DoubleVerify Holdings, Inc. Q3 FY2025 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the DoubleVerify Third Quarter 2025 Earnings Conference Call. I would now like to turn the conference over to Tejal Engman, Senior Vice President of Investor Relations. You may begin.

Good afternoon, and welcome to DoubleVerify's Third Quarter 2025 Earnings Conference Call. With us today are Mark Zagorski, CEO, and Nicola Allais, CFO. Today's press release and this call may contain forward-looking statements that are subject to inherent risks, uncertainties and changes and reflect our current expectations and the information currently available to us, and our actual results could differ materially. For more information, please refer to the Risk Factors in our recent SEC filings, including our Form 10-Q and our annual report on Form 10-K. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release, which is available on our Investor Relations website at ir.doubleverify.com. Also, during the call today, we will be referring to the slide deck posted on our website. With that, I'll turn it over to Mark.

Thanks, Tejal. And thank you all for joining us today. Q3 reflected disciplined execution and resilient performance across the business. Revenue grew 11% to $189 million within our guidance range and adjusted EBITDA margin reached 35%, once again above expectations, demonstrating the scalability of our model. We're leveraging automation and AI to drive structural efficiency and profitability, proving DV's ability to deliver strong margins even in a dynamic ad market. During the quarter, market dynamics led to some retail budgets being softer, while growth in our other core verticals, including CPG, remained in line with expectations. Upsell momentum stayed strong, led by early demand for our AI-powered DV Authentic AdVantage solution, which closed roughly $8 million in annual contract value after only its first few weeks in the market, fueled by early adoption from global CPG leaders. We also maintained strong customer retention with zero churn among our top 100 customers in Q3, underscoring the stability of our largest relationships. Core customer engagement and adoption rates remain healthy, and we continue to execute with discipline. At the same time, social and CTV are adding new growth and diversifying our revenue, strengthening the foundation for 2026. To frame the quarter simply, DV's growth drivers, AI-driven product innovation, margin expansion, and customer success remain firmly in our control and on those levers we continue to deliver. Today, I'll focus on three themes shaping our progress this quarter and beyond. First, innovation, how we're harnessing AI and automation to launch new products for the AI era, advanced content classification and drive greater efficiency at scale. Second, diversification, how growth across social, streaming TV, and programmatic is strengthening the durability of our model. And third, monetization, how we're translating that innovation and diversification into sustained revenue growth, operating leverage, and cash flow. Each of these themes builds on the next, starting with innovation. At the center of innovation is AI, the engine behind our product development, precision, and scale. AI is driving the next major transformation in digital media, fundamentally changing how content is created, distributed, and consumed. Marketers, publishers, and AI agents themselves are beginning to design advertising strategies around this new layer of engagement, and DV is already embedded within it, capturing proprietary data that reveals how this ecosystem is taking shape. Each month, we analyze nearly 2 billion automated agents, crawlers, and bots, giving us unmatched visibility into how declared assistants like ChatGPT, Claude, and Perplexity as well as undeclared or evasive bots and personal stopping agents shape media performance. These interactions represent an untapped opportunity for a marketer to engage with LLM engagement that DV is driving to enhance and monetize. To meet this moment, this week, we launched the DV AI Verification offering. A group of tools built to empower advertisers in an AI-driven world. The suite includes DV's Agent ID Measurement, which in its first generation identifies, measures, and classifies declared and evasive AI activity. It also features DV's AI SlopStopper, which detects and blocks synthetic or manipulated media across the programmatic open web with expansion to social underway. Within Pinnacle, advertisers were able to view and act on this data in real-time, quantifying AI impact and eliminating waste prebid, powering the AI SlopStopper, and our broader contextual classification capabilities is our agentic classification system, which uses generative AI to automatically build and retrain thousands of models using DV's proprietary data across programmatic and walled gardens. Rolling out this technology will enable us to double our classification volume with fewer people and should achieve a fourfold gain in productivity per classification specialist by the end of 2026. It also lets us scale labeling volume by 260% and generate results 2,300 times faster than human labeling, all while maintaining human-level accuracy at lower cost. Bottom line, we're leveraging AI to not only innovate but also to expand margins, doing more, faster with fewer resources while simultaneously creating new monetization opportunities as AI agents play a larger role in digital advertising. Just as DV helped define transparency during the rise of programmatic as well as the emergence of ad-supported CTV, we're now beginning to set the standard for trust and accountability in AI-powered media, positioning DV as the independent benchmark for verifying both human and AI-mediated engagement and content. Moving to our next growth engine diversification. Our progress in AI-powered innovation is driving customer adoption in social and CTV. Beginning with social activation, both DV Authentic AdVantage and our Meta pre-screen solutions are off to solid starts, underscoring the demand for transparent performance-driven solutions in walled gardens. Social within activation is growing at 20% and remains one of our fastest-growing sectors. DV Authentic AdVantage, which launched on YouTube towards the end of September is a DV-exclusive solution that unifies prebid brand suitability, Scibids AI optimization, and postbid measurement into one seamless automated workflow. Early adoption has been strong, led by major CPG brands, including Kraft Heinz and Haleon. Much like our flagship authentic brand suitability product, which was one of the most successful launches in DV's history, Authentic AdVantage delivers measurable ROI right out of the gate. In early CPG tests, this solution delivered 24% to 34% lower CPMs and 26% to 50% higher impression volumes while maintaining or improving brand suitability. Continuing on social activation and turning to Meta, we significantly expanded content-level avoidance on Facebook and Instagram feeds and Reels, nearly doubling our ability to filter content based on an advertiser's suitability preferences across categories and markets. Revenue from Meta activation solutions continues to outpace expectations with 56 advertisers now live and in the early stages of scaling up from 26 last quarter. 20 of our top 100 customers now leverage our Meta activation solution, up from 13 in Q2, and usage is beginning to ramp. Today, our prebid solution is attached to roughly 6% of our brand suitable measurement impressions on Meta, representing an upsell opportunity we expect to rise meaningfully as adoption deepens. On TikTok, we expanded our video exclusion list by 100 times, significantly enhancing advertisers' ability to proactively avoid unsuitable content and reducing their rate of unsuitable content by one-third. Together, these advancements strengthen prescreen protection on the world's largest social and video platforms and demonstrate our partners' commitment to giving advertisers the tools they need to safeguard brand equity and improve contextual relevance at scale while still driving performance. There's been some debate about whether platform-native AI optimization tools, those black box tools that automate targeting, creative, and attribution could reduce the need for independent verification. The reality is while those systems optimize delivery, they don't disclose where ads run or how suitability is maintained. In a sample of AI-run social campaigns, we found brand suitability rates to be roughly 2 points lower than in non-AI campaigns. As these closed algorithms scale, advertisers are relying even more on DV for the transparency and control that platforms don't provide. In our sample, our prebid protection was applied more than three times as often on AI campaigns than on standard campaigns, evidence that advertisers see higher risk in these black box solutions and a greater need for safeguards. The takeaway is clear: as platform AI engines become more sophisticated, the need for independent trusted verification becomes even more essential to ensure performance, suitability, and accountability work together. Turning to social measurement. We continue to expand postbid coverage across the world's largest social media environments, expanding our AI-powered brand suitability measurement to Meta Threads, giving advertisers independent transparency on yet another fast-growing social media platform. We also extended our brand suitability measurement on Snapchat to shows and publisher stories adding to our existing coverage of creator stories and spotlight and giving advertisers greater clarity across more premium inventory. Shifting to diversifying revenue through CTV growth, advertisers continue to describe the streaming landscape as fragmented and opaque. They often don't know where their ads run, the quality of the content they appear in or even if those ads are viewable and paid attention to by a real human. In some cases, ads intended for premium full episode TV experiences end up in mobile gaming apps like Solitaire or other non-TV environments. This is a problem we estimate impacts roughly 15% of CTV impressions and wastes over $1 billion of media spend each quarter, eroding trust as well as ROI. At the same time, advertisers still rely on manual, time-consuming, and error-prone workflows to manage Do Not Air brand suitability lists, leading to misplaced ads and misoptimizations at scale. We've said before that DV has not fully monetized its CTV exposure, and we're now addressing that opportunity head-on with three streaming TV-specific product launches this quarter and with more to come in 2026. On the measurement side, this week, we announced the launch of DV Verified Streaming TV measurement, a market-first capability that provides impression-level transparency across digital video campaigns helping advertisers ensure that ads are delivered in high-quality, TV-like environments, not in outstream players on blog pages or in gaming apps, which too often pass as TV inventory in reseller channels in the open market and private marketplaces. We're also extending our Verified Streaming TV capabilities into activation, launching prebid Verified Streaming TV segments across leading programmatic platforms such as The Trade Desk, Teads, StackAdapt, Microsoft Curate, and Index Exchange, allowing advertisers to target authentic streaming inventory in open market and PMP buys and avoid wasted delivery to rogue environments. Additionally, in activation, we've launched a prebid Do Not Air list for streaming TV with an ABS, modernizing what was once a manual spreadsheet-based process into one that automatically enforces brand compliance policies across streaming platforms at scale. Finally, we announced a new deal with the entertainment database IMDb, leveraging authoritative metadata and popularity insights licensed from IMDb to enhance show-level transparency and classification for streaming TV. This partnership will help fuel agentic streaming TV contextual solutions that we'll be launching in early 2026. Together, these innovations strengthen both sides of our CTV business, measurement and activation, giving advertisers the visibility, precision, and performance they need as streaming becomes the centerpiece of digital media. On measurement, our adoption continues to accelerate. In Q3, our CTV measurement volumes grew 30% year-over-year, reflecting the growing scale of our streaming verification footprint and growing advertiser demand for transparency in CTV. Turning to programmatic, we continue to see healthy volume growth across open web environments on mobile and desktop. Approximately 65% of the open web media transactions we measure today occur on mobile devices, underscoring the increasingly app-centric nature of digital advertising. Excluding CTV, programmatically purchased video display impressions grew at double-digit rates in the third quarter and year-to-date in 2025, reflecting sustained advertiser demand for transparent, measurable, and brand-suitable media. Programmatic display and video impression volumes continue to rise across high-quality, content-rich publishers in categories like news, lifestyle, food, and hobbies, where advertisers continue to find engaged brand-suitable audiences. On the supply side, growth was also a standout again this quarter, up 27% year-over-year, driven by continued momentum in retail media, which grew 30% year-over-year. DV's tags are now accepted across 149 of the key global retail media networks and sites, including 18 of the top retail media platforms. We also added new platforms and publishers, including AMC, Univision, Comcast, Versant, Rumble, Wiley, Rakuten Viber. As we look ahead, all of these innovations are creating clear catalysts for our largest monetization streams, activation and measurement. Our medium-term North Star is to grow social, streaming TV, and AI Verification solutions from under 30% of total revenue today to roughly 50% while continuing to efficiently grow our other key sectors. Achieving this revenue mix will provide a more defensible and scalable platform for growth that more closely mirrors global digital ad spend allocation. In activation, our social products are already turning adoption into revenue. DV Authentic AdVantage and Meta prebid are scaling quickly, driven by advertiser demand for transparent, performance-driven tools inside closed platforms. Within just a few weeks since the launch, DV Authentic AdVantage has closed nearly $8 million in expected annual contract value, while we expect Meta prebid to generate an annualized run rate of at least $7 million by this year's end. Together, we believe these social activation solutions could represent a $120 million to $160 million annual revenue opportunity over the long term. In streaming TV, we expect our prebid Verified Streaming TV segments and Do Not Air list within ABS to add roughly $10 million in incremental annual activation revenue once fully ramped. Across measurement, we see upside from our AI Verification suite, Verified Streaming TV measurement, and content-level transparency from partnerships like IMDb. Together, these products are expected to deliver meaningful incremental revenue as adoption scales. While the digital ad ecosystem continues to evolve, our strategy and product innovations are positioning DV for durable long-term growth. We're deepening relationships with global leaders, including Vodafone, Paramount Pictures, Haleon, Papa John's, and Sonos, expanding partnerships across new solutions, markets, and media types. We've recently also added new enterprise customers like Tesco, Citigroup U.K., Henkel, Red Bull, Under Armour, Burger King, Subway, Popeyes, Premier Inn, and Domino's that continue to strengthen our foundation for growth. Our large customer base is also becoming more diversified. The number of advertisers generating over $200,000 in annual revenue grew by 11% year-over-year to 347, reflecting broader adoption, higher product penetration, and increasing long-term value per client. Fueled by our industry-leading scale and innovation, DV continues to differentiate itself from its competitors as the only public independent scaled verification platform emerging as the benchmark for transparency and trust in the AI era. We've built this position through investing $210 million more in GAAP R&D than our closest competitor from 2023 through 2025 to date, creating product differentiation across social and streaming TV, empowering the launch of unique proprietary offerings such as DV Authentic AdVantage, DV Verified Streaming TV, DV Agent ID, DV AI SlopStopper, and more. Additionally, through acquisitions like Scibids AI and Rockerbox, we've expanded our value proposition beyond verification into AI-powered optimization and outcomes measurements, core pillars of our Media AdVantage Platform strategy, which brings the full power of our data and technology to advertisers. Together, these form a broad-based scaled solution, unlike any in the market that will further distance us from the competition and provide future avenues of growth. TV is innovating and evolving with AI, enabling us to do so at increasing speed and efficiency, helping to expand margins in parallel. We are developing unique solutions that differentiate and diversify our revenue into the fast-growing sectors of social and CTV and with new AI verification tools we are positioning ourselves for expansive growth as the inevitability of LLM-centric advertising becomes a source of new monetization opportunities. When we kicked off 2025, we shared with you all that this will be a year of transition and evolution. We've leaned into both weathering variable market conditions while introducing more TAM expanding solutions than at any time in our history, catalyzing future growth opportunities and delivering full year growth ahead of our initial plans. As we move into 2026, our priorities remain clear: execution, innovation, and sustained value creation for our customers and shareholders. We appreciate your continued support as we drive towards an exciting future for DV. With that, let me turn the call over to Nicola.

Thank you, Mark, and good morning, everyone. Our third quarter results reflect continued double-digit year-over-year revenue growth, solid profitability, and strong cash generation. We delivered approximately $189 million in total revenue in the third quarter, up 11% year-over-year and within our guidance range. Adjusted EBITDA was $66 million, representing a 35% margin and above the high end of our guidance range, driven by cost discipline, operating leverage, and AI-driven efficiency gains across the organization. As we outlined last quarter, Q3 revenue was essentially flat on a sequential basis, driven primarily by tougher year-over-year comps as we lapped our strongest quarter of 2024 and further driven by softer retail spend. We expected second-half revenue growth to moderate, consistent with our full-year outlook for double-digit revenue growth, strong profitability, and the scaling of new activation and measurement products focused on social, CTV, and AI heading into 2026. Last quarter, we noted that approximately one-third of our first half 19% year-over-year revenue growth came from new advertisers with Moat win from last year contributing approximately one percentage point. Through the first 9 months of 2025, revenue increased 16% year-over-year with a similar contribution pattern to the first half. Approximately one-third of revenue growth came from new advertisers with Moat win from last year contributing approximately one percentage point. The majority of our growth continues to come from existing customers expanding their use of DV solutions. In the third quarter, total advertiser revenue grew 10%, driven by increased volumes. Media transactions measured or MTMs increased 12% year-over-year, while measured transaction fees or MTFs decreased 4% year-over-year, reflecting product and geographic mix and excluding the impact of one introductory fixed fee deal. Activation revenue grew 10% year-over-year in the third quarter. ABS, which accounted for 54% of activation revenue, grew 12% year-over-year, driven by new logo activations, upsell to existing customers, and expanded usage among current users. 73% of our top 500 customers have now activated ABS, up from 68% in Q3 last year, demonstrating the continued adoption of this premium product. Non-ABS activation revenue grew 8%, reflecting solid demand for our social activation solutions, partially offset by softer spend from retail advertisers. Measurement revenue grew 9% year-over-year with momentum in social, partly offset by weaker retail spend. Social measurement grew 9% and accounted for 48% of total measurement revenue, while international revenue grew 2% and accounted for 27% of total measurement revenue. Excluding the suspension of the one CPG customer at the start of the year, social measurement revenue would have grown 22% in Q3 and 21% year-to-date. Revenue from Rockerbox was in line with expectations and is on track to achieve our expected 2025 revenue contribution of approximately $8 million. Finally, supply-side revenue grew 27% in the third quarter, driven by growth on existing platforms and new platform and publisher partnerships. Moving to expenses. Cost of revenue increased 14%, primarily due to growth in activation revenue, which carries increased partner costs tied to revenue-sharing arrangements as well as higher data and hosting costs driven by increased usage. In Q3, we delivered an 82% margin on revenue less cost of sales, and we expect to maintain margins between 80% and 82% in Q4. R&D expenses increased as we continue to invest in AI capabilities, engineering talent, and product development, including the integration of Rockerbox and continued improvement of DV Authentic AdVantage. Sales and marketing expenses and G&A included costs related to the Rockerbox acquisition and other strategic initiatives. As noted last quarter, hiring remains disciplined as we realign resources towards growth priorities and continue to optimize for efficiencies. Adjusted EBITDA of approximately $66 million in the third quarter represented a 35% margin, exceeding expectations, driven by cost discipline, operating leverage, and AI-driven efficiency gains across the organization. GAAP net income reflected the impact of higher tax expenses, which is largely driven by the tax impact of our lower share price and by higher stock-based compensation costs. Looking ahead to 2026, we're implementing an updated equity incentive plan that is projected to reduce annual stock-based compensation cost by 20%. This quarter, we also introduced an adjusted EPS calculation to provide an additional metric to evaluate the business. We delivered net cash from operations of approximately $51 million in the quarter. Capital expenditures were approximately $12 million in the quarter as compared to approximately $6 million in the same quarter last year as we accelerated investments in new solutions across social, streaming TV, and AI. In terms of capital allocation, in the third quarter, we repurchased 3.3 million shares of DV common stock for $50 million. As of November 7, $90 million remain available and authorized for additional repurchases. Through September 30, we deployed $132 million to repurchase 8.4 million shares more than offsetting the anticipated full-year 2025 stock-based compensation costs. We also deployed $82 million net of cash to acquire Rockerbox as part of our M&A strategy to diversify our product offerings from protection to performance. In addition to investing into the business, we will continue to evaluate M&A opportunities and buybacks, including beyond the current authorization as part of our capital allocation strategy to maximize shareholder value. In the first 9 months of 2025, we delivered net cash from operations of approximately $138 million compared to approximately $122 million in the same period last year. Capital expenditures in the first 9 months of 2025 were approximately $28 million compared to approximately $20 million in the same period last year. In the first 9 months of 2025, cash generated from operations after funding capital expenditures totaled approximately $110 million as compared to adjusted EBITDA of $168 million. We ended the third quarter with approximately $201 million in cash and cash equivalents. Our strong cash generation combined with disciplined capital allocation and share repurchases continues to enhance long-term per-share value. Turning to guidance. We're updating our fourth quarter outlook to reflect ongoing retail softness in a key seasonal period. We expect revenue to range between $207 million and $211 million, representing 10% growth at the midpoint. We expect adjusted EBITDA to range between $77 million and $81 million, representing a 38% margin at the midpoint and continued strong operating leverage. While Q4 is our easiest comparison for existing customer growth, it is also our toughest for new customer growth as we lap a period of outsized advertiser, publisher, and platform additions. For full year 2025, we expect to deliver approximately 14% year-over-year growth at the midpoint and are raising our adjusted EBITDA margin guidance from approximately 32% to approximately 33%, reflecting margin expansion even as revenue growth normalizes to approximately 10% in the back half of the year. We also expect full year 2025 margins of approximately 33% to be a base case for full year 2026, supported by continued cost discipline, AI-driven efficiency gains, and the inherent operating leverage in our model. For the fourth quarter, we expect stock-based compensation to range between $25 million and $28 million and weighted average diluted shares outstanding to range between 163 million and 165 million shares. Looking beyond 2025, upside from the 10% base case revenue growth we're expecting for the second half of 2025 will be driven by the pace of adoption and scaling of our social activation products, our CTV solutions alongside the ramp of our new AI offerings. As Mark mentioned, our medium-term goal is to grow social, streaming CTV, and AI verification solutions from less than 30% of total revenue today to approximately 50% while continuing to expand our other key sectors. This evolution will create a more diversified and resilient growth profile and position DV to capture a larger share of the fast-growing digital advertising ecosystem. In closing, our results show consistent double-digit growth, disciplined operational execution, and strong profitability. Our balance sheet remains robust with over $200 million in cash and no long-term debt, supporting innovation, strategic partnerships, and share repurchases. DV's business model continues to demonstrate resilience and scalability, and we remain confident in our ability to create long-term value for our shareholders. And with that, we will open the line for questions. Operator, please go ahead.

And our first question comes from the line of Maria Ripps with Canaccord Genuity.

First, can you maybe help us sort of think through some of the growth drivers for next year? And I know you sort of touched on this a little bit in your prepared remarks, but it would be great to get a little bit more detail around some of the drivers there. And then if the business performed similarly to this year, let's say mid-tens growth hypothetically, how should we think about sort of incremental profitability and the cash flow through next year? And then I have a quick follow-up.

Yes, Maria, I'll take that question. So as we said in the remarks, we're looking at a base case scenario of a 10% growth, which is basically where the second half of '25 is coming out. We're not providing guidance, but that's a base case based on what we see today, and that's based on the recurring business that we have. As we said at the beginning of this year, entering this year, which we've always noted as a transition year, the upside will come from all the new solutions that we're putting in the market for social, for CTV, which we've been discussing and now for AI solutions. And the upside to the base case will depend on the ramp for the adoption of those new products. And we've been very consistent with that story, and we see that flowing into 2026 as well. In terms of margins, we are raising the overall margin for 2025 to 33%. And we're considering that a base case for '26 as well. The upside on that margin number will come from the adoption of AI tools and solutions that allow us to be more efficient in the business. I would say our strategy remains to reinvest in the business for new solutions, but AI tools will allow us to be more efficient in how we go after those opportunities.

That's very helpful. And then you mentioned several streaming TV sort of product launches later this quarter. Could you maybe share a little bit more color around that sort of the expected adoption rate? And any thoughts on that monetization?

Sure. So as Nicola noted, we look at our growth drivers going into next year as being focused really on social, CTV and AI-specific tools. On the social stuff, obviously, we talked a lot about Authentic AdVantage and Meta prebid, and we see triple-digit millions coming out of that over the lifetime of those products. But CTV is something where we've arguably been hammered on for years, which is, hey, this is a fast-growing segment, why aren't you guys driving more revenue from it? We're seeing great volume growth. So this quarter, CTV grew at over 30%, 30% on a volume perspective. But where we haven't been able to really extract the value is kind of on the commensurate CPM or percentage of media. I think we're finally getting to the point with the new products that we've launched that we're going to start to be able to do that. So this V1 of CTV measurement includes what we call Verified Streaming TV. And as we noted in the call, we estimate around 15% of CTV impressions don't end up anyplace near a real CTV type or streaming quality, high-quality experience. That could be as much of $1 billion a quarter in spend. What we're able to do now is very clearly identify the fact that an impression ends up in a high-quality CTV environment or streaming player environment, not in an app or a blog post or an outstream player someplace and do that both on a prebid and a postbid fashion. So I think, a, we're starting to lean into this quality initiative around CTV. And I think Jeff Green said something really interesting on The Trade Desk call last night. He said there will always be more supply than demand when it comes to kind of open markets. And I think that that is starting to take place in CTV, where with the emergence of Amazon and Netflix, there is lots and lots of CTV supply. So the ability to make sure that you're getting the cleanest, highest quality supply is something that's becoming more and more important to advertisers. And we're providing tools that allow them to do that. The other tool we've launched is an automated Do Not Air list, which I think is the first step towards a much finer targeting capability for advertisers to block certain types of content as well as on a program level to exclude those programs from any type of open market or PMP buy. So this is the first step in a much broader suite of CTV products that are going to enable us to actually extract the kind of value out of that segment that we should have and that we can.

Next question comes from the line of Mark Murphy with JPMorgan.

Could you provide more details on the decline you mentioned in retail? Is it limited to a few customers or is it more widespread? Also, do you think there is a connection between the pressures on low-income consumers in the U.S. economy and what you're observing, or are you also noticing impacts at the higher end?

Yes. The softness is present throughout the retail vertical, which is significant for us as it includes a large portion of our top 100 spenders. This issue is not limited to just a few accounts. The year has been challenging due to tariffs and other market factors, affecting retailers. Our client base mainly consists of large retail distributors, so they are feeling the impact as well. Overall, we are observing this effect across the entire retail vertical.

Okay. And then for Mark, how do you think about trying to project the timing for OpenAI, Perplexity, Anthropic, et cetera, to begin their own advertising at scale? And how aggressively do you think your customers might push them to make sure that DoubleVerify is showing up in those venues?

Yes, it's a great question. Interestingly, we've seen similar situations before, especially with connected television. A recent example is Netflix, which had previously said they would never adopt advertising but then unexpectedly decided to do so. Within 90 days of that announcement, we were already working on a product and ready to launch it with them. We believe that the shift of LLMs into advertising will happen quickly and broadly; all major players will likely enter this space. Based on our experience, once they start engaging with advertisers, the first question advertisers will ask is how they can achieve ROI from this. The second concern will be about the trustworthiness of the engagement. This is where we have a significant role, whether it's with social platforms like Meta, TikTok, YouTube, or the open web. LLMs will become another venue for us to offer verification, trust, and control to advertisers. The recently launched products are a first step toward providing our advertisers with greater transparency regarding the engagements happening on the open web with LLMs. Starting from this foundation, we are well-positioned to take on a larger role as advertising expands across those platforms.

Next question comes from the line of Raimo Lenschow with Barclays.

Can I continue on the topic that Mark introduced? Nicola, regarding the base case you mentioned for next year, the 10% that reflects what we're experiencing this year, can you share the assumptions regarding the economy and other factors influencing this? Is the situation stable, or should we consider adding an extra buffer? Also, Mark, one for you. Your industry seems to be evolving since Moat is no longer a player, and now it appears one of your other public competitors may be exiting as well. What is your perspective on the overall impact on the industry?

Yes. So I'll take the first question. I would say we're not expecting a dramatic change from what we're seeing right now in the macro. But having said that, what we're seeing in the macro this year has been pretty disrupted. We had advertisers that kept spending through uncertainty in the first half. We're now feeling some of the impact on the retail vertical based on what's actually happening in the macro. So the assumption for next year is that it is not materially different than what we're seeing today, and that is a year where we will achieve 14% growth, but it's 10% in the second half, which is what we were expecting all the time.

And regarding the kind of landscape, I think there's a few things to think about. Obviously, less scaled competitors with the departure of Moat in the last 12 months. But also our direct competitor now going private, does create a different marketplace with regard to kind of pricing dynamics. They're a different business now. They're one that's heavily loaded with debt. That's going to have to think about how that impacts pricing dynamics for their product in the marketplace. And the competitive field looks different with the fact that you've got a company here in DV that's kicking off a ton of cash that has no debt and has the ability now to continue to invest in product development. Obviously, we've just launched a slew of products to invest in M&A to build out a broader platform and to keep focused on revenue growth and market growth as the dynamics of the market keep changing. So I do think it puts us in a very advantageous position right now with regard to the ability to invest, the ability to maintain price, and the ability to kind of continue to grow our solution set, both organically and inorganically. And so I think we've always said we're in this to win it. We're now $150 million of revenue larger than our closest competitor, and I think we can continue to extend that gap over time.

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

So maybe one quick follow-up to this 10% base case growth for 2026. Nicola, is the assumption that guidance continues to be pretty soft as it has been? Or do you expect that to worsen or possibly improve? This may be related, but Kenvue is a top customer and is being acquired by Kimberly-Clark. Is Kimberly-Clark currently a customer? Is Kenvue still spending at the same level as before? What is the situation there?

Yes. So I'll take the first part. Again, just to be clear, we're not providing guidance for '26. I think the idea around a base case of 10% is what we're seeing in the second half of 2025. And with all the drivers that I already mentioned around uneven spend and a pretty disruptive macro environment, we're essentially assuming that we can maintain that 10% base case in 2026. It's a base case, off of which we can grow based on how we can sell our new products. Again, we will end up this year at 14% growth in a macro that was very disruptive quarter-on-quarter. So the 10% does not assume a dramatic difference in the macro.

And with regard to kind of Kenvue and let's just talk about the broader health care segment in general, in consumer products in general. We had strong growth last quarter in CPG and in health care, both of which grew in double digits year-over-year. And with regard to that specific customer, we continue to see growth. Kimberly-Clark is not a current customer of ours, but we've had strong engagement with them in the past. We have strong relationships at Kenvue. And we are assuming that, that relationship will continue moving forward. So we've been really good in the past about continuing to maintain relationships in light of agency changes and in light of kind of structural changes at companies. So Kenvue is a client that we just won this year. They've continued to grow with us. They're a solid partner. They're expanding their use of our solutions, and we don't see any change in that in the short term.

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

My first question is about your client base. I'm impressed with all the new products. Mark, I think there's a lot of excitement on Wall Street about small and medium-sized businesses entering the connected TV space and expanding the total addressable market. Historically, your client base has been quite large. Do you see any of these new products potentially attracting new clients, possibly of a smaller scale? My second question relates to a common concern we've encountered in our discussions with nearly every ad tech company we cover regarding traffic. They consistently report no decrease in traffic, even with Google's changes. When we probe further about the presence of bots, they assure us that they have verification in place to distinguish between human and bot traffic. I assumed that this verification was being handled by your team, but are new competitors emerging in this area now that you are starting to roll out generative AI verification solutions?

Thank you for the question, Laura. I'll address the second part first. We have consistently been able to identify what we refer to as nonhuman traffic, specifically focusing on what we call SIVT or GIVT. GIVT is generally benign, encompassing standard crawlers such as search crawlers or other positive or neutral types. In contrast, SIVT involves fraud or negative engagement activities. This distinction has always been verifiable and can be clearly identified, with most cases resulting in blocking or being unpaid. What we've now introduced is an enhanced level of transparency, which I find intriguing, especially given the increased interaction between ads and content, including with LLMs and personal agents. Traditionally, these interactions have been classified as GIVT, which advertisers typically do not want to pay for since they do not involve human engagement. However, if an agent or crawler is acting positively—such as searching for a product or looking for a coupon—these interactions represent a significant opportunity. Currently, the ad tech industry tends to dismiss these engagements, but in the future, advertisers may actually wish to interact with agents from LLMs. This raises questions about how decisions will be made and what information will inform those choices. We're beginning to provide that granularity, looking into the motives of bots and their origins. At the moment, advertisers are still learning about this landscape, but there may come a time when they desire to engage and pay for these ads. Our new tool offers a level of detail that could pave the way for new solutions where agents and bots can interact more meaningfully, potentially incorporating advertisers into those conversations. On the first part of your question, the growth of SMBs in the CTV world, I think like we have in the programmatic space with our ability to kind of be part of The Trade Desk buying tool, be part of DV360's buying tool, where we insert our data directly into those. And we know that in those cases, upwards of 15% to 20% of our engagements every month are from non-scaled, non-engaged customers who literally click a box and say, 'apply DV prebid to my buy.' As more buyers come into the CTV universe and they're buying through platforms, we think there's an opportunity in the same manner where they can apply DV, for example, Verified Streaming TV segments to our buy or apply a Do Not Air list to my buy very seamlessly. So I think the entrance of SMBs into the CTV world is an opportunity for us in the same way that we get upside from that through the programmatic buying platforms. We'll be inserting our solutions into the buying platforms for SMBs on CTV as well and more scale is better, more opportunity is better. And I think since we are a CPM-based business for the most part, as more impressions get pushed through CTV, that's a good thing for us.

Next question comes from the line of Matt Condon with Citizens.

My first one, Mark, just as we sit here today and you've had discussions with advertisers just around Meta prebid and you're thinking about 2026. Just how are those conversations developing? And how are you thinking about that product scaling in 2026? And then similarly, with just DV Authentic AdVantage, it seems like it's off to a very good start. Can you just talk about discussions there and also just scaling throughout 2026?

We have strong expectations for ongoing growth and scaling in both of these solutions. The Meta prebid solution, which we introduced earlier this year, has consistently improved. We've increased the number of block lists we can manage and broadened the categories for filtering, which has driven significant growth. Currently, we're approaching a $7 million run rate, and it's continuing to scale. Some of our largest CPG customers are beginning to adopt this solution. Looking ahead to next year, we anticipate considerable growth from it. As we mentioned during Innovation Day, we believe the prebid business could match our postbid business on Meta, which is presently around $40 million annually. We are optimistic about its promising scale and customer engagement. On the Authentic AdVantage side, this new solution launched in September is performing exceptionally well. Early tests show increases in scale, reductions in CPMs, and improved brand suitability, all within a single YouTube package. We've already secured almost $8 million in annual contract value for this product in just a few weeks, and we see it as a potential major success, akin to ABS. It fulfills many needs for advertisers. While we've had a prescreen business on YouTube for some time, filtering out less desirable inventory typically led to higher costs. Now, we've resolved this by allowing advertisers to remove undesirable inventory while preserving or enhancing their brand suitability and safety standards and reducing costs, thus maximizing reach and effectiveness of their spending. We expect this solution to scale well into 2026 and beyond. We've positioned our prebid and Authentic AdVantage products to potentially achieve triple-digit millions over their lifespan, and we are already making significant progress towards that goal.

Next question comes from the line of Justin Patterson with KeyBanc.

Great. I was hoping you could expand on international some more. If we go back to the Innovation Day, I know some of your go-to-market changes were designed to just simplify the selling process over there. So I would love to hear about just how that's trending in more detail and what actions you might take to make international more material in 2026?

Thank you for the question, Justin. International has been quite inconsistent for us. Two years ago, we experienced weak international growth, followed by a stronger performance last year. This year is somewhat in between. We've developed a strategy that will help us scale more effectively in this area. We are focusing on localized sales resources within regions, while maintaining a centralized go-to-market approach. This has allowed us to scale efficiently, which is reflected in our improving margins, while also fostering local relationships. We’ve discovered that product needs vary significantly from region to region. For instance, the Asia-Pacific market is driven by social media and has lower cost per mille (CPM), whereas North America focuses more on video and connected TV, with higher CPMs. Europe lies somewhere in between, depending on the specific region. Our approach has been to concentrate on specific product suites that align with the media preferences in each market. Our goal is for 50% of our revenue to come from social media, connected TV, and new AI-driven solutions. A significant part of this strategy involves scaling our international business around social media and launching new products that facilitate social advertising, especially in video formats like YouTube, in markets where CPMs are lower. We are exploring different pricing models, and we discussed introducing a percentage of media model during our Innovation Day. We have now implemented this on our social solutions, such as Meta prebid and Authentic AdVantage, which enables us to offer these solutions in lower CPM markets while still achieving good reach and revenue potential.

Next question comes from the line of Matt Swanson with RBC Capital Markets.

Mark, you mentioned the various pricing models briefly. This year has seen significant innovation, and we have introduced more products along with some bundling strategies. Could you elaborate on your go-to-market approach and how you're ensuring that your sales team focuses on value-based selling to address the challenges your customers are facing? Additionally, how do you plan to communicate the value proposition as you broaden your offerings?

Yes. One of the challenges when you launch a lot of products is that you got a lot of products, right? And our customers are really looking for simplification, simplification of their engagement, but also simplification of how they buy media. This is one of the reasons why some of the AI-based kind of black box solutions are doing so well, whether it's Advantage+ or PMax, et cetera, the ability for an advertiser just to set it and forget it, buy something and drive ROI is really important. I think we're thinking the same way with our solutions, where things like Authentic AdVantage are products where you can set a brand safety or suitability floor or target, but then let the solution run and drive CPMs down and drive volume up and reach up. So from a market kind of implementation practice, we're kind of following that solution set. From a go-to-market and sales process, the idea here is, a, making bundles more digestible. So rather than have 17 different features that we sell for 17 prices, particularly on the measurement side, to bundle our solutions up and enable an advertiser who's buying across CTV to get everything that we offer on CTV for a fixed price. And to do the same across social and open web, et cetera. So bundling on the measurement side, flexibility on pricing on the programmatic or buy side when it comes to filtering and prebid, these are ways that we're kind of easing the introduction of numerous suites of tools that continue to grow but have value in different markets for different types of customers. So it's a lot that we're introducing. And I think the way that we're making it digestible is making pricing adaptable to the market and making bundles much more part of how we sell things.

Next question comes from the line of Andrew Marok with Raymond James.

So we heard your commentary around the EBITDA margin outlined. But maybe within that, how do you think about potential flex in places like product development or tech costs from having to invest in AI solutions like agentic and SlopStopper as that space and the potential AI threat landscape evolves at a rapid pace? And then maybe for Mark, just how you're setting up the teams to respond to AI landscape innovations in as nimble a fashion as possible.

Yes. So I'll take the first question around investment. So the profile of the companies that we have been able to invest and achieve the growth that we have within a margin range of 33%, right? And what's happened with the opening of the AI tools is that it allows us to reinvest faster into new opportunities because we're able to achieve what we are doing already in the core business more efficiently. So AI tools allow us to classify more effectively and do it in a more cost-efficient manner. With that in mind, we will be able to essentially invest into the new categories more efficiently. And still, as we said at the beginning of the call, I feel confident that we can achieve as a base case a 33% margin. So we're able to reinvest in the right categories more efficiently now that AI tools are available to us.

And first of all, I want to thank you for being the first analyst to say SlopStopper on this call, which we are hoping someone would ask about. But our philosophy around AI is pretty straightforward. We're AI first, AI always, and AI everywhere. This has to do really with three main areas of focus: our operations, our current solutions, and then building out solutions for a new AI-enabled ad tech ecosystem. What Nicola just mentioned was kind of the second part of it, which is how do you make our solutions better, more granular, and more efficiently do so. We talked about how we're doing that with labeling. If you think about labeling, what that is, is just kind of the contextualization of content, which is the base of everything we do, whether we call something suitable or viewable, et cetera, that has to do with labeling. Through AI, we're doing that faster and more accurately than we ever have before, allowing us to more than quadruple the volume that an individual labeler can handle and increase the speed at which it's done by over 2,000 times. I mean, think about that. This is in a process that's taken us less than a year. We've been able to get these kinds of achievements. That will ultimately make a better product, a better core product and allow us to do so at a much more efficient rate. And that's why we've been able to kind of lean into both investment while actually increasing margins. I think that's super important to understand. And then on the third leg, which is building products for an AI universe, I think that's a place where we've just started because most of the AI-enabled universe isn't really ad-driven yet. So what we've done is start looking at the impacts of AI so far in that space, whether it's the volume of crawlers and agents or the AI-generated content that SlopStopper is trying to keep advertisers away from. That is an opportunity for us to continue to grow our position as a transparency and verification leader, the same way we have in all of the other media spaces that we've gone after. So AI is infused in who we are as a business. It's infused in what our efficiency and operational capabilities are in the future. And it's infused in the new products that we're going to be building for in a new environment that we're building for in the future.

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

Mark, maybe a quick one on TikTok. With an increasingly likely TikTok will be allowed in the U.S., if the company needs to launch a separate app, how much headwind could it be to DV going forward? Or will all the products essentially be transferred very easily? With that app staying in the U.S., are you seeing more demand from advertisers for TikTok products? Any color would be great.

TikTok is currently our third largest social platform after Meta and YouTube, which account for over 80% of our volume. Approximately 50% of our TikTok volume comes from the U.S. Although TikTok is growing rapidly, its overall impact on our business is still relatively small. That said, I believe our products can be easily adapted to any new solution. They operate through APIs and blocklists that can be transferred between different platforms. We already implement this across multiple languages and instances of TikTok. This flexibility allows us to integrate into any new app environment that may arise, so we aren't overly concerned. We've successfully adapted to changes with TikTok and other social platforms in the past, and I am confident we can transition smoothly when needed.

Next question comes from the line of Arjun Bhatia with William Blair.

Perfect. I had two quick questions. First, let me just go back to the retail sort of weakness. Nicola, is there any way to just quantify how big of a headwind that was in Q3? And then how you see that kind of factoring into your guidance in Q4 as well, given it's obviously the strong holiday season. And then for Mark, I'm curious just as you think about the Meta ramp, you have 56 advertisers already. When you think about growth there, how much of it is going to come from the existing kind of advertisers scaling their usage and volume versus kind of adding new advertisers?

Yes. So Arjun, I'll address the first part. As mentioned, Q3 results show some disruption in retail spending, which is one of our largest industry verticals and does impact our results. Looking ahead to Q4, which is a peak retail spending season, our guidance indicates that retail spending may be more subdued going into what typically would be a strong season for them. Regarding 2026, as I noted earlier in the call, we believe that 2025 was quite disruptive due to macroeconomic factors. We began the year projecting a 10% growth, but we are on track to achieve a 14% growth. Despite the disruptive macro environment and starting from a base case of 10%, we still managed to reach 14%. For 2026, we do not expect macro conditions to significantly improve or worsen, which is what forms the 10% base case.

Yes. And Arjun, on the question on Meta, we've mentioned in the last two calls that we're pleasantly surprised and scaling ahead of expectations on that product. We know any new product takes time to scale, especially one that's within a walled garden and has specific limitations it needs to scale into in advance. In this case, the 56 customers that we have on that platform, nine are new to measurement. They were not using us on the measurement side and came to us to do both measurement and prebid. I think that's a great sign of new customers. However, the vast majority of them, the other 47, are upsells and that's where we're going to see the real volume growth.

Next question comes from the line of Tim Nollen with SSR.

I would like to revisit the topic of CTV. There was a press release a few days ago regarding your collaboration with Roku, and you mentioned Netflix during the call. My question is about your penetration across CTV platforms. How challenging is it to achieve coverage with both open and walled garden CTV services? Additionally, looking at the broader picture, what do you see as the role of DV in TV measurement, considering the frequent complaints about measurement quality, inconsistency, and constant changes? What role can DV play in this evolving landscape?

Thanks for the question. With regard to kind of penetration, I mean, we are working with all of the top 10 streaming TV platforms. So everybody from Netflix to Disney, Warner Bros., and the rest of the folks, Paramount, et cetera. So with regard to provide basic verification, viewability, impression counting, et cetera, we're there. So we have the relationships, we have the integrations, et cetera. With regard to getting into the measurement business, and the measurement business in the TV or CTV world usually means reach and frequency measurement, I don't think that's a space that we plan on entering. I think for several reasons. The first is, I think it's becoming increasingly less important to advertisers who are looking to drive outcomes, and they look at CTV as just another outcome engine, the same way search, display, or social is. So I think being in the measurement of reach and frequency is a place where there's a lot of competition for a piece of pie that I think is going to eventually shrink. But I do think we can play a role in something that's increasingly important, which is evaluating quality, driving greater transparency, and enabling better and more granular targeting, and those are areas where we've leaned in, I think our new solutions are the first step in getting further down that path.

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

Earlier this fall, President Trump ordered his health department to look into direct-to-consumer pharmaceutical advertising. And I was wondering if you had any update on whether that's potentially affecting some of your pharmaceutical clients, whether it affects programmatic advertising at all, if you saw any effect in the quarter and if it's contemplated in your fourth quarter guide?

It's a great question. We work with a significant number of health care and pharma companies. So everybody from Lilly to Novartis to Pfizer. To be blunt, we've not seen significant drag or friction on any of their advertising. As a matter of fact, the lean into GLP drugs has been a real catalyst for advertising growth. And in discussions with them, it doesn't seem like there's any indication that, that is going to slow down at all. That being said, any type of regulatory is obviously out of our hands and out of their hands. But as of right now, the indications are spend continues to be strong on health care. It grew double digits for us last quarter, and it's grown double digits for us all throughout the year. And as of now, we look at a forecast in which we don't see significant headwinds against pharma advertising anytime soon.

That concludes the question-and-answer session. I would like to turn the call back over to our CEO, Mark Zagorski.

Thank you all for joining us this early morning. We are laser-focused on disciplined execution, continued innovation and delivering sustainable growth and long-term value for our shareholders. We look forward to seeing many of you at the conferences in the coming months.

Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.