DoubleVerify Holdings, Inc. Q4 FY2024 Earnings Call

Greetings, and welcome to the DoubleVerify Fourth Quarter and Full Year 2024 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tejal Engman, Senior Vice President, Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon, and welcome to DoubleVerify's fourth quarter and full year 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 actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings, including 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 a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release, which is available on our Investor Relations website at ir.doubleverify.com. Also during the call today, we'll be referring to the slide deck posted on our website. With that, I'll turn it over to Mark.

Thanks, Tejal, and good afternoon, everyone. 2024 was a year of meaningful progress in the face of significant business and market challenges. We grew total revenue by 15% year-over-year to $657 million, powered by double-digit growth across all three revenue lines. We measured a record $8.3 trillion billable media transactions, a 19% increase year-over-year, demonstrating DV's unmatched scale across every digital media environment, format and device. We won an unprecedented number of large global enterprise customers in 2024, further cementing our position as the trusted partner for the world's biggest brands. Our 2024 win rate remained above 80% across all opportunities with greenfield deals where advertisers weren't previously using third-party tools accounting for 64% of full year wins. Major new partnerships with P&G, Microsoft, Google, Kellogg's, Kenvue, Dish, National Bank of Canada, Bosch and BetMGM highlight DV's continued industry leadership and reinforce the accelerating adoption of our solutions worldwide. Moreover, our growth extended beyond advertisers. Supply side revenue grew 25% year-over-year, fueled by rising demand from retail media platforms and a record influx of platform and publisher customers. This momentum helped our business remain strong and profitable, delivering a 33% adjusted EBITDA margin and $160 million in net cash from operating activities in 2024, up 33% from last year. These results highlight our ability to execute effectively while also making the strategic investments necessary to leverage our unique data assets and client engagements and evolve DoubleVerify from a partner that ensures media spend is protected to one that also measures performance and optimizes the effectiveness of that spend. Despite our successes, 2024 also tested our resilience and adaptability. Throughout the year, we navigated some isolated headwinds, including scaled back ad spend from six large customers. And in Q4, one of our largest customers facing billions of dollars of sharply escalating commodity costs dramatically reduced its spend with DV as part of a sweeping cost reduction initiative that also impacted their other advertising and marketing partners. Although this customer has maintained limited engagement with DV while temporarily shifting to standard native tools within each tech platform, we have completely excluded them from our 2025 guidance to provide a realistic outlook for the year ahead. These factors, combined with the absence of a post-election rebound in ad spend, resulted in a disappointing Q4 that fell short of our expectations. Beyond these isolated customer challenges, we also saw the continued shift of ad dollars from open web programmatic to proprietary platforms like social, where most of our activation solutions were unavailable until early this year. And spending in private marketplaces, PMPs, and direct programmatic guaranteed deals, or PG, also started to accelerate, temporarily limiting advertisers' ability to attach DV solutions to every transaction. So let's be clear: these challenges do not define DV's long-term future. In fact, they have sharpened our strategy and fueled our drive for diversified growth and product innovation. We've taken decisive action to address these market shifts and will continue to do so. Our investment in pre-bid solutions across Meta and TikTok will position us for future social growth as dollars shift into proprietary platforms. Our recent launch of sell-side curation and decisioning solutions on major SSPs will drive higher attach rates of DV data to PMP and PG deals, aligning with the evolution of the programmatic ecosystem. And with strategic acquisitions like Scibids and the newly acquired Rockerbox, we're expanding further into performance measurement and optimization, unlocking an entirely new TAM of mid-market customers and lower funnel direct response ad budgets. At the same time, we're accelerating revenue diversification by continuing to add large new customers. In 2024, we grew the number of customers generating over $200,000 of revenue to 331, up from 290 in 2023. We are executing with focus, adapting with speed and positioning DV for long-term success. With these actions in motion and with less macro variability than we saw around the elections late in 2024, we are entering the year with confidence. We are ready to drive continued growth. These tactical moves are part of a larger strategic evolution to leverage DV's unmatched data scale, relentless innovation and extensive client engagements to turn challenges into catalysts for future growth. Our vision is simple but powerful: to unify media quality, optimization and performance measurements into a single platform to help advertisers maximize the effectiveness of every ad dollar. In a market increasingly driven by demands for efficiency and accountability, DV delivers the tools advertisers need to make every impression more impactful. Media quality has always been foundational to performance. It separates inventory with the potential to perform from inventory that never will. With our unique scale core data asset of essential signals like fraud prevention, brand suitability, viewability, attention and context, DV gives advertisers the critical insights they need to invest with confidence. With the addition of Scibids AI, we take campaign optimization to the next level, leveraging these and other data signals to drive advertiser KPIs more effectively than standard bidding algorithms can. Like the Scibids acquisition, the pending acquisition of Rockerbox, a leader in marketing attribution and performance measurement, marks another important step forward for DV. By integrating Rockerbox's advanced attribution capabilities with DV's media quality data and Scibids AI optimization, we're giving advertisers a comprehensive real-time view of media performance, enabling cross-platform adjustments for smarter spending and stronger outcomes. And it continues DV's legacy of powering media performance while remaining agnostic and independent to media channel and media investment. Expanding DV's capabilities to deliver a comprehensive end-to-end performance measurement solution meaningfully expands DV's total addressable market, unlocking access to midsized performance advertisers and direct response budgets. While Rockerbox's current client base includes household names like Staples, Lowe's and WeightWatchers, it has minimal overlap with DV's existing customers; around 200 of their target customers already partner with DV. This alignment opens the door for meaningful cross-sell opportunities and long-term revenue synergies, further enhancing the value we deliver to our customers. Driving media ROI is critical, and performance measurement is essential for all advertisers. By integrating Rockerbox cross-channel attribution, DV's media quality analytics and Scibids AI-driven optimization, we're transforming fragmented marketing data into a unified, actionable intelligence platform. We've already seen a great example of this dynamic in action with a direct-to-consumer brand that was using several of DV's media quality solutions and also employed Rockerbox to track media spend and performance. Their key conversion KPI was the cost of customer sign-ups for membership, and their goal was clear: reduce CPA. With DV Scibids optimization, the brand was able to optimize their bidding strategies, leveraging the CPA data measured in Rockerbox and integrating these real-time performance insights to dynamically adjust their bidding algorithms. The results were immediate: a nearly 40% reduction in CPA within the first eight weeks, followed by an additional 20% decrease in weeks nine through twelve. This is the power of a fully integrated performance measurement and optimization engine, delivering measurable business results at scale in an increasingly complex digital landscape. Together, we will provide advertisers with a single integrated solution that can measure, optimize and drive real business outcomes with greater efficiency in an increasingly complex digital landscape. To explore the future of measurement and data-driven innovation at DV and to highlight the role of Rockerbox cross-platform performance and measurement capabilities, DV's executive team, along with industry experts, will host an in-person Innovation Day for the investment community on Wednesday, June 11 from 1:00 p.m. to 4:00 p.m. at the New York Stock Exchange in New York City. The event will also be webcast live. Now let's take a few minutes to dive into how we're evolving DV's strategic vision to drive long-term growth across social media, the open web and CTV. Social media accounts for over 60% of digital ad spend, excluding search. Yet today, DV measures only about 5% of all U.S. social impressions, highlighting a massive growth opportunity. In 2024, we grew our social media measurement revenue by 27%, making it a nearly $110 million business for DV. That's more than double the $45 million we generated just three years ago in 2021, a testament to our relentless focus on expanding social media product and language coverage. A key part of ensuring continued future growth in social is expanding DV's value proposition from solely post-bid measurement to pre-bid activation, helping advertisers optimize their media investments before they are made. I'm thrilled to announce the launch of our content-level avoidance solution for Meta's Facebook and Instagram Feeds and Reels powered by DV's Universal Content Intelligence AI. This game-changing innovation ensures that advertisers can proactively avoid unsuitable content while continuing to drive superior media performance. In partnership with Meta, we're delivering this solution at incredible scale. By seamlessly integrating our content-level avoidance controls with post-bid measurement tools, we've created a closed-loop system that ensures every ad delivers maximum impact. In addition, we've rolled out 30 new content-level avoidance categories, giving advertisers unprecedented control and precision in their campaigns across Facebook and Instagram Feeds and Reels. Similarly, we launched TikTok video exclusion list solution powered by DV and expanded alpha testing, empowering advertisers to proactively exclude videos flagged as unsuitable through our reporting, further strengthening our pre-bid coverage across social media. We've seen solid initial interest in both activation solutions with nearly 200 customers in our Meta pipeline and several already launched and live in the week since the solution has become available. Rockerbox will also play a role as we continue to grow our overall value proposition in social. By linking social performance and conversion data from Rockerbox with DV media quality data and optimizing against both with Scibids, advertisers will be able to eliminate waste, drive better engagement and higher ROI, all while ensuring their ads appear in safe, high-quality environments. As we redefine how advertisers drive performance in social media, we remain as committed as ever to expanding our measurement coverage across key social media platforms with enhanced viewability and invalid traffic detection for display ads on Facebook Reels. On TikTok, we extended our brand safety solutions to 18 new international markets and introduced advanced vertical sensitivities tailored to local market needs. Finally, we recently expanded our viewability and brand safety coverage across additional formats on YouTube as well. Now turning to the open web, the largest driver of DV's revenue across activation and measurement, our performance solutions are already delivering strong results even as they scale from a relatively small base. In activation, DV's Scibids revenue grew over 50% year-over-year, surpassing the top end of our expectations. Since acquiring Scibids in August 2023, we've successfully upsold the solution to 79 DV customers and 40 of our top 100 clients have started to use Scibids AI to optimize their campaigns. On the measurement front, DV Authentic Attention continued its strong momentum, growing nearly 190% year-over-year. As I mentioned earlier, as advertisers increasingly shift their open web spend to PMPs and programmatic direct deals, we're responding to this opportunity by deploying DV's activation solutions across numerous sell-side platforms. eMarketer projects U.S. programmatic display ad spending to grow just 4% for the open exchange but over 30% for PMPs and programmatic direct deals between 2024 and 2026. We always strive to ensure DV data can be employed wherever and however advertisers focus their spend. So as advertisers increasingly prioritize curated inventory, they are turning to DV to help them achieve greater control, transparency and performance. By leveraging our trusted brand safety, contextual viewability and fraud data, DV delivers optimized inventory that powers smarter, more effective media investments through curated deals on the advertiser's preferred platform. To that end, I'm excited to share that we've launched an integration with Google Ad Manager allowing programmatic buyers to seamlessly access DV's media quality data through curated inventory packages. This integration allows advertisers to source inventory that meets critical benchmarks for context, brand safety and viewability all while driving better performance at scale. By connecting directly with Google Ad Manager, we're making it easier than ever for advertisers to ensure their campaigns are optimized for safety and effectiveness and helping them to achieve stronger results across the programmatic ecosystem. This is in addition to other sell-side integrations we recently announced, including new solutions with Index Exchange and Criteo. Turning to CTV, our strategic vision is helping fill one of the most exciting growth opportunities in digital media. In 2024, we delivered impressive results in CTV with measurement impression volumes growing 66% for the full year and 95% in the fourth quarter alone. This momentum drove a significant milestone: CTV accounted for 11% of DV's total measurement impression volume in 2024, more than doubling its 5% share in 2023. Our growing CTV base creates a significant future monetization opportunity for DV as we develop deeper content-level contextual insights and stronger connectivity to outcomes data that drive performance. Turning to Retail Media Networks, our supply side Retail Media Solution grew 36% year-over-year in 2024, contributing to our overall supply side growth rate of 25% year-over-year. Led by our partnerships with the leading retail media platforms, our global reach and connectivity and retail media continues to expand. DV's measurement tags are now accepted on 124 key global retail media networks and sites, including 16 top retail media platforms and 108 major retailers supporting DV measurement on their owned and operated properties. More broadly, on the supply side, we secured over a dozen new platform and publisher deals in Q4, including Newsweek and OZone, underscoring the continued opportunity for DV to support leading open web publishers. As we wrap up, it's clear DoubleVerify continues to make meaningful progress to address our challenges while we lay the foundation for future growth. Looking ahead, our opportunity remains vast. We already work with nearly half of the world's top 1,000 advertisers, yet our revenue contribution represents less than 0.5% of their total media spend, demonstrating the significant runway for growth within our existing customer base. Beyond that, we continue to expand and diversify our reach, evolving our solution set to power performance measurement, outcomes optimization and attribution while strengthening our presence with mid-market and direct response advertisers. With a strong and profitable core and expanded customer base and an unmatched commitment to quality and innovation, DV is well positioned to capture the opportunities ahead. With that, let me turn the call over to Nicola.

Thank you, Mark, and good afternoon, everyone. In the fourth quarter, we successfully ramped our new customer wins, highlighting our ability to swiftly onboard large global enterprise clients. However, as Mark mentioned, Q4 revenue fell short of expectations as the slowdown in spending from existing customers that began in October due to political ad spend crowding out brand advertising persisted throughout the quarter. This was exacerbated by a sharp reduction in spend from one of our largest customers later in the quarter driven by rising commodity costs. As part of a broader cost-cutting initiative affecting multiple advertising and marketing partners, this customer is suspending its business with DV in early February 2025. This customer contributed over $20 million of revenue in fiscal year 2024, where nearly half of this revenue was attributable to social measurement and almost one-third generated through ABS. As a result, we have removed this customer from our 2025 guidance. For the fourth quarter of 2024, total revenue of $191 million grew 11%, driven by 10% growth in activation, 7% growth in measurement and 34% growth in supply side. Our activation and measurement businesses, which are driven by advertisers, comprised 91% of our total fourth quarter revenue. Advertiser revenue grew 9% in the fourth quarter, driven by 14% growth in volume, or MTM, and a 5% decrease in pricing, or MTF, excluding the impact of an introductory fixed-fee deal for one large customer that we onboarded from Moat. ABS, which represented 53% of our activation revenue in the fourth quarter, grew 6% year-over-year, driven by new logo activations and upsells to existing customers. Adoption of this premium product continues to expand, with 70% of our top 500 customers activating ABS in Q4, up from 68% in Q3. Our core programmatic solutions and Scibids AI also delivered solid year-over-year growth. Fourth quarter measurement revenue grew 7%, driven by 9% growth in social revenue. Social revenue growth was impacted by the slowdown in spend by large brand advertisers that persisted after the election and by the same customer that significantly reduced its spend with us due to a sharp increase in commodity costs. International Measurement revenue grew 11% in the quarter and comprised 30% of measurement revenue, up from 29% in the fourth quarter of 2023. Supply side revenue grew 34%, driven by growth in existing platforms, including retail media, as well as several new platform integrations, including with former Moat clients. Full year 2024 revenue grew 15%, driven by 13% growth in activation and 15% growth in measurement. Social measurement revenue grew 27% for the full year as compared to 47% growth in the first half of 2024. As mentioned in prior calls, the adoption of our measurement solutions on Meta progressed at a more gradual pace than we anticipated in 2024, as some advertisers waited for the rollout of social activation solutions to test both measurement and activation together. The social activation solution is now in market as of mid-February. Social measurement revenue represented 48% of measurement revenue in 2024, up from 43% in 2023. Supply side revenue growth of 25% was driven by increased platform revenue. Advertiser revenue growth for the full year was primarily volume driven with 8.3 trillion billable transactions measured, a 19% year-over-year increase in MTM, while MTF decreased by 4% to $0.072. In 2025, we expect volumes to remain the primary driver of growth as we continue to verify more digital ad impressions through new product launches and channel and geographic expansion. We expect MTF to continue to decline in 2025 reflecting the impact of competitive rates for major new global brand wins, in particular Oracle accounts, and the greater shift towards measurement and international impressions. For full year 2024, we achieved a net revenue retention rate of 112% while gross revenue retention remained above 95% for the fifth consecutive year. We grew average revenue from our top 100 customers by 14% year-over-year to $4.2 million. We grew the number of advertisers generating more than $200,000 of annual revenue by 14% year-over-year to 331. And our long-term customer relationships remain strong with top 75, top 50 and top 25 customers working with us for approximately eight years. Moving to expenses, in the fourth quarter, cost of revenue increased 14%, primarily driven by an increase in revenue sharing arrangements with programmatic partners driven by activation revenue growth as well as higher hosting and bandwidth costs. We delivered 82% revenue less cost of sales. Total non-GAAP operating expenses, which excludes stock-based compensation and other items for comparability, grew 7% as compared to 11% revenue growth, reflecting the efficiency of our operating model. Finally, we delivered $74 million of adjusted EBITDA or a record 39% margin and $23 million of net income. For full year 2024, cost of revenue increased by 9%, and we delivered 82% revenue less cost of sales. Total non-GAAP operating expenses grew 15% and represented 49% of total revenue, the same as in 2023. We delivered full year adjusted EBITDA of $219 million, representing a 33% adjusted EBITDA margin to combine revenue growth with solid profitability. We ended 2024 with 1,197 employees, up from 1,101 at the end of 2023. Over 40% of our headcount growth in 2024 was in R&D investments for engineering and product resources. In 2025, we expect hiring to slow as we continue to invest in product innovation while we reallocate resources towards growth initiatives and actively optimize the organization. Net income for full year 2024 was $56 million or a 9% margin as compared to a 12% net income margin in full year 2023, primarily driven by slower year-on-year revenue growth and higher year-over-year stock-based compensation expenses. Stock-based compensation through 2024 reflects the impact of our inaugural annual equity award program introduced in 2021 when we went public. Looking ahead and excluding the potential impact of future M&A, we expect the annual growth in stock-based compensation expenses to stabilize in the high teens. In terms of share buybacks, we repurchased in the fourth quarter 4.2 million shares of DV common stock for $78 million, bringing total share repurchases for full year 2024 to 6.8 million shares for $128 million. In January 2025, we repurchased an additional 1.1 million shares for $22 million. As of February 27, 2025, $200 million remains available and authorized under the new repurchase program for utilization throughout 2025. Moving to cash flow, we generated approximately $160 million of net cash from operating activities in 2024. This represented an operating cash flow to adjusted EBITDA ratio of 73%, highlighting strong cash flow generation and EBITDA conversion. Capital expenditures were approximately $27 million in 2024. Finally, we ended the year with $311 million of cash on hand and short-term investments and zero long-term debt. Turning to Rockerbox, we have agreed to acquire this leading platform measurement firm for $85 million in cash. This transaction is subject to customary closing conditions and adjustments and is expected to close in the second quarter. We expect Rockerbox to contribute approximately $8 million to DV's total revenue in 2025 within our measurement revenue line, and this partial year contribution has already been included in our 2025 guidance. Currently near breakeven, Rockerbox offers scalable growth across our customer base. We plan to accelerate this growth through strategic investments in talent, technology and integrated data systems across both companies. Now turning to 2025 guidance. For the first quarter of 2025, we expect revenue to range between $151 million and $155 million, representing a year-over-year increase of 9% at the midpoint, and adjusted EBITDA to range between $37 million to $41 million, representing a 25% adjusted EBITDA margin at the midpoint. For full year 2025, we expect revenue growth of approximately 10%. Our guidance reflects the business transition that we are navigating in 2025 with the impact of two specific headwinds related to clients and a measured take on the impact of three large opportunities that we expect will contribute meaningfully beyond this year. On headwinds, our guidance accounts for the suspension of service for one of our largest customers, and a limited anticipated year-over-year growth from the cohort of six advertisers that waited on 2024 results. In terms of opportunities, our guidance accounts for moderate growth in new social revenue, factoring in time for clients to test and onboard newly launched social activation solutions; the one- to three-year period to upsell our premium solutions to the most clients that we onboarded in Q4 2024; and a measured multi-year revenue upside from Rockerbox as we prioritize the integration of product and operations in 2025. We expect the weighting of our full year revenue between the first half and the second half of the year to mirror 2024. We expect full year 2025 adjusted EBITDA margins of 32% to account for the acquisition of Rockerbox, which is near breakeven today and year one investments to integrate the acquisition. We expect full year revenue less cost of sales to remain above 80%. For the first quarter of 2025, we expect stock-based compensation expenses to range between $22 million and $25 million. For full year 2025, we expect stock-based compensation expenses to range between $105 million and $110 million. We expect weighted average fully diluted shares outstanding for the first quarter of 2025 to range between 168 million and 170 million. We anticipate 2025 capital expenditures, including capitalized software, of approximately $36 million to invest in new product innovation and product infrastructure growth. With zero debt and $311 million of cash on hand and short-term investments, we're well positioned to drive business expansion and long-term growth in 2025. In closing, in 2024, we maintained strong margins and grew revenue despite shifting ad spend trends and a slowdown from key customers while returning capital to shareholders through our share repurchase program. As we mentioned on our previous call, we recognize 2025 as a transition year. We're taking decisive action to navigate an evolving advertising environment and we remain committed to investing in innovation, operational efficiencies and scalable growth to drive long-term value for our shareholders. And with that, we will open the line for questions.

The first question is from Matt Swanson from RBC.

Mark, on Rockerbox, it's an intriguing acquisition, given the focus on attribution, performance measurement, obviously differing from the core verification business. And as you mentioned, this has always been part of the long-term strategic idea of expanding wallet share. I'm getting up from that 0.5% of media spend you talked about. So can you talk about or elaborate on the strategic rationale and specifically how this is going to enhance the customer value proposition and fits in with the existing solutions?

Yes. Thanks for the question, Matt. This is something we've been talking about for a while: this evolution of DV to leverage our relationships and core data sets to not only ensure that media spend is protected, but that it starts to perform as well. I think Scibids was one of the first steps we took there. Our investments in metrics like attention were other steps. This acquisition starts to round out the picture where we can verify, optimize and then measure performance in one platform. What's really compelling about Rockerbox is similar to Scibids: it fits that narrative, but also creates a real competitive differentiator for us. We won numerous deals last year based on the fact that we had a differentiated product set and attention and Scibids played a big part of that. Rockerbox does the same thing. First, it plays out our evolutionary story of being an end-to-end measurement solution that also addresses performance and outcomes. Second, it creates a differentiator for us that helps us win business and catalyze growth. As you know, none of these acquisitions have in themselves had a ton of revenue when we bought them, but as we saw with Scibids last year, it grew over 50%. Rockerbox is small, but we're going to look at leveraging it as a differentiator to grow other business and continue to invest in that property so that we can increase that value proposition. And as you noted, it's not just about wallet share for advertisers; it's about making it easier for them to understand what their spend is doing, where it's going and how it's performing. If we can do that, that's a huge win for our customers and for us. We're excited about the acquisition. As always, it will take time to integrate and scale, but we've had a really good track record and we're going to use the playbook we used with Scibids and extend that with Rockerbox as well.

I appreciate that. And then, Nicola, thank you for kind of going through all the moving parts and the 2025 guide, highlighting some of those headwinds and tailwinds. When we're thinking about some of the other things that we're excited about for this year in the story for DoubleVerify in general—between Scibids, remote displacements, CTV, new social solutions—how are you thinking about those ramping throughout the year? The things you said were headwinds feel like they might be confined to 2025 and the tailwinds seem like they're just getting started in 2025. So is it reasonable to think about the model accelerating in 2026?

Yes, Matt, I think the way you're describing it is how we're seeing it. We have headwinds that are client specific, and we have opportunities that in the long term we believe will be very large for us. We're taking a measured view for 2025 for those opportunities. But the size of them doesn't take away from how large we think they are. The three that we specifically mentioned in the guidance section are social activation—we're just a week into the product having launched and we believe it will be a large opportunity for us in the longer term. In 2025, we're going to account for time for clients to test and activate the solution. That's one. The second part is Moat clients. We were very successful in winning those clients in Q4 of 2024, but they were coming from a platform that had basic services. We won those clients on a basic service like-for-like and now we are in the process of upselling those clients to more sophisticated solutions and we just didn't have time to present those during the RFP process for the Moat clients. As we've shown many times, the opportunities for us to upsell to premium products could expand the opportunity two to three times once you have the client on the basic product. So that's the second one. The third one is Rockerbox. As Mark said, it's a very interesting acquisition. It expands what we can provide to our customers and our opportunity in SMBs and mid-market. The first year is going to be about integrating the acquisition. There is a small amount of revenue in 2025. Rockerbox has an existing business and will be for a partial year. But really, the opportunity there is in 2026.

Next question is from Eric Sheridan from Goldman Sachs.

Maybe two if I could. Mark, there's been a lot of discussion about the opportunities and the challenges that AI is going to create in the advertising ecosystem. Maybe you could refresh on your worldview and how you're aligning the company for what you expect to be the impact broadly from AI across the advertising ecosystem as we look out over the next 12 to 18 months. And then maybe following up on that question with respect to 2025: is there a way to go a little deeper in how the margin trajectory of the business builds beyond Q1? Were there specific headwinds to margin in Q1 that might abate or scale toward a better outcome as you get deeper into 2025 on the margin side for Nicola?

Thanks for the question, Eric. On the AI front, we obviously are leaning heavily into AI as part of our core value proposition and what we do for our customers. Our Universal Content Intelligence tool, in which we analyze video and images on social, is powered by AI. It's helped us scale very rapidly on the measurement side across social networks, moving to new languages and new markets. So it's a core part of our investment in growing our social business. Also Scibids, which is basically an AI-first business that looks at how we use algorithms to bid more efficiently to find more efficient media based on certain KPIs, is leveraging AI to drive value for customers. So our product set continues to grow based on that. It's important to note we're also leveraging AI internally: our engineers use it to write code, our teams use it to engage with customers and find solutions for them. Across the board, AI is part of what we do. In the ecosystem itself, you can't deny the fact that it's changing some aspects of advertising from dynamic creative to bidding and even how it's impacted search and publisher page views. I think you'll see a greater impact on the sell side than on the buy side with regard to what AI is doing to site traffic and web traffic. It is having a significant impact. The key for us as a company is to harness it, leverage it to our benefit and to ensure we're creating opportunities and not being disadvantaged where AI shifts the market.

On the margin side, Eric, a few points. The historical patterns of the business are that margins grow as the year progresses, and part of that is because the latter quarters are larger in terms of revenue. We're guiding to 32% margin for the year. That accounts for the fact that we are acquiring Rockerbox and will have one-time investments. It's a little lower than where we ended the year at 33% in 2024, but we did end at 39% in the fourth quarter of 2024, so we have capacity to expand margins. We're planning for the investments for the year one acquisition and the trajectory over the course of the year will follow the historical pattern with higher margins in the second half of the year.

Next question is from Youssef Squali from Truist Securities.

I have two as well. Mark, if I look at performance of the business over the last several quarters, it seems like growth has been clouded by a number of one-time items like the six customers you mentioned earlier last year, then lower pricing from some customer wins, particularly on the measurement side, and then this new customer that popped up this quarter causing you to lower growth versus what you might have expected for 2025. As you step back and look at the health of the ecosystem, could you opine on that? Does any of this give you pause in terms of either the TAM or the sustainability of this segment of the market continuing to grow in excess of digital advertising, which I guess is somewhere in the low teens? And then Nicola, could you parse out the puts and takes in your NCF comment about that being down this year? How much of that is pure product mix versus other things we need to be aware of as we model beyond 2025?

Thanks. You kind of nailed it: right when we think we got our arms around the isolated challenges, another one pops up. We've done a good job trying to manage a lot of that variability during the period and I think we've addressed them both in our guidance and our confidence in the year going forward. Questions around the health of the ecosystem are really about not whether digital advertising is healthy, but where those dollars are going and who can take advantage of that shift. We've noted over the last few calls that dollars continue moving into proprietary platforms, and our solutions have been playing a bit of catch up there to have the same kind of efficacy and scale as we had in the open web. I think we're in a good position now with the launch of our Meta tools on pre-bid and the alpha release of our TikTok tools. Ultimately, we can start taking advantage of where those dollars are shifting. Some of the variability we saw in Q4 around political spend has been cleaned up a bit. We are confident our long-term growth prospects remain strong due to the investments we've made over the last several quarters and because we're following where dollars are going. The new customer wins from Moat and the initial pipeline and scaling we've seen give us optimism that we've done the right things and are well positioned to take advantage of the shifts in spend.

On MTF, we've been consistent on the drivers that impact MTF: a continued mix shift towards international and social, which is at a lower price point at this point. We've also been consistent that as we launch new premium priced products, we're able to offset what would otherwise be a decline in MTF. What's new in the story since the middle of last year are most deals we won at competitive rates. These were very large clients and we won them for a basic solution that mirrors what they had with Moat, and we'll be able to upsell them to our products. That's a new factor in MTM and MTF. The overall story for 2025 is that we do expect MTF to go down because of these large deals as we onboard them and as we start to upsell to premium priced products. We are launching new products like social activation which will be important for upsell. 2025 will be a year of decline in MTF, but it's on us to launch premium products that will allow us to upsell to better solutions.

If I can add one thing, even though we've seen declining MTF based on the factors Nicola noted, we're able to maintain a really strong gross margin—still above 80%. It shows the leverage we have in the model, the resiliency in our cost structure and still delivering strong EBITDA numbers. Even in Q4, we delivered a 39% EBITDA margin. So we're still running a very profitable business even if our revenue per impression is impacted.

Next question is from Maria Ripps from Canaccord Genuity.

First, can you share a little bit more color on the advertiser that impacted your Q4 results and outlook? Did that advertiser scale back broadly or was it more for adjacent services? Anything you can share in terms of vertical exposure for this advertiser given it sounds like it's macro-related or commodity prices related—could we see other advertisers in that vertical pulling back as well?

Just to repeat what we said: we experienced a sharp reduction in spend from this advertiser driven by rising commodity costs. This reduction is not just for our services; it's part of a broad cost-cutting initiative across multiple advertising and marketing partners, and as a result the customer has suspended business with us. This is a CPG customer. It is very much specific to commodity pricing variability that we haven't seen impact our other CPG customers. In fact, our CPG vertical is growing and we signed several deals that we mentioned. We don't see this as contagion across other CPG clients; it's very specific to this one client.

That's helpful. On new social activation, you said growth there will likely be moderate in the guide. Broadly, can you talk about expectations for the cadence of ramp in activation relative to what you saw with measurement on Meta? Are you factoring any expectation that launching activation should accelerate measurement adoption?

We've been tempered in how we're looking at social activation's impact in the guide. It takes time for advertisers to scale and implement a launch. The good news is we had a nice test bed of customers and a strong pipeline. Several customers have launched and are scaling well. We expect greater impact next year than this year, but we will see some dollars in 2025. For Meta, specifically, for one activation solution you need to be a measurement customer for activation to be employed, so we do think there's a flywheel effect: if advertisers want to use activation, they're likely to adopt measurement. We did some promotions at the end of Q4 to get new customers to try measurement to build a test bed for potential activation in the future and it was successful. Net-net, the two solutions go together. We're optimistic about the impact on the business as the pipeline converts and customers scale.

Next question is from Andrew Boone from Citizens.

I wanted to start on Rockerbox and moving into smaller advertisers. As you go into mid-tier advertisers, how do their needs change in terms of the solutions DV provides, and how do you think about solving those problems? And Mark, philosophically, if growth slows and EBITDA margins come down in 2025, can you talk about the cost structure and how top line and EBITDA margins connect—do you have the ability to invest or is there a threshold you want to hold in terms of margin profile?

On the first question, look at Rockerbox as a mid-market and performance advertiser opportunity. It's an area that's relatively untapped for our solutions because we work with large brands. There's crossover—some large brands have DTC businesses that are performance-driven, which creates the opportunity to address both branding and performance needs. Mid-market advertisers want clear, granular data and the ability to apply it. The combination of our verification and measurement with outcomes data from Rockerbox and activation via Scibids brings those needs together. On the philosophical growth and margin question: Nicola mentioned that our adjusted EBITDA margin, excluding the Rockerbox acquisition, would have held at last year's level. For 2025, we're treating it as a transition year where we're investing and evolving our solution set, while still maintaining strong profitability. Our philosophy is you must invest in innovation to remain competitive. We're balancing investments in social, sell-side solutions and outcomes and attribution products with strong margin management so we continue to deliver cash and position us for future growth.

Next question is from Brian Pitz from BMO Capital Markets.

Last quarter you mentioned Oracle clients are mostly using the basic product. Any comments on the onboarding—are you seeing Oracle clients start to incorporate new products and transition to more sophisticated offerings? And secondly, any updates on the CPG category, which was problematic last quarter—has it gotten better or is it about the same?

On Oracle clients, it's still relatively early for some of those acquisitions we made late last year. We are seeing uptake: a handful of those customers are starting to look at curated solutions they hadn't used previously and we've launched Scibids with some of them. It's slow, but we're making progress and our teams have done a great job upselling and growing those customers since the beginning of the year.

On CPG: CPG is about 27% of our revenue, largely because large brands in that category want our services. We believe the impact from the one specific customer is specific to that customer. The overall category is healthy: it grew last year and we signed large customers in CPG that are growing and adopting more of our services. If your concern is around tariffs that could hurt multiple customers, that is a separate risk, but overall CPG is growing. Moving to performance advertisers and SMBs with Rockerbox is part of our strategy to broaden our client base and diversify so we can offset surprises from any specific client. The CPG category is healthy and growing.

Next question is from Laura Martin from Needham & Company.

Philosophically, we're hearing from ad agencies they want to work with fewer providers. Given you've added Scibids and Rockerbox, is your product set still too narrow or do you need to keep extending to become more of a one-stop shop for clients?

It's a fair point. When you look at measurement and attribution, I think we're starting to cover many of the bases agencies and advertisers care about: they want to measure outcomes, optimize performance and ensure spend is safe. Bringing all of those together checks a lot of boxes. We aim to be agnostic to media and channel—we don't want to be part of the media transaction itself. Our customers are increasingly using more of our solutions, and consolidating onto fewer vendors is a trend that benefits us if we can deliver independent, cross-platform, granular and actionable data. We believe DV is well positioned to be that consolidated solution.

One last question on pricing: you've talked about increasing prices for CTV measurement due to the higher value there. CTV impressions doubled from 5% to 11% of your measurement impressions. In this transition year, isn't this the right time to increase the fixed cost of measuring fraud in the CTV ecosystem where CPMs are much higher than social CPMs?

You have the numbers right. CTV is becoming more important for us. There is a growing demand for greater transparency in CTV, and that trend, combined with more granular program-level data, creates an opportunity for us to provide more transparency and potentially increase pricing over time. We're not committing to a specific timeline this year, but the opportunity to capture more value in CTV is getting closer.

Next question is from Arjun Bhatia from William Blair & Company.

Mark, in prepared remarks you mentioned PMP and programmatic direct deals. Can you clarify how that's impacting DV? Is it just related to increased spend going into social or are there other areas? And what are you doing to pursue the growing market there?

We've been discussing PMPs and PGs in the context of connected TV and display where increasingly impressions are bought through curated inventory and private marketplaces. That has had an impact on our ability to attach DV solutions at the same rate as open exchange transactions. What we're doing is integrating more on the sell side—working with curation platforms like Google Curate and partners like Index Exchange and Criteo to package DV data into PMPs. That creates an opportunity for us to ensure our data is employed in those curated deals. What may be a short-term drag becomes a long-term opportunity as we integrate with sell-side partners and curate inventory with DV data baked in.

Great. And a follow-up on Meta: with pre-bid activation capabilities live, how do you view Meta's own verification and third-party back-checking? Is there any read-through for their focus on brand safety and what it means for DV, or are they separate issues?

They seem related but are somewhat disparate. Back-checking relates to content and what content is surfaced. Advertisers always want the ability to avoid content they're not comfortable with. Our independent tools complement Meta's tools: we provide an independent perspective on content and context that advertisers can use. Increased noise and uncertainty in the market usually drives advertisers toward safety and suitability, which is positive for our business. Ultimately, advertisers have choice and our role is to be the independent complement to platform tools.

Next question is from Andrew Marok from Raymond James.

On the announcement of expanded URL-level reporting earlier this week, how should we think about its potential lift to metrics like retention, spend per customer, outcome lifts and things like that?

We announced the extension of log-level or URL-level transparency. We've provided this on demand previously, and now we're making it broadly available in our UI and more easily accessible in third-party systems. It's primarily a transparency initiative that shows our commitment to driving greater transparency in the ecosystem and giving advertisers comfort and confidence in where and how they're buying. We don't view it as a direct business accelerator; it's part of our responsibility to drive trust in the ecosystem and reinforce why advertisers trust DV with their spend.

Next question is from Frank Joseph Surace on behalf of Raimo Lenschow with Barclays.

I want to check in and ask what trends you saw out of the existing cohort of six in Q4 and what specifically are you assuming from those customers in the 2025 guide relative to their performance in 2024?

We exited 2024 with a fairly stable performance from the cohort of six. At the beginning of the year their spending was very uneven month-to-month driven by specific issues each advertiser faced; in Q4, the cohort was more predictable. For 2025 we're assuming muted growth from this cohort. This is weighing on overall growth of the company, but it's become more predictable. We do not anticipate it will materially move the way it did in 2024 month-on-month.

Next question is from Arti Vula on behalf of Mark Murphy with JPMorgan.

You noted challenges from a lack of rebound in ad spend post-election. Beyond that, can you call out any other macro demand factors that changed over the last few months? I assume some of that impact from the post-election focused in the U.S. Also, you noted notable wins with Home Depot and Dollar General—can you talk about what you led with in those deals and whether social solutions are part of those conversations?

The post-election impact was specific to November and December and trends worsened based on October activity. Q4 '24 was unpredictable but we're entering 2025 with a more stable outlook. Regarding Home Depot and Dollar General, those are examples of our land-and-expand approach: we win measurement or basic solutions and then expand into activation and optimization. Increasingly the hook is optimization and differentiation—when customers see lower costs and better ROI, they expand usage. Those wins reflect that pattern and the move toward solutions that drive outcomes keeps customers sticky.

Next question is from Alec Brondolo with Wells Fargo.

On Rockerbox: there are a number of nascent measurement platforms out there like Northbeam and Triple Whale. What specific capabilities or product synergies led you to pursue Rockerbox specifically?

A key part of our diligence was actual collaboration. We did projects with Rockerbox and worked together with customers before deciding to acquire them. Their feature set, breadth of integrations across social, CTV, mobile web and app platforms and their granular data capabilities were highly complementary to DV. They had strong integrations and an approach that aligned well with our team. They had underinvested in sales and business development and we believe we can scale that. The short answer is their product breadth and the ability to drive results for customers made them stand out.

Next question is from Omar Dessouky with Bank of America.

Your supply side business has been strong the last three quarters and you printed 34% growth this quarter. What do you think the normalized longer-term growth rate for supply side should be—should we expect these kinds of growth rates beyond 2025 into 2026 and onwards?

We've had success on the supply side largely from signing a lot of new platform deals. Many of these are platform agreements with minimums and upside as volume grows. The step-up process means once you win a customer, you benefit as their volume grows. In the last three quarters, success was tied to signing a lot of new deals and absorbing Moat platform clients. Part of it is retail media network expansion. Supply side is about 9% to 10% of our revenue and is highly profitable and growing well. We don't anticipate it becoming much larger than that as a percentage of revenue, but it will continue to contribute to both top line and bottom line and we will continue to pursue new platforms, especially around retail media networks.

There are no further questions at this time. I'd like to turn the floor back over to Mr. Zagorski for closing comments.

All right. Thank you all for joining us this evening. We're excited about the future and the investments we have made to take advantage of the opportunities that lie ahead. We look forward to seeing many of you at our upcoming investor conferences and encourage all of you to join us at our Innovation Day on June 11 at the New York Stock Exchange in New York City, where we'll dig into our ongoing evolution. Have a great evening.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.