DoubleVerify Holdings, Inc. Q2 FY2024 Earnings Call

Welcome to the DoubleVerify Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Tejal Engman, Investor Relations. Thank you. You may begin.

Good afternoon, and welcome to DoubleVerify's second 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. 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 thank you all for joining us today. The second quarter was pivotal for DV, as we reaccelerate our revenue growth trajectory, fueled by ongoing momentum in social and CTV measurement and a sustainable upswing in our supply-side platform business, driven in large part by the burgeoning retail media sector. We achieved the high end of our revenue guidance and significantly exceeded our profitability and cash flow expectations. We grew second quarter revenue by 17% year-over-year to $156 million with double-digit revenue growth across all three lines: activation, measurement, and supply-side. By increasing revenue and reducing our cost of sales year-over-year through the implementation of our Universal content intelligence tool, a proprietary AI-powered video classification solution, and other investments in technological efficiencies, we achieved an 83% gross margin and $47 million of adjusted EBITDA, representing a 30% adjusted EBITDA margin. Additionally, our net cash from operating activities grew significantly, totaling $36 million for the second quarter. We are at an inflection point in our ongoing evolution as the industry's leading media quality and performance solutions platform. For the first time in DV's history, we measured more video impressions than display impressions and more impressions outside North America than within. These milestones highlight the success of our Verify Everywhere strategy, enabling us to verify every digital ad impression across all channels, formats, and geographies worldwide. As video content, whether short form, long form, or CTV becomes the primary way that consumers engage with the internet and advertisers reach consumers, DV has developed the industry's most effective and cost-efficient solutions to verify that those video ad interactions are viewable, secure, and suitable, positioning us perfectly to continue to further capitalize on this trend. Moreover, with digital ad spend outside the United States growing at nearly double the rate of domestic growth per Magna Global, DV has invested in more global resources than any other company in our sector, positioning us to take full advantage of this trend. Building on these achievements, our accelerating momentum is evident in the numerous RFPs we won in the first half of the year and in an enterprise deal pipeline that has never been stronger, with greenfield and competitive opportunities set to fuel our resurgent measurement and leading activation businesses for the next several quarters. Key expansions and new logo wins in the second quarter include Philip Morris and Bacardi across multiple geographies worldwide, Panera in the United States, Anheuser-Busch InBev and British Petroleum in LatAm, Universal Pictures and Subway in EMEA, and Amazon Books, Dyson, Honda Mobility, JTI, Ajinomoto in APAC. Additionally, first quarter wins such as Haleon and Pepsi have signed up to use key DV products, including ABS and Scibids in additional geographies, which will help bolster our activation growth into the future. Our win rate across all opportunities remains above 80%, with 70% of our second quarter wins being greenfield, which we define as wins where the advertiser wasn't using third-party tools for the business that DV won. These new client wins bolster 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 16% in the second quarter. Based on our unmatched scale and differentiated solution set, we are also seeing a prime opportunity to gain market share and extend our industry leadership. With Oracle shutting down operations of Moat and Grapeshot on September 30, we've already attracted interest from many of their advertiser and platform customers, who recognize DoubleVerify's differentiated best-in-class capabilities across Social Activation, Scibids, CTV, and Retail Media. While we anticipate closing many of these opportunities by year-end, the revenue impact will really kick in in early 2025, due to the time required for onboarding and ramp-up. Moreover, we expect these customers to grow well beyond 2025, as we typically upsell from measurement to activation between the first and third years of new contracts. Let's now turn to the progress we've made across all key media environments, Social, CTV, Retail Media Networks, and the Open Web. Our achievements in each environment are the result of DV's growing scale and connectivity and market-defining innovation, all of which are driven by our advancements in AI and Automation. We grew our social measurement revenue by 44% year-over-year in the second quarter of 2024, up from 32% in the second quarter of 2023, driven by growth in short-form video on TikTok, Meta reels, and YouTube shorts. Our independent verification of social feeds has become increasingly important to our enterprise partners navigating the high-value, high engagement, yet sometimes challenging content in social media. Since launching our brand safety and suitability measurement solution on Meta early this year, we've successfully sold our measurement solution to over 30 advertisers who have never activated DV on Meta before. We're excited to build on this upsell momentum over the coming months and quarters. On YouTube, we now provide comprehensive brand safety and suitability reporting for Google's latest high-performance ad solutions. With our expanded coverage, advertisers can now measure Performance Max and AI-powered campaign tools that optimize in real-time to maximize conversions and budget efficiency. Additionally, our reporting now includes Demand Gen, a Google ad solution designed to attract and convert customers through visually engaging relevant campaigns. Our partnerships with Pinterest and Reddit are also growing, and we've launched global brand safety and suitability measurement across both platforms and multiple languages, using DV's AI-powered Universal content intelligence. We integrate advanced image, audio, and text analysis to provide accurate media quality measurement and robust brand protection. These strategic expansions and technology advancements across Meta, YouTube, Pinterest, and Reddit highlight our commitment to grow and scale our social media offerings, and we are just at the start of our growth in social measurement. In 2023, DV measured less than 5% of all US social impressions according to our analysis of the marketer data, highlighting the vast opportunity to expand our measurement footprint in a rapidly growing media environment that accounts for 60% of global digital ad spend excluding search. Moreover, we're increasingly excited about the potential for social prescreen activation applications in the social media sector. Although we are in the early stages of prescreen activation growth on social platforms, we believe this area could become a significant growth driver for DV, similar to how activation solutions like ABS have driven our growth in the open web. A great indicator of the potential for pre-bid solutions in social is our free screen solution for YouTube. With close to 100 customers, including nearly 30 of our top 100 customers, this solution drove 30% year-over-year growth in social activation revenue in the second quarter. Currently, we are the only verification platform capable of closing the loop for advertisers on social media with aligned pre- and post-bid solutions. And our coverage is just beginning. We are actively developing ABS-like pre-bid applications across three additional major social platforms where we see an activation opportunity potentially as large as what we have achieved in the open web. Shifting to CTV, we grew our second quarter CTV measurement impression volumes by 55% year-over-year. We partnered with a leading streaming network to launch a groundbreaking program-level measurement solution for advertisers on OTT devices, including CTV. Our initial test of this solution with Cox Automotive via OMG showcased granular program-level insights for the first time, providing invaluable transparency in the often opaque world of CTV advertising. We plan to expand this offering to more advertisers and streaming publishers in the coming months. Similar to our status in social, we are also in the early stages of our growth in CTV verification and have much room to expand. In 2023, DV advertiser engagement measured less than 20% of all US CTV impressions based on our analysis of eMarketer data, revealing another significant opportunity to expand our measurement volumes and build our CTV market position. In addition to CTV verification, we are also now in market with a pioneering CTV attention measurement solution in partnership with TVision. Advertisers can drive ROI by measuring attention in CTV to better understand ad placement and effectiveness. According to the IAB, only 30% of advertisers have full transparency of CTV ad placements, and only 34% of CTV ads received more than two seconds of active eyes on the screen attention. DV's authentic attention solution, powered by impression-level DV data and TV viewer engagement data, enhances visibility into ad performance across CTV publishers and apps, enabling strategic optimizations and preventing wasted ad spending. Reflecting the growing importance of attention metrics, DV authentic attention increased measurement impression volumes by approximately 300% year-over-year in the second quarter, with over 200 advertisers using DV authentic attention this year. Although the scale of our attention business remains relatively small, its impact on our ability to differentiate our platform en route to closing and expanding enterprise deals has been significant, with the Oracle-fueled expansion of RFP opportunities currently in play. Having differentiators like authentic attention will play an important part in driving a highly favorable win ratio. Moving to Retail Media Networks, our retail media supply-side solutions delivered over 50% revenue growth, significantly contributing to our overall supply-side growth rate of 26% year-over-year. We provide comprehensive solutions to retail media platforms, ensuring platform-wide fraud protection and brand safety standards. Additionally, we empower platforms to make real-time and long-term viewability optimizations across all inventory with insights based on our MRC-accredited measurement. Furthermore, we enable platforms to leverage DV's contextual classifications to curate premium contextual segments of inventory. Led by our partnerships with leading retail media platforms such as Amazon and Walmart, our global reach and connectivity retail media continue to expand. DV's measurement TAGs are now accepted on over 100 key global retail media networks and sites, including 15 of the top retail media platforms and 88 major retailers. More than one-third of these partners support DV measurement on their owned and operated as well as off-site inventory. Within the supply side, we also signed DailyMotion, an online video-sharing platform, as well as several high-profile publisher customers such as Ziff Davis, Complex Network, and Independent. Finally, turning to our Open Web activation products. Several factors give us confidence in a stronger growth trajectory. First, our measurement momentum and historical subsequent activation upsell motion indicate renewed strength in our activation business in the future. Second, we expect ABS' growth to improve in the second half as new customers ramp up on activation and ABS. From a long-term perspective, while over 90 of our top 100 customers use ABS, close to 40% of their business lines have yet to adopt it, and there is even greater potential for growth among our top 500 customers. Third, given the strong interest from advertisers and agencies, we anticipate Scibids AI will exceed our expectations in the second half of the year and beyond. Expansion of our activation and measurement solutions across the open web remains a key part of our Verify Everywhere strategy, as advertisers continue to lean into the efficient performance opportunities that the open web entails, particularly in light of the recent change in position from Google regarding cookies. We believe that Google's announcement to step back from blocking third-party cookies by default on Chrome will instill confidence in buyers to spread across programmatic channels and create additional growth opportunities for our advertiser, platform, and publisher customers. We also see the open web as a beneficiary of the expected increase in political spending in the latter half of the year, and we plan to support that via our recently launched authentic news initiative, which is an investment in market education and product development that will create a more flexible, transparent way for advertisers to support open web news content while still protecting brand equity. In conclusion, the second quarter was an important positive inflection point for DoubleVerify, marked by accelerated revenue growth and significant expansion milestones. We won numerous RFPs, strengthened our enterprise pipeline, and continue to innovate across social, CTV, and retail media networks with vast opportunities in social with CTV measurement, anticipated improvement in activation and ABS, and strong momentum for Scibids AI. We are confident in our near- and long-term growth prospects. We remain committed to delivering unparalleled value and driving sustained growth for all of our stakeholders and look forward to updating you on our ongoing progress and achievements. With that, let me turn the call over to Nicola.

Thanks, Mark, and good afternoon everyone. Our second quarter results achieved the high end of our revenue guidance and exceeded our adjusted EBITDA expectations driven by double-digit growth across all three of our revenue lines: activation, measurement, and supply side. Total revenue grew 17% in the second quarter to $156 million. Advertiser revenue increased 16% in the second quarter, driven by higher volumes. Media transactions measured or NTM increased 22% year-over-year, while measure transaction fees or MTF declined 5% year-over-year due to product and geographic mix. As expected, premium price activation represented a smaller portion of total revenue compared to the prior year period. More significantly, as Mark mentioned, the second quarter of 2024 marked the first time DV impressions outside North America represented the lower half of DV's total measured impressions. With measurement impressions within North America growing over 20% and measurement impressions outside of North America growing over 50%. While we expect MTS to remain stable on a per-product basis, we anticipate overall MTS to reflect the impact of a greater shift towards measurement and pressure volumes. One, within measurement, we foresee a continued increase in international pressure driven by DV's global client expansion and international market share gains. Our profitability and margins remain robust, and we continue to be strategically focused on volume-led revenue growth. DV has significant potential to continue to expand across international markets and particularly on local media platforms. By initially engaging customers through measurement, we can upsell our premium price activation solutions. Measurement data feeds into our activation solutions, helping advertisers optimize their media spend effectively. We aim to capitalize on this opportunity in social media where prescreen MTS is nearly triple the price of measurement MTS. Activation revenue increased by 12% compared to the prior year. All four activation solution groupings, ABS, social activation, and Scibids contributed to second quarter growth, which we saw ABS of some momentum accounted for 53% of activation revenue this quarter, grew 7% year-over-year. Similar to the first quarter, the group of slow start in retail and CPG advertisers who are heavy users of ABS delivered an uneven spend pattern that continues to impact ABS growth in the second quarter. We achieved solid ABS upsell momentum with 65% of our top 500 customers activating the product in the second quarter, up from nearly 60% a year ago. Additionally, new advertisers such as Helion have activated ABS and are expected to expand their use of the product. Scibids continued to perform in line with plan in the second quarter. Based on customer usage and adoption patterns, we foresee an accelerated growth trajectory for Scibids in the second half of the year. And lastly, our prescreen social activation solutions achieved a robust 30% year-over-year growth rate in the second quarter. Turning to measurement, revenue increased 22% year-over-year, primarily driven by existing customer expansion on social. Social revenue increased 44% year-over-year and represented 49% of measurement revenue in the quarter. Growth in social management continued to be led by Meta and YouTube, which combined accounting for approximately 80% of our second quarter social management revenue, with TikTok being a distant third. Global expansion of new deals and growth in social media measurement drove international measurement revenue, which increased 29% compared to the prior year and represented 29% of total measurement revenue, up from 28% in the second quarter of 2023. Finally, supply-side revenue grew 26% in the second quarter, driven primarily by greater usage of DV Solutions on retail media platforms such as Amazon. Shifting to expenses, the cost of revenue decreased by less than 1% year-over-year in the second quarter due to savings resulting from the company's migration to cloud services and efficiencies gained in video classification costs. These cost reductions were partially offset by the growth in activation revenue, which led to increased partner costs from revenue-sharing arrangements. Revenue less cost of sales reached 83% in the second quarter, exceeding our expectation of 80% to 82%. For the second half of the year, we anticipate maintaining revenue less cost of sales at the higher end of the 80% to 82% range. Research and development expenses increased due to continued investment in AI and machine learning engineering resources. As mentioned last quarter, we also invested in additional sales and marketing resources, including technical programmatic analysts to promote and sell our latest product launches such as Scibids. These investments will contribute to sales and marketing expense growth throughout the year. General and administrative expenses remained relatively stable year-over-year, as our growing scale helps leverage this operating expense line effectively. Adjusted EBITDA of $47 million in the second quarter represented a 30% margin and was ahead of expectations due to both higher revenue and lower cost of revenue. We delivered net cash from operations of approximately $36 million, up from $11 million in Q2 2023, primarily due to strong collections. Capital expenditures were approximately $7 million compared to approximately $3.5 million in Q2 2023. We ended the quarter with approximately $256 million of cash on hand, including investments in key building maturities over three months; total cash and short-term investments were $339 million. In the second quarter, we repurchased 1.4 million shares of common stock for $25 million. Following the quarter's end, we repurchased an additional 1.3 million shares for an additional $25 million. As of July 30, we had $100 million authorized and available for further repurchases. Our approach to share repurchases will remain balanced, taking into account market conditions and other capital priorities, including investing in our core business for sustained long-term growth and acquisitions that can accelerate our product roadmap and market expansion. Turning to guidance, we are raising the midpoint of our full-year guidance based on our second-quarter performance and remain confident in our anticipated growth reacceleration in the second half of the year. We expect third-quarter revenue to range between $167 million and $171 million, which represents a 17% year-over-year growth at the midpoint. For third-quarter adjusted EBITDA, we expect to range between $49 million and $53 million, which represents a 30% margin at the midpoint. For the third quarter, we expect stock-based compensation to range between $23 million and $26 million and weighted average diluted shares outstanding to range between 172 million and 175 million shares. For full-year 2024 guidance, we expect revenue to range between $667 million and $675 million, which represents a 17% year-over-year growth at the midpoint, and we expect adjusted EBITDA to range between $206 million and $214 million, which represents a 31% margin at the midpoint. We expect the second half of the year to contribute approximately 56% of full-year revenue, broadly in line with last year's second half performance. Our outlook for the second half reflects an acceleration to 18% revenue growth, up from the 16% achieved in the first half. This is driven by multiple growth vectors, including sustained social revenue growth, accelerating momentum in Scibids, successful conversion of our high-confidence pipeline into wins, and continued growth in supply side, particularly within retail media platforms. We have not changed our outlook or expected impact from the cohort of six large retail and CPG advertisers that we previously mentioned as having uneven spend patterns this year. As noted last quarter, the reduced spending from these advertisers is due to specific issues within each company. Other retail and CPG advertisers are performing at or above expectations. Finally, our second-half guidance does not factor any meaningful incremental revenue from increased adoption of our measurement solution on Meta. We assume an increased contribution from former Moat advertiser and platform customers to account for the time required to onboard and ramp. We expect these two opportunities to be contributors in 2025 and beyond. In conclusion, we achieved a strong second quarter with double-digit revenue growth across all three revenue lines, robust profits, and substantial cash flow. We ended the quarter with zero debt and $339 million in cash on hand and short-term investments focused on executing to drive strong growth momentum for the second half of the year.

Thank you. Our first question comes from the line of Youssef Squali with Truist Securities. Please proceed with your questions.

Thank you, and congratulations on a strong quarter. I have two questions. You briefly mentioned Moat exiting the market; how much of their business do you believe is still available? How many of the new clients you gained came from them? I noticed only one, Anheuser-Busch, but there might be others. Additionally, can you discuss the adoption rate of brand safety and suitability within the Meta news feed? Last time, you mentioned around 40 customers were testing it. Do you have any estimates for its contribution in the second half, Nicola?

Thanks for the questions, Youssef. So let me take the first part of this. So with regard to the Moat clients, we've already made some pretty good traction against many of their customers, including individuals like Pepsi, AB InBev, et cetera. But there's still a good number of customers in play. Some pretty big brands and a decent amount of revenue. So we are knee-deep in those RFP processes, and those include both advertiser opportunities and platform opportunities. We see those coming together in Q4 with, as Nicola noted, the real impact is those businesses begin to scale up into 2025. One of the nice things about this entry point is Moat had a relatively simple product set. They didn't have a lot of bells and whistles, so we can go in with a basic offering but really have a great opportunity to upsell over time, which I think is a unique opportunity across those customers. And then for your second question, the adoption of Meta across some key advertisers. So, so far this year, we've added a bunch. So folks like AB InBev, Best Buy, ELF Beauty, Choice Hotels, Helion, J&J—all greater than 30 new advertisers who had not worked with us on Meta before. So we've got some great traction there, again, those need to scale up over time. But it’s following the pattern and the plan that we had—go after folks internally who are current customers at DV who haven't used us across Meta, and then as we onboard new partners, folks like Helion and others will start to upsell them over time.

Yes. And for the last part of your question, I think we've been very consistent on just having a very measured contribution from the Meta upsells into our number for the fiscal year. We haven't changed our approach to our guidance for the second half. For the second half of this year, it's all about adoption, testing, and contracting with the future contribution that will begin in 2025.

Got it. Okay. Thank you both.

Thank you. Our next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your questions.

Thanks so much for taking the question. Maybe building on Youssef's question. Just in terms of thinking out through the remainder of this year and beyond, how do you think about the building momentum around the revenue as you execute against some of the elements of partnerships that you brought into the ecosystem over the last 12 to 18 months? And can you couple that also with how much of the path forward is about execution, it's the opportunity versus some of the investments, only made to set you up for the long-term growth opportunity? Thanks so much.

Thanks for the question, Eric. So, we've talked extensively about the numerous growth drivers we have in the business, everything from social, which continues to be really strong to our Scibids business, which has been a nice accelerator for us. When we look at building momentum into the second half of this year and into next year, it's those plus our business outside the US, now, where we've measured more impressions outside the US. It's the continued growth in CTV. All of those were investments that we've made in the past, right? We've invested in CTV solutions. We invested in our social footprint by not just building new tools across places like Meta and YouTube, but expanding the number of platforms we work with—folks like Reddit. We have a lot of arrows in our quiver already that we're using right now to build momentum. As we close new customers, whether they're Moat customers or those greenfield customers, of which 70% of our new closers were greenfield. We're going to use these investments to build against that growth profile. We've done a lot of that already. It doesn't mean we're stopping, and we're continuing to lean into things like our AI technology to recognize challenging content across video at scale and do so super efficiently, which has allowed us to drive industry-leading gross margins. I think we'll continue to lean into those tools. But a lot of the momentum that we've built already is based on investments that we've made in people and technology over the last several quarters.

Thank you. Our next question comes from the line of Laura Martin with Needham & Company. Please proceed with your questions.

Thank you. I also have two. Could we drill down on Scibids? I think the original idea was we were going to try to get an upsell there as a percent of ad revenue. And I know it's been helping you get new business, but that's what I'm interested in. What's the conversion right then after they try it? Are you still getting paid as a percent of ad revenue rather than a fixed fee? And have you been able to actually get an upsell? Or is it becoming just part of the core product? That's my first question. My second question is on your cost philosophy. Your costs this year, we're projecting are going to grow faster than your revenue, whereas, for the past two years, your total operating expense has grown about half as fast as your revenue. So could you talk about your cost philosophy as the revenue has leveled here to the 17% level for the year? Thank you.

Thanks, Laura. I’ll take the Scibids question, and Nicola will talk about costs. So with regard to Scibids, it is an absolutely additive upsell that we are still selling as a percentage of media. We've not bundled it into our solution yet; we've connected it to our attention data to make some pretty unique solutions. But ultimately, we see this as additive. It's part of our activation business and part of our activation line that continues to grow. It's an optimization tool that I think is incremental to our core business, not something I think we need to bundle at this stage as part of that. The reason why we're seeing traction is we've seen traction outside of the customers who don't even work with us on our core bundle. That's been an interesting opportunity to get discussions going with large brands that may work with our competitors. To do that, you have to have a product that you can sell separately and then monetize separately.

Yeah. And on the cost philosophy, really, it's an investment philosophy focusing on areas where we think we can accelerate our market share. If we find ways to invest that allow us to grow at a faster pace, we will continue to do so. But we're still achieving margins that are above 30%. This quarter, we see our guidance expectation on EBITDA. We're particularly focused on achieving higher gross margins, which are the result of having invested for several quarters into that line, and now we are able to show a higher gross margin. We'll continue to find opportunities to invest within the range of our EBITDA guidance, which is just over 30%. We believe that's how we're gaining share in the market.

Thank you. Appreciate it.

Thanks, Laura.

Thank you. Our next question comes from the line of Matt Swanson with RBC Capital Markets. Please proceed with your questions.

Yes. Thank you so much for the time and taking my questions. Mark, you mentioned this quarter that video impressions grew faster— or sorry, more impressions than display. This is kind of a common occurrence in calls with investors. I'm wondering about—does increasing video, even though it's a higher fee, impact volume to the point where it might have a net negative impact? I was just curious about the dynamics that you're seeing around there where you're still seeing strong results as video is ramping up.

Yes. So, it's a great question, Matt. There are numerous dynamics at play. A whole ton of new inventory is flooding into the market, adding opportunities for measurement, particularly across platforms like Amazon and Amazon Prime. It's also suppressing CPMs a bit, meaning lower CPMs across CTV, which results in significantly higher volumes. I think that has shifted the concern about businesses like ours, where we're a volume-driven company. More volume and slightly lower CPMs, coupled with new players entering the market, provide measurement opportunities. That's why we saw CTV growth of 55%-plus over the quarter. Video, particularly CTV, is going to be a driver for us moving ahead.

Yes. That’s really helpful color. And then one more: maybe on the positive surprise we got from the supply side business. You mentioned that you feel like this is repeatable. Can you just give us maybe a sense of the scale of that retail media network opportunity or if there's anything else that you think drives that line in the future? Just a little more color there.

Yes. Our supply-side business had a nice pop. It's sustainable since it's very much like a pure SaaS software application. Once you get the deal set in, they’re pretty safe and structured. That growth year-over-year is sustainable. Not even accounting for potential upside from MOAT clients. We feel good about the supply-side part of our business continuing to grow, especially because a big chunk is driven by retail media networks. Our supply-side Retail Media Network business grew over 50% year-over-year last quarter, so you have different drivers playing out there—namely the retail media network aspect and some MOAT clients eventually rolling through at the tail end of the year. The fact that these tend to be non-volume-based deals means they will continue to show the same growth next quarter.

Thank you.

Thank you. Our next question comes from the line of Andrew Boone with JMP Securities. Please proceed with your questions.

Thanks very much for taking my questions. Mark, I wanted to ask about ABS further slowing in 2Q. Like it was 12% in 1Q and then slowed to 7% in 2Q. Is there any additional pressure or anything else to call out about kind of those five points? And then secondly, if I look at activation overall and it's faster growth, the non-ABS revenue was very healthy in 2Q. Is that Scibids? Or is there any other explanation that you want to highlight as we think about that aspect of revenue? Thanks so much.

Yes. On the second part first. Non-ABS programmatic did grow pretty nicely over the quarter. That includes Scibids, as well as core programmatic, so the basic non-ABS solutions pre-bid brand safety, pre-bid viability, et cetera. We saw strength in the sector regarding ABS. We expected some softness driven by that cohort of six players, which have been heavy ABS spenders. That has stabilized a bit, and we’ve gotten some interesting existing user expansions with Home Depot, Southwest, Pfizer, Mondelēz. We believe these will put a little fire under that ABS growth number moving ahead. We would love to see that number be better, but we have lots of other aspects of our activation business that are growing as well—prescreen social, which also grew well, helping our activation business continue to grow double digits.

Thank you.

Thank you. Our next questions come from the line of Michael Graham with Canaccord Genuity. Please proceed with your questions.

Hi. Thanks a lot. Just two questions. The first, I just wanted to ask on the competitive landscape. How much has the MOAT withdrawal really impacted things? And just are you seeing any changes in the competitive landscape relative to the first part of the year? I wanted to ask also on the guidance, I believe that you mentioned that you hadn't changed your expectations regarding the handful of CPG and retail customers that you had taken out of guidance previously. I just wanted to ask if you're seeing any progress or evolution from that group, and just the—if there are any major puts and takes to the second half guidance that we should keep in mind as we're thinking about sensitivity.

Thanks for the question, Mike. Concerning the competitive landscape, it's interesting when a competitor literally drops off the map the way Oracle did with Moat. If you look at the deals in play, our sales team is the best in the business and had already been on top of all those customers even before Moat went out of business. The dynamic has accelerated discussions, making it a pressing decision for both advertisers and the platform customers out there. The competitive dynamics have changed. We are in the midst of dozens of RFPs right now, and that change is likely the biggest. It has opened the door to some smaller competitors taking a shot where they may not have had the opportunity before. This is good for the space, showing where a broad-based differentiated solution set like DV is going to win because a lot of these clients are enterprise clients looking for solutions. Regarding guidance, that cohort of six performed in line with our expectations that we already baked into our conversations from last quarter. So we have not adjusted guidance either up or down for that cohort. For the second half of the year, we are confident in multiple growth factors, including continued social growth. We have large clients with a good pipeline we expect to close. We do not assume a material upside from either Moat clients due to the time it might take to integrate and ramp.

Yeah. On the guidance question, Michael, for the cohort of six, they did perform in line with our expectations that we already baked into our conversations from last quarter. So we have not adjusted guidance either up or down for that cohort. The puts and takes for the second half the year, we are clearing like we have multiple growth factors that will help in the second half, including continued social growth. There is accelerated momentum inside. We do have some large clients in the pipeline that we expect to close. And then on the take side, we do not assume a material upside from either Moat clients given the time it might take to integrate and ramp. We’ve been very consistent on not having a large contribution from Meta brand safety in the fiscal year.

Perfect. Thanks a lot, guys.

Thank you. Our next questions come from the line of Raimo Lenschow with Barclays. Please proceed with your questions.

Perfect. Thanks for squeezing me in. I actually wanted to stay on both of those subjects. So the MOAT side, can you speak about how much extra resources you need to get those guys ramped in a timely manner? What does that mean for investment horizon? And then on the CPG customers, I mean, if you look at the earnings season on the CPG segment at the moment, it doesn't look good. Is there a concern it might feed into you, and is that something that is factored into guidance?

Hey, Raimo. So on the potential Moat customers, we’re pretty well-staffed to handle those roll-ups. Depending on how quickly we need to ramp them up, we may need to add a small amount of incremental headcount, but nothing significant, nothing that would fall outside what we had really planned for the year. We don't see a significant amount of additional expenses against the MOAT ramp-up. Regarding CPG, we have not seen any degradation or predictions from our partners that they're reducing spend in the second half of the year. Our CPG and many retail customers outside of the cohort we identified are actually doing well, and our plans are slightly ahead of expectations. We have not seen any spend reductions yet, and for the most part, we're in line with the fact that the macro is stable for the rest of the year.

Okay. Perfect. Thank you.

Thank you. Our next questions come from the line of Tim Nollen with Macquarie Asset Management. Please proceed with your question.

Hi. It's Tim from Macquarie Capital. Could you please—I'm running out of questions here because you covered a lot in the presentation, so that's great. Could you please give a point of clarification though on the global expansion? I think you said you grew at two times the rate of the US. Was that primarily greenfield? You gave us 70% of wins being greenfield; I wasn't sure if that was relating to international growth or not. So that's really what the question is—was it kind of white space new opportunities? Or was it competitive win? And then, following on that, how well penetrated was or is MOAT internationally? Is that a particular opportunity internationally? Or is MOAT more of a US opportunity?

Yes. MOAT was definitely stronger outside the US over the last few years than in the US. They had a relatively basic tool set and competitive pricing on that tool set, which allowed them to distribute it cheaply in some lower-margin markets. That said, we do see some growth opportunities in our international business as a result of MOAT's exit. Regarding the 70% wins, those are greenfield across all markets, not just international, so it's consistent across the board. With the exception of one quarter over the last few years, a majority of our deals have been greenfield. There’s plenty of room to grow both in North America and outside the US with advertisers still getting to know our products, providing a solid TAM opportunity for the next several years.

Great. Thank you.

Thank you. Our next questions come from the line of Brian Pitz with BMO Capital Markets. Please proceed with your questions.

Thanks for the question. Maybe quickly on political, obviously, topical here, especially around inflammatory content and misinformation. How much of a tailwind do you think the election can be for your business? And what have you seen? I know it's early on in the campaign cycle. That is point one. Point two; any negative CTV industry impact from things like the Euro Cup or Copa America over that kind of month-long period across June and July? Any sense that could have pulled folks away from CTV? Thanks.

Thanks, Brian, for the question. With regard to political, I think we've said we're not a huge direct beneficiary of political dollars due to the fact that we require relatively sophisticated solutions employed over a long period. There are learnings involved. That said, we think there's a bit of a tailwind that comes from broader engagement across social as people get involved in elections, leading to higher social volumes. Open web news engagement increases over time, leading to increased volumes on open web platforms. This is why we're investing in our authentic news initiative—to support advertisers wanting to place dollars across news properties while still addressing concerns about incendiary news topics. Concerning CTV, we didn’t see much friction at all from events like the Euro Cup or Copa America. Netflix’s growth and Amazon introducing inventory into the market helped fuel the 55% growth rate we saw in CTV impressions. As part of our video impression pool, it’s growing, and we think it’s a catalyst moving forward.

Great. Thanks.

You got it.

Thank you. Our next questions come from the line of Mark Kelley with Stifel. Please proceed with your question.

Great. Thank you very much. Two quick ones. Sorry to go back to MOAT. But I’m curious if you think there's like an $80 million total opportunity number kind of floating out there. Does that seem right to you? Not necessarily where you think you can win? And then maybe as part of that, any way to think about the split between advertiser and publisher exposure that MOAT had? And the second one is just going back to the political component. I think there are a lot of brands that are trying to avoid news content around the election—not necessarily because of your products, but just trying to avoid potential negative news flow. Does that impact you either way, if that’s the case, just around November? Thank you.

Regarding the MOAT number, I think there have been numbers kicked around in that zone. I do see significant opportunity there, both on the platform and advertiser side. A chunk of that is longer tail, which may drop off and not be interesting for companies like DV to pursue due to size. But there’s a good chunk out there—tens of millions of dollars of opportunity. The breakdown between platform and advertiser might be roughly 50/50. Many bigger brands we have in place were previously with Moat; we've taken brands like Pepsi from them, AB InBev, etc. That gives us a good opportunity. The political component—what we're trying to lean into with the authentic news initiative is helping advertisers navigate news content without simply shutting it down. Plenty of value exists in being part of the dialogue but doing it safely and suitably. We see this as an opportunity for us. Advertisers will spend dollars elsewhere, whether they move to social or CTV—where we're also present—for measuring every strategy we have.

Got it. Thank you, Mark.

Thank you. Our next question comes from the line of Vasily Karasyov with Cannonball Research. Please proceed with your questions.

Thank you. Good afternoon. I wanted to ask you about retail media revenue. If I’m reading the slide correctly, 62% of retail media revenue was activation. That is programmatic. We know that the majority of retail media revenue is not programmatic at this point. My question is, A, is this the breakdown between the different revenue lines that you expect to see going forward, or do you think it will be changing? And the other question is can you tell us what kind of gating factors there are that prevent you from growing this revenue stream, retail media, faster as for some other companies that is definitely a much bigger contributor? Thank you.

Thanks, Vasily, for the question. Regarding the activation aspect of our retail media network business, think of that as the audience and extension part of it. When they buy off-site, those off-site buys are often transacted through DSPs that engage DV tools to ensure those off-site buys are safe and secure. That's where our activation portion exists. Regarding what the business looks like moving ahead, I do think supply-side will continue to grow as we see engagements with folks like Amazon and Walmart increase. The way that measurement gets engaged often through a supply-side implementation means that growth for us will come from the activation and supply-side lines. If there’s any friction anywhere, it's due to advertisers starting to look for efficient spend elsewhere. There aren't any significant market barriers preventing retail media growth from accelerating.

Thank you.

Thank you. Our next questions come from the line of Yun Kim with Loop Capital Markets. Please proceed with your questions.

Thank you. First, quickly on Scibids. Can you update us on where we are regarding the Scibids integration? Are we still like somewhat 12 to 18 months away from the full integration?

Yes. We’re on path with the integration of Scibids. We’ve integrated sales and a good amount of their technology into our operational structure. Overhead teams, including marketing, finance, and legal, have also been integrated. We’re well on track with integration; some work remains on UIs and data set integrations, but we’re on schedule and seeing benefits as that business continues to grow.

Okay. Great. And Mark, also, over the next year or two, can you share your view on the pricing dynamics on social, especially on short video and CTV? Obviously, CPM rates on these formal channels are changing?

Yes. In our perspective, social pricing and our social business dynamics have remained consistent over the years. For video, social video CPMs are charged similarly to others. CPMs across platforms will continue to be driven by performance, primarily media performance. Our CPMs on social and social video will improve as we move more towards social activation solutions. Currently, our social activation solutions are priced about three times our social measurement, so as we expand into activation across social platforms, there’s an opportunity to see a significant bump in MTF on social.

Okay. Great. Thank you so much.

Sure.

Thank you. Our next questions come from the line of Arjun Bhatia with William Blair. Please proceed with your questions.

Hi. Thanks. This is Chris on for Arjun. I wanted to circle back to a comment you made about launching some ABS-like capabilities on social. I wanted to get a sense of what the timeline looks like for that and whether it will be very similar in terms of functionality and pricing as ABS?

Yes, it's a great question. Currently, we're in negotiations and development across multiple social platforms for implementing these types of tools. We know that social prescreen, like we've seen on YouTube, has real value and strong traction with our top 100 customers. We can charge a premium for it. That being said, we see a similar potential for social prescreen or activation tools as on the open web. It won't launch overnight; it involves negotiations and development, but opportunities for us should grow in the next several quarters. Looking into 2025 and beyond, social activation is going to make a much bigger part of our business than today.

Got it. That makes sense. And then just one last question on MOAT. For these customers, they've already been using a similar product with another platform. Is there any difference in the amount of time that you expect them to ramp on average?

There’s still testing on the part of advertisers, which ensures they understand implementation and data from the tools, plus how they implement pre- and post-bid connections. That entails ramp time, though the faster part of the process has been in sales. Ramping will still occur similar to the past.

Got it. Thank you.

Sure.

Thank you. Our next questions come from the line of Mark Murphy with JPMorgan.

Hi, this is Ari on for Mark Murphy. Congrats on the quarter and thanks for squeezing me in. Just wanted to ask about the remarks you made about Scibids and the expectation that they'd exceed in the second half. Be great to double click on that and hear kind of what's giving you that confidence? Is there a particular aspect, attach rate pipeline, pipeline conversion, or any other aspects you think might be worth calling out there? Thanks.

Yes, it's a great question. We see strong conversions that we’ve closed in the first half ramping in the second half. The customers closed earlier this year are scaling, and since we’re a percentage of media business, CPMs are healthy. We believe those factors give us confidence to continue growing Scibids slightly ahead of our plan and expectations.

Thank you. And Nicola, just when we're looking at the share repurchase program, any insight on what motivated that for the here and now? Is there any framework for thinking about going forward or the cadence of buybacks?

Yes. In terms of our company's situation and capital structure, we're at a point where it becomes one of many priorities for capital use. Our view is that it's balanced around repurchases while we invest in the business and consider potential acquisitions to help accelerate product roadmap and market expansion.

Perfect. Thank you. That's encouraging.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to CEO, Mark Zagorski for closing remarks.

Thank you all for your time today. We remain excited about the significant opportunities that lie ahead. We look forward to seeing many of you at our upcoming conferences in the coming months. Have a great evening.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.