won't keep getting worse for these large customers? Like why should we be confident that this is appropriately de-risked in the second half, given that you have the same mix of revenue in the second half that you had last year, but you don't have this drag that could get worse over the course of the year? And then I have a follow-up.

Yes. We believe it is prudent to lower our expectations based on the trends observed in the first four months. Although there was an increase in spending in March, April has shown inconsistencies. We are incorporating these factors as we look ahead to the second half of the year. Given the current situation, this adjustment seems appropriate. Therefore, focusing on the second half, we need to consider how sequential growth from new customers will contribute to revenue growth compared to the first half, alongside other opportunities. From our perspective, adjusting our outlook for the second half is the right course of action based on what we can observe.

Got it. And then you mentioned some of the new dollars coming in sort of being more focused on social and CTV rather than open web. Is that a structural issue that maybe gets worse when cookies go away at some point in the future? And if it's not, I assume it's because eventually you'll launch the full suite of products that you have on open web on social and CTV, but how long does it take for that to unfold? And then could there be a mismatch in how quickly dollars shift next year on to social and CTV versus your roadmap of launching all your products on those verticals? Yes, that's a valuable insight. I want to emphasize that we don't have to wait to introduce new products to benefit from this growth. Our existing expansion across Meta and TikTok has already yielded substantial results based on the solutions we currently employ. We are witnessing this growth, which will remain a key factor in our ongoing trajectory. Our growth in CTV and social media is not solely reliant on new products; while those products will certainly enhance our prospects, they will provide additional support for our growth objectives. Regarding the role of cookies, it’s more about performance than cookie deprecation. As advertisers demand increased granularity, transparency, and performance on social media and CTV, that will be the main determinant of effectiveness. Performance is closely linked not just to closing the loop but also to the CPMs of those platforms. If demand becomes so high that it surpasses the value or ROI of spending on those platforms, then advertisers will shift their budgets to less expensive alternatives, regardless of the cookie situation. We noticed this earlier this year with some social platforms, where rising CPMs, fueled by Asian resale companies advertising during the Super Bowl, caused advertisers to leave those platforms due to lower ROI. This trend highlights the balance between dollar shifts and ROI that will influence spending decisions. It’s not a definitive end for the cookie-based or non-cookie-based environment yet; the narrative will focus on return, ROI, and CPMs.

And our next question comes from Youssef Squali with Truist Securities.

This is Robert Zeller. I just wanted to ask a clarifying question on the uneven spending pattern as well. Do you think advertisers are pulling back on ABS-like products specifically or the programmatic space altogether? And if an advertiser shifts more spend to social, I'm just curious why DV shouldn't see a greater tailwind in that channel?

Yes. The uneven spending is happening across the board and is not limited to a specific product. Overall, there is a reduction in spending, but advertisers are not discontinuing the use of our product; they are simply spending less. Regarding the shift to social, this ultimately benefits us because it's part of the ecosystem in which we offer products that are still evolving. As we establish social measurements and develop our products for effective social activation, it becomes a positive situation overall. In the short term, our activation products are priced at a premium, so as more spending moves to social, it will affect our revenue. However, in the long run, this is favorable for us and the industry.

And our next question comes from Vasily Karasyov with Cannonball Research.

I wanted to know if you are already engaging with major connected TV platforms, apps, and publishers, as well as with advertisers who utilize TV through open programmatic channels. How advanced are you in those discussions regarding the growth opportunity you mentioned? Additionally, how long do you think it will take for you to enter that market and develop a substantial revenue stream that could contribute to returning to growth in the future? Can we realistically expect to see a 25% growth again, or do you believe it will only be a few percentage points annually?

Thanks, Vasily. So on the first question on CTV. I mean, yes, we are in dialogue with many of the top 10 publishers out there. Last month, we announced that we were working with NBC Universal on this front. And there's a string of others, which we hope to announce over the next several months. So that momentum is there, and we're pretty excited about it. With regard to growth, I mean, look, CTV is going to be part of the growth story. As we noted, we've got lots of growth levers we're still pressing on. Social still is driving a big chunk of growth. Global is still driving growth. Our activation solutions and optimization solutions, Scibids is still a small but nice contributor. So we are optimistic about continuing to look at a strong growth profile in the future about getting our pipeline deals closed to drive the additional growth that we think that is out there. And again, the dynamics of our penetration in the market haven't changed. You mentioned in the call that less than half of our customers use 4 more of our solutions. So we've got lots of upselling we can still do. And I think the ball is in our court right now. So we don't want to say this is all product development opportunity or it's all new solutions that are going to continue to drive growth. It's continuing to lean in on places outside the U.S., continue to lean in on upselling solutions to our current clients and continue to expand coverage across the platforms where we already have relationships. Those things which drove our growth in the past are going to continue to drive our growth in the future.

So would it be fair to say that judging by your guidance, you're not expecting this shift to yield results until next year? Or is it further out than that?

Yes. I think this will take longer than a few quarters to play out, for sure.

And our next question comes from Robert Coolbrith with Wells Fargo.

If we go back to the Meta brand safety evaluations going on right now, could you perhaps expand on the early advertiser response to or adoption of Meta's own platform safety tools, essentially how many among your customer base are sort of prepared to layer on your verification tools at this point? And anything you can say about the early response to the verification tools as well. And then finally, as we think about industry changes that we may see in '25, wondering if you might be willing to give us a sense of TikTok U.S. scale in terms of your exposure and how that's been contributing to the growth?

Yes, regarding the Meta question, we are currently testing with over 40 customers, many of whom are among our top 100 clients. The feedback has been positive, and we've successfully closed several activation deals following the tests, which are progressing as we anticipated. A significant advantage of engaging with social platforms is the large number of impressions we generate. The deals we secure with customers in this space are substantial. The testing phase is going as planned, with over 40 customers, many of whom are set to begin activating in the latter half of this year. On the topic of TikTok, nearly 50% of our TikTok revenue comes from outside the U.S., which is noteworthy since we began expanding our language offerings on TikTok in the latter half of last year and into this year. As we introduce more languages and enter additional markets, we expect the revenue balance to increasingly lean towards international markets rather than the U.S. This presents a strong growth opportunity. While we won't make predictions about the U.S. market, we can confirm that our international presence with TikTok is expanding, which is beneficial. Additionally, Facebook and YouTube continue to be our largest social platforms, accounting for over 80% of our social revenue, so they remain dominant players in the industry.

And there are no further questions at this time. I would like to turn the floor back to Mark Zagorski for closing comments.

All right. Thank you all for your time today. We remain excited about the significant opportunities that lie ahead in social, CTV and retail media channels as we grow the value proposition with our customers around the world.

Thank you. And with that, we conclude today's call. All parties may disconnect. Have a great day.