DoubleVerify Holdings, Inc. (DV)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere within this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

The following generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussion of historical items and year-to-year comparisons between 2023 and 2022 that are not included in this discussion can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023. References to “Notes” are notes included in our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Company Overview

We are one of the industry’s leading media effectiveness platforms that leverages AI to drive superior outcomes for global brands. By creating more effective, transparent ad transactions, we make the digital advertising ecosystem stronger, safer and more secure, thereby preserving the fair value exchange between buyers and sellers of digital media.

Our software platform is integrated across the entire digital advertising ecosystem, including programmatic platforms, social media channels, and digital publishers. We deliver unique data analytics through our customer interface, DV Pinnacle, to provide detailed insights into our customers’ media performance on both direct and programmatic media buying platforms and across all key digital media channels, formats, and devices, with coverage spanning 110 countries where our customers activate our solutions. Our customers include many of the largest global advertisers and digital ad platforms and publishers. We provide a consistent, cross-platform measurement standard across all major forms of digital media, making it easier for advertisers and supply-side customers to benchmark performance across all of their digital ads and optimize business outcomes in real-time.

Our company was founded in 2008 and introduced our first brand safety and suitability solution in 2010. We launched our first viewability and fraud solutions in 2013 and 2014, respectively. As the global digital advertising market has evolved, we have continued to expand our measurement capabilities and market coverage through new product innovation, increasing our international footprint and new platform partnerships. We introduced our first programmatic platform integrations in 2015, followed by our inaugural social media platform partnership in 2017, and expanded further with the launch of our CTV certification program in 2020.

We have experienced rapid growth and achieved significant profitability in recent years as evidenced by the following:

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We derive revenue primarily from our advertiser customers based on the volume of media transactions, or ads, that our software platform measures (“Media Transactions Measured”). Advertisers utilize the DV Authentic Ad, our definitive metric of digital media quality, to evaluate the existence of fraud, brand safety, viewability and geography for each digital ad. Advertisers pay us an analysis fee (“Measured Transaction Fee”) per thousand impressions based on the volume of Media Transactions Measured on their behalf. The price of most of our solutions is fixed. On platforms that charge based on percent of media spend, our pricing includes caps which effectively mirror our standard fixed fees.

We maintain an expansive set of direct integrations across the entire digital advertising ecosystem, including with leading programmatic, social platforms, and CTV, which enable us to deliver our metrics to the platforms where our customers buy ads. Further, our solutions are not reliant on any single source of impressions and we can service our customers as their digital advertising needs change. In 2024, we estimate that approximately 44% and 56% of Media Transactions Measured within post-campaign measurement were for display and for video ad formats, respectively. In 2023, approximately 52% and 48% of Media Transactions Measured were for display and for video ad formats, respectively. In 2024, approximately 77%, 12% and 11% of Media Transactions Measured within post-campaign measurement were for mobile, desktop, and CTV devices, respectively. In 2023, approximately 78%, 17% and 5% of Media Transactions Measured were for mobile, desktop, and CTV devices, respectively. For the years ended December 31, 2024 and December 31, 2023, 9% and 8% of our revenue, respectively, was generated from our supply-side customers to validate the quality of their ad inventory. We generate revenue from supply-side customers based on monthly or annual contracts with minimum guarantees and tiered pricing when guarantees are met.

We believe that there are meaningful long-term growth opportunities within the digital advertising market. We plan to continue to invest in new performance and protection solutions that increase our value proposition to customers and expand our capabilities across new and growing digital media environments, channels and devices, including CTV, new mobile apps and other emerging areas of digital ad spend. We plan to continue to invest in sales and marketing to grow our existing customer relationships and acquire new customers. In addition, we have completed six acquisitions since 2018 and maintain an active pipeline of potential M&A targets and intend to continue evaluating add-on opportunities to bolster our current solutions suite and complement our organic growth initiatives.

Furthermore, we believe that there are significant long-term growth opportunities in markets outside of North America. We expect to continue to make investments in product development, sales and marketing, information technology, financial and administrative systems and controls to support our global growth.

Factors Affecting Our Performance

There are a number of factors that have impacted, and we believe will continue to impact, our results of operations and growth. These factors include:

Significant Growth in Digital Ad Spend. Magna Global estimated that global digital ad spend, excluding search, reached $329 billion in 2024 and is expected to grow to $448 billion by 2028. Our revenues have grown substantially as a result of the growth in digital advertising as well as the continued adoption of digital measurement solutions and analytics. As the digital advertising market has grown, advertisers have increasingly shifted their digital media spend to both programmatic and social media channels in order to directly target advertisements to achieve desired business outcomes. We have been direct beneficiaries of this growth by virtue of our integrations with leading programmatic and social media platforms. In the year ended December 31, 2024, the revenue we generated by providing our activation solutions through programmatic and social integrations and our measurement solutions through social integrations grew 13% and 27%, respectively, over the prior year period. In the year ended December 31, 2023, the revenue we generated by providing our activation solutions through programmatic and social integrations and our measurement solutions through social integrations grew 31% and 48%, respectively, over the prior year period.

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Growth of Existing Customers. Our customers include many of the largest digital advertisers in the world and we have maintained exceptional customer retention with gross revenue retention rates of over 95% in each of the years ended December 31, 2024 and 2023. We define our gross revenue retention rate as the total prior year revenue earned from advertiser customers, less the portion of prior year revenue attributable to lost advertiser customers, divided by the total prior year revenue from advertiser customers, excluding a portion of our revenues that cannot be allocated to specific advertiser customers. Gross retention rates demonstrate strength in underlying business, recurring business profile, level of client satisfaction and lack of churn. We expect to continue to grow with our existing customers as they increase their spend on digital advertising and as we introduce new solutions across key channels, formats, devices and geographies. We have generated strong historical net revenue retention rates, with 112% for the year ended December 31, 2024 and 124% for the year ended December 31, 2023. We define our net revenue retention rate as the total current period revenue earned from advertiser customers, which were also customers during the entire most recent twelve-month period, divided by the total prior year period revenue earned from the same advertiser customers, excluding a portion of our revenues that cannot be allocated to specific advertiser customers. Net retention rates demonstrate strength in underlying business, recurring business profile, level of client satisfaction and lack of churn. Limitations for these metrics include limiting their usefulness as a comparative measure and the metrics not being the best indicator of our cash flows or future operating results.  You should compensate for these limitations by relying primarily on the Company’s GAAP results and using the non-GAAP financial measures only supplementally.

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New Solutions and Channels. We have a strong track record of developing new solutions that have high adoption rates with our existing customers. We intend to extend our solutions capabilities to new adjacencies and cover new and growing digital channels and devices, including CTV, new mobile apps and other emerging areas of digital ad spend. At the end of 2018, we launched our Authentic Brand Suitability solution that allows advertisers to create a centralized set of brand suitability controls that can be automatically deployed across multiple programmatic buying platforms and campaigns. Authentic Brand Suitability, which significantly reduces wasted ad spend, generated $199.0 million and $182.0 million of revenue in 2024 and 2023, respectively.

New Geographies. Our customer base is predominately U.S.-based today. We intend to grow our presence in international markets in order to meet the needs of our existing customers and accelerate new customer acquisition in key geographies outside of North America. With offices or commercial operations in 31 locations across 25 countries, our expansion to new geographies has helped us to win the international business of our existing customers and to establish relationships with some of the world’s largest international advertisers. As of December 31, 2024, 499 of our employees were based outside of the Americas.

While the factors above may present significant opportunities for us, they also pose significant risks and challenges. See “Risk Factors” for more information on risks and uncertainties that may impact our business and financial results.

Components of Our Results of Operations

We manage our business operations and report our financial results in a single segment.

Revenue

Our customers use our solutions to measure the effectiveness of their digital advertisements. We generate revenue from our advertising customers based primarily on the volume of Media Transactions Measured on our software platform, and for supply-side customers, based on contracts with minimum guarantees or contracts that have tiered pricing after minimum guarantees are achieved.

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For the years ended December 31, 2024 and 2023, we generated 91% and 92% of our revenue, respectively, from advertiser customers. Advertisers can purchase our solutions through programmatic and social media platforms to evaluate the quality of ad inventories before they are purchased, which we track as Activation revenue. Advertisers can also purchase our solutions to measure the quality and performance of ads after they are purchased directly or programmatically from digital properties, including publishers and social media platforms, which we track as Measurement revenue. We generate the majority of our revenue from advertisers by charging a Measured Transaction Fee based on the volume of Media Transactions Measured on behalf of our customers. We recognize revenue from advertisers in the period in which we provide our measurement and activation solutions. We have long-term relationships with many of our customers, with an average relationship of approximately eight years for our top 25, 50 and 75 customers, and ongoing contractual agreements with a substantial portion of our customer base.

For the years ended December 31, 2024 and 2023, we generated 9% and 8% of our revenue, respectively, from supply-side customers who use our data analytics to validate the quality of their ad inventory and provide data to their customers to facilitate targeting and purchasing of digital ads, which we refer to as Supply-side revenue. We generate revenue for certain supply-side arrangements that include minimum guaranteed fees that reset monthly and are recognized on a straight-line basis over the access period, which is usually twelve months. For contracts that contain overages, once the minimum guaranteed amount is achieved, overages are recognized as earned over time based on a tiered pricing structure.

The following table disaggregates revenue between advertiser customers, where revenue is generated based on number of ads measured and purchased for Activation or measured for Measurement, and Supply-side.

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See “Critical Accounting Policies and Estimates — Revenue Recognition” for a description of our revenue recognition policies.

Operating Expenses

Our operating expenses consist of the following categories:

Cost of revenue. Cost of revenue consists primarily of costs from revenue-sharing arrangements with our partners, platform hosting fees, data center costs, software and other technology expenses, other costs directly associated with data infrastructure, and personnel costs, including salaries, bonuses, stock-based compensation and benefits, directly associated with the support and delivery of our software platform and data solutions.

Product development. Product development expenses consist primarily of personnel costs, including salaries, bonuses, stock-based compensation and benefits, third party vendors and outsourced engineering services, and allocated overhead. Overhead costs such as information technology infrastructure, rent and occupancy charges are allocated based on headcount. Product development expenses are expensed as incurred, except to the extent that such costs are associated with software development that qualifies for capitalization, which are then recorded as capitalized software development costs included in Property, plant and equipment, net on our Consolidated Balance Sheets. Capitalized software development costs are amortized to depreciation and amortization.

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Sales, marketing, and customer support. Sales, marketing, and customer support expenses consist primarily of personnel costs directly associated with sales, marketing, and customer support departments, including salaries, bonuses, commissions, stock-based compensation and benefits, and allocated overhead. Overhead costs such as information technology infrastructure, rent and occupancy charges are allocated based on headcount. Sales and marketing expense also includes costs for promotional marketing activities, advertising costs, and attendance at events and trade shows. Sales commissions are expensed as incurred.

General and administrative. General and administrative expenses consist primarily of personnel expenses associated with our executive, finance, legal, human resources and other administrative employees. General and administrative expenses also include professional fees for external accounting, legal, investor relations and other consulting services, expenses to operate as a public company, including costs to comply with rules and regulations applicable to companies listed on a U.S. securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, other overhead expenses including insurance, as well as third-party costs related to acquisitions.

Interest expense. Interest expense consists primarily of the amortization of debt issuance costs, commitment fees associated with the unused portion of the New Revolving Credit Facility and the Company’s prior senior secured revolving credit facility, dated as of October 1, 2020 (the “Prior Revolving Credit Facility”), interest on balances that were outstanding under the Prior Revolving Credit Facility and interest on finance leases. The New Revolving Credit Facility bears interest at an option of  Secured Overnight Financing Rate (“SOFR”) or Alternate Base Rate (“ABR”) plus an applicable margin per annum. See “Liquidity and Capital Resources—Debt Obligations.”

Other income, net. Other income, net consists primarily of interest earned on interest-bearing monetary assets, gains and losses on foreign currency transactions, and change in fair value associated with contingent consideration related to our acquisitions.

Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

The following tables show our results of operations for the years ended December 31, 2024 and 2023:

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Note: Percentages may not sum due to rounding.

Revenue

Total revenue increased by $84.3 million, or 15%, from $572.5 million in the year ended December 31, 2023 to $656.8 million in the year ended December 31, 2024.

Total advertiser revenue increased by $73.1 million, or 14%, driven primarily by a 19% increase in Media Transactions Measured, partially offset by a 4% decrease in Measured Transaction Fees, excluding the impact of an introductory fixed fee deal for one large customer.

Activation revenue increased by $44.2 million, or 13%, driven primarily by new customers activating our core programmatic solutions, including Scibids, as well as greater adoption of our Authentic Brand Suitability (ABS) solution.

Measurement revenue increased by $28.9 million, or 15%, driven primarily by greater adoption of our social measurement solutions across emerging platforms and formats including short-form video.

Supply-side revenue increased by $11.2 million, or 25%, driven primarily by an increase in revenue from existing and new platform customers.

Cost of Revenue (exclusive of depreciation and amortization shown below)

Cost of revenue increased by $9.9 million, or 9%, from $106.6 million in the year ended December 31, 2023 to $116.5 million in the year ended December 31, 2024. The increase was due primarily to growth in Activation revenue which drove increases in partner costs from revenue-sharing arrangements, as well as investments in cloud services to provide the scale and flexibility necessary to support future growth.

Product Development Expenses

Product development expenses increased by $27.7 million, or 22%, from $125.4 million in the year ended December 31, 2023 to $153.0 million in the year ended December 31, 2024. The increase was due primarily to an increase in personnel costs, including stock-based compensation, of $22.1 million and an increase in third party software costs and outsourced consulting and engineering services of $5.5 million to support our product development efforts.

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Sales, Marketing and Customer Support Expenses

Sales, marketing and customer support expenses increased by $41.6 million, or 33%, from $126.0 million in the year ended December 31, 2023 to $167.5 million in the year ended December 31, 2024. The increase was due primarily to an increase in personnel costs, including stock-based compensation and sales commissions, of $32.2 million to support sales and account management efforts globally, and drive continued expansion with existing and new customers. Personnel travel and entertainment expenses to support marketing and sales activities increased $3.1 million, and marketing activities, including advertising, promotions, events and other activities, increased $1.0 million.

General and Administrative Expenses

General and administrative expenses increased by $4.2 million, or 5%, from $88.0 million in the year ended December 31, 2023 to $92.1 million in the year ended December 31, 2024. The increase was due primarily to an increase in personnel costs, including stock-based compensation, of $9.1 million, and an increase in third party professional fees of $0.9 million, partially offset by a reduction in bad debt expenses of $5.1 million primarily related to a reserve established in the prior year in connection with outstanding amounts owed to the Company by its activation partner, MediaMath Holdings, Inc., which filed for Chapter 11 bankruptcy protection on June 30, 2023, and a decrease in general corporate insurance costs of $1.2 million.

Depreciation and Amortization

Depreciation and amortization increased by $4.3 million, or 11%, from $40.9 million in the year ended December 31, 2023 to $45.2 million in the year ended December 31, 2024. The increase was due primarily to an increase in capitalized software development costs and an increase in intangible assets related to the acquisition of Scibids.

Interest Expense

Interest expense was materially unchanged at $1.1 million in the years ended December 31, 2023 and December 31, 2024.

Other Income, Net

Other income, net decreased by $3.7 million, from $11.2 million in the year ended December 31, 2023, to $7.5 million in the year ended December 31, 2024. The decrease was primarily due to a $4.3 million increase in losses from changes in foreign exchange rates, partially offset by an increase in interest income earned on monetary assets.

Income Tax Expense

Income tax expense increased by $8.1 million, from $24.4 million in the year ended December 31, 2023 to $32.6 million in the year ended December 31, 2024. The increase was due primarily to an increase in unfavorable permanent tax adjustments, including non-deductible executive compensation and stock-based compensation.

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Adjusted EBITDA

In addition to our results determined in accordance with GAAP, management believes that certain non-GAAP financial measures, including Adjusted EBITDA and Adjusted EBITDA Margin, are useful in evaluating our business. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenue. The following table presents a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to the most directly comparable financial measure prepared in accordance with GAAP.

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We use Adjusted EBITDA and Adjusted EBITDA Margin as measures of operational efficiency to understand and evaluate our core business operations. We believe that these non-GAAP financial measures are useful to investors for period to period comparisons of our core business and for understanding and evaluating trends in operating results on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

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These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Some of the limitations of these measures are:

In addition, other companies in our industry may calculate these non-GAAP financial measures differently, therefore limiting their usefulness as a comparative measure. You should compensate for these limitations by relying primarily on our GAAP results and using the non-GAAP financial measures only supplementally.

Selected Quarterly Results of Operations

The following tables set forth our unaudited consolidated quarterly results of operations for each of the 8 quarters within the period from January 1, 2023 to December 31, 2024. Our quarterly results of operations have been prepared on the same basis as our consolidated financial statements, and we believe they reflect all normal recurring adjustments necessary for the fair presentation of our results of operations for these periods. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. These quarterly results of operations are not necessarily indicative of our results of operations for a full year or any future period.

We experience fluctuations in revenue that coincide with seasonal fluctuations in the digital ad spending of our customers. Advertisers typically allocate the largest portion of their media budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. As a result, the fourth quarter of the year typically reflects our highest level of measurement of digital ads while the first quarter reflects the lowest level of such activity. We expect our revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole. While our revenue is highly recurring, seasonal fluctuations in ad spend may impact quarter-over-quarter results. We believe that the year-over-year comparison of results more appropriately reflects the overall performance of the business.

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The following table sets forth our unaudited consolidated results of operations for the specified periods as a percentage of revenue:

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Note: Percentages may not sum due to rounding.

The following table presents a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to the most directly comparable financial measure prepared in accordance with GAAP.

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Liquidity and Capital Resources

Our operations are financed primarily through cash generated from operations. As of December 31, 2024, the Company had cash and cash equivalents of $292.8 million and net working capital, consisting of current assets (excluding cash and cash equivalents) less current liabilities, of $162.7 million. As of December 31, 2023, the Company had cash of $310.1 million and net working capital, consisting of current assets (excluding cash and cash equivalents) less current liabilities, of $139.0 million.

Our short-term and long-term principal commitments consist of non-cancelable operating leases for our various office facilities, and other contractual commitments consisting of obligations to our hosting services and hardware providers.

We believe existing cash and cash generated from operations, together with the $200.0 million undrawn balance under the New Revolving Credit Facility as of December 31, 2024, will be sufficient to meet future working capital requirements and fund capital expenditures, share repurchase programs and acquisitions on a short-term and long-term basis.

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Our total future capital requirements and the adequacy of available funds will depend on many factors, including those discussed above as well as the risks and uncertainties set forth under “Risk Factors.”

Debt Obligations

On March 10, 2023, we initiated a borrowing of $50.0 million under the Prior Revolving Credit Facility and subsequently repaid $50.0 million on March 17, 2023. As of December 31, 2023, there was no outstanding debt under the Prior Revolving Credit Facility.

On August 12, 2024, the Company entered into the Credit Agreement providing for the New Revolving Credit Facility with available borrowings of $200.0 million, which matures on the Revolving Termination Date. Subject to certain terms and conditions, the Company is entitled to request incremental facilities (including term, revolving and/or letter of credit facilities. The New Revolving Credit Facility replaces in full the Company’s Prior Revolving Credit Facility.

All obligations under the New Revolving Credit Facility are guaranteed by the Company pursuant to the Guarantee Agreement. The New Revolving Credit Facility contains customary affirmative and negative covenants, including restrictions on, among other things: paying dividends or purchasing, redeeming or retiring capital stock; granting liens; incurring or guaranteeing additional debt; making investments and acquisitions; entering into transactions with affiliates; entering into any merger, consolidation or amalgamation or disposing of all or substantially all property or business; and disposing of property, including issuing capital stock.

The New Revolving Credit Facility also requires us to remain in compliance with a maximum total net leverage ratio of 4.5x as at the last day of each fiscal quarter, which will officially commence with the fiscal quarter ending March 31, 2025.

As of December 31, 2024, there was no outstanding debt under the New Revolving Credit Facility.

For more information about the New Revolving Credit Facility, see Note 9 to our audited Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Repurchase Programs

On May 16, 2024, the Company announced that its Board of Directors authorized the repurchase of up to $150.0 million of the Company’s outstanding common stock (the “Repurchase Program”). Under the Repurchase Program, the Company may repurchase for cash from time to time shares of its common stock through open market purchases pursuant to Rule 10b-18 and/or Rule 10b5-1 plans, in compliance with applicable securities laws and other legal requirements. The Repurchase Program does not obligate the Company to repurchase any specific number of shares, has no time limit, and may be modified, suspended, or discontinued at any time at the Company’s discretion. Repurchases under the Repurchase Program commenced in June 2024.

During the year ended December 31, 2024, the Company repurchased 6.8 million shares of its common stock for an aggregate repurchase amount of $128.0 million under the Repurchase Program.

In January 2025, the Company repurchased 1.1 million shares of its common stock for an aggregate repurchase amount of $22.2 million. As of February 27, 2025, the $150.0 million authorized for repurchase under the Repurchase Program was fully utilized.

On November 6, 2024, the Company announced that the Board authorized the repurchase of up to $200.0 million of the Company’s outstanding common stock (the “New Repurchase Program”), which amount is in addition to the initial Repurchase Program previously approved by the Board in May 2024. Under the New Repurchase Program, the Company may repurchase for cash from time to time shares of its common stock through open market purchases pursuant to Rule 10b-18 and/or Rule 10b5-1 plans, in compliance with applicable securities laws and other legal requirements. The New Repurchase Program does not obligate the Company to repurchase any specific number of shares, has no time limit, and may be modified, suspended, or discontinued at any time at the Company’s discretion.

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As of February 27, 2025, $200.0 million remained available and authorized for repurchase under the New Repurchase Program.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

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Operating Activities

Our cash flows from operating activities are influenced primarily by growth in our operations and by changes in our working capital. In particular, trade receivables increase in conjunction with our rapid growth in sales and decrease based on timing of cash receipts from our customers. The timing of payments of trade payables also impacts our cash flows from operating activities. We typically pay suppliers in advance of collections from our customers. Our collection and payment cycles can vary from period to period.

For the year ended December 31, 2024, cash provided by operating activities was $159.7 million, attributable to net income of $56.2 million, adjusted for non-cash charges of $130.2 million and a $26.8 million use of cash from changes in operating assets and liabilities. Non-cash charges consisted primarily of $45.2 million in depreciation and amortization, $90.7 million in stock-based compensation, and $5.0 million in bad debt expense, offset by $21.7 million in deferred taxes. The main drivers of the changes in operating assets and liabilities were a $38.1 million increase in trade receivables, prepaid expenses and other assets due mainly to increases in sales and prepayments, offset by a $11.3 million increase in trade payables, and accrued expenses and other liabilities.

For the year ended December 31, 2023, cash provided by operating activities was $119.7 million, attributable to net income of $71.5 million, adjusted for non-cash charges of $91.6 million and net cash outflows of $43.3 million used in changes in operating assets and liabilities. Non-cash charges consisted primarily of $40.9 million in depreciation and amortization, $59.2 million in stock-based compensation, and $10.1 million in bad debt expense, offset by $25.0 million in deferred taxes. The main drivers of the changes in operating assets and liabilities were a $49.3 million increase in trade receivables, and prepaid expenses and other assets due mainly to increases in sales and prepayments, and a $6.0 million increase driven by trade payables, and accrued expenses and other liabilities.

Investing Activities

For the year ended December 31, 2024, cash used in investing activities was $44.8 million, including $17.7 million attributable to net investments in short-term financial instruments and $27.1 million attributable to purchases of property, plant and equipment, and capitalized software development costs.

For the year ended December 31, 2023, cash used in investing activities was $84.2 million, including $67.2 million attributable to the acquisition of Scibids and $17.0 million attributable to purchases of property, plant and equipment, and capitalized software development costs.

Financing Activities

For the year ended December 31, 2024, cash used in financing activities of $129.5 million was due primarily to $128.0 million related to shares repurchased under the Repurchase Program.

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For the year ended December 31, 2023, cash provided by financing activities of $6.5 million was due primarily to $10.7 million of proceeds from common stock issued upon the exercise of stock options, offset by $4.6 million related to shares repurchased for settlement of employee tax withholdings.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets and liabilities and related disclosures at the dates of the financial statements, and revenue and expenses during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. We evaluate these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material.

While our significant accounting policies are more fully described in Note 2, Basis of Presentation and Summary of Significant Accounting Policies to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Revenue Recognition

In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expected to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

For Activation revenue, our customers can elect to use our solutions for evaluating the quality of advertising they are considering purchasing. Customers purchase our social activation solutions directly from us, and our programmatic activation solutions through Demand-Side Platforms that manage ad campaign auctions and inventories on their behalf. We enter into product integration agreements with our Demand-Side Platform partners. In these arrangements, the customer pays a Measured Transaction Fee to the Company (collected by the Demand-Side Platform) for the successful execution of the purchase of advertising inventory on an exchange. We recognize revenue over time when we satisfy a performance obligation by transferring promised services to a customer.

For Measurement revenue, our contracts with our customers typically consist of the various ad measurement solutions that we offer. Included in these solutions is access to our software platform that allows customers to access and manage their data related to our solutions. We deliver our solutions together when media transactions are measured and primarily charge a contractually fixed Measured Transaction Fee per 1,000 impressions on the number of Media Transactions Measured. We recognize revenue over time when we satisfy a performance obligation by transferring promised services to a customer.

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For Supply-side revenue, we offer to our supply-side platform partners arrangements to measure all ads on their platform. These arrangements are typically subscription-based with minimum guarantees, and are recognized on a straight-line basis over the term of the contract, generally spanning from one to three years. For contracts that contain overages, once the minimum guaranteed amount is achieved, overages are recognized as earned over time based on a tiered pricing structure. Overages give rise to variable consideration that is allocated to the distinct periods to which the overage relates.

Certain customers receive cash-based incentives, credits, or discounts on the pricing of products or services once specific volume thresholds have been met. Where volume-based discounts are applied retrospectively, these amounts are accounted for as variable consideration which the Company estimates based on the expected consideration to be received by the customer. For volume-based discounts applied prospectively, the Company evaluates each contract to determine if the discount represents a material right which would be recognized as a separate performance obligation.

For transactions that involve third parties, the Company evaluates which party in the arrangement obtains control of the Company’s services (and is therefore the Company’s customer), which impacts whether the Company reports revenue as the gross amounts paid by the advertiser through the Demand-Side Platform or the net amount paid by the Company’s Demand-Side Platform partners. For certain arrangements, customers may purchase the Company’s solutions through a Demand-Side Platform that manages various ad campaign auctions and inventory on behalf of the advertisers. Customers elect to use the Company’s solutions for evaluating the quality of advertising inventory up for bid on an advertising exchange. The ability to provide these solutions to customers requires that the Company enter into product integration agreements with Demand-Side Platforms who in turn make the Company’s solutions available to advertisers. In these arrangements, the customer pays a Measured Transaction Fee to the Company (collected by the Demand-Side Platform) for the successful execution of the purchase of advertising inventory on an exchange. In these transactions, the Company transfers control of the Company’s services directly to the advertiser (who is the Company’s customer) and therefore revenue is recognized for the gross amount paid by the advertiser for the Company’s services. Specifically, the Company transfers control of the data that is influencing the purchasing decisions directly to the customer and the Company is primarily responsible for providing these services to the customer. That is, control of these services (or a right to these services) does not transfer to the Demand-Side Platform before they are transferred to the Company’s customers. Further, the Company has latitude in establishing the sales price with those customers as there is a fixed retail rate card that is included in the product integration agreements with the Demand-Side Platforms or are governed by contracts in place directly with the customers. Accordingly, the Company records revenue for the gross amounts of the Measured Transaction Fees paid by advertisers for these services and records the amounts retained by the Demand-Side Platforms as a cost of revenue.

Goodwill and Intangibles

Goodwill represents the excess of purchase price over the fair value of tangible net assets and identifiable intangible assets of the businesses acquired. Goodwill deemed to have an indefinite life is not amortized. Intangible assets determined to have finite lives are amortized over their useful lives. Goodwill with indefinite lives are subject to impairment testing annually as of October 1, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable, using the guidance and criteria described in the accounting standard for Goodwill and Other Intangible Assets. This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value.

The Company has a single reporting unit. There are many assumptions and estimates used that directly impact the results of impairment testing, including an estimate of future expected revenues, net income, earnings before interest, taxes, depreciation and amortization (“EBITDA”), EBITDA margins and cash flows, useful lives, discount rates and an estimate of value using multiples derived from the stock prices of publicly traded guideline companies applied to such expected cash flows and market approaches in order to estimate fair value. The determination of whether or not goodwill or indefinite-lived acquired intangible assets have become impaired involves a significant level of judgment in the assumptions and estimates underlying the approach used to determine the value of our reporting unit. Changes in our strategy or market conditions could significantly impact these judgments and require an impairment to be recorded to intangible assets and goodwill. As of October 1, 2024, there were no impairment indicators of goodwill, with no impairment indicators present as of December 31, 2024. For each of the years ended December 31, 2024 and December 31, 2023, there were no impairments related to our intangible assets.

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We allocate the fair value of the purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. The estimates used in valuing the intangible assets are determined with the assistance of third-party specialists, a discounted cash flow analysis and estimates made by management. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset made primarily to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Stock-Based Compensation

Our stock-based compensation awards relate to restricted stock units (“RSUs”), stock options and performance-based restricted stock units (“PSUs”). For purposes of calculating stock-based compensation, we estimate the fair value of RSUs and PSUs that contain a performance condition using the grant date stock price. For PSUs where a market condition exists, we apply a Monte Carlo Simulation model. We estimate the fair value of stock options issued using a Black-Scholes option-pricing model. For share-based awards that vest subject to the satisfaction of only a service requirement, expense is recognized on a straight-line basis over the vesting period net of an estimated forfeiture rate. For PSUs, expense is recognized using the accelerated attribution method over the requisite service period.

The determination of the fair value of PSUs with a market condition utilizing the Monte Carlo Simulation model is affected by a number of assumptions including expected volatility, valuation date stock price, correlation coefficients, risk-free interest rates and expected dividend yield.

The determination of the fair value of stock option awards utilizing the Black-Scholes model is affected by a number of assumptions, including expected volatility, expected life, risk-free interest rate, expected dividends, and the fair market value of the Company’s common stock. These inputs are subjective and generally requires significant judgment and estimation by management.

Prior to our common stock becoming publicly traded, we estimated the fair value of our common stock as discussed in the section “Fair Value of Common Stock” below.

Fair Value of Common Stock

Historical Valuation Approach

Given the absence of a public trading market for our common stock prior to our IPO, our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including, with input from management, our financial and operating history, equity market conditions affecting comparable public companies, and the lack of marketability of our common stock.

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In addition, our board of directors considered valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. These valuations considered recent arm’s length market transactions, where applicable, estimates of future expected revenues, EBITDA, EBITDA margins and cash flows, discount rates, and an estimate of value using multiples derived from the stock prices of comparable publicly traded companies applied to such expected cash flows and market approaches in order to estimate fair value. These assumptions were incorporated in a hybrid approach used to evaluate recent arm’s length market transactions and scenarios in which the Company remained privately held or the Company completed an initial public offering. The hybrid approach included using the Option Pricing Method (OPM) and Probability-Weighted Expected Return Method (PWERM) models.

In November 2020, private placement investors invested in the Company at a total enterprise value (the “Total Enterprise Value”) based on arm’s length negotiations, which resulted in a per share valuation of $17.22, adjusted for the reverse stock split (“Concurrent Private Placement”). The Total Enterprise Value represented an equity value of our common stock of approximately 14 times historical revenue for the last twelve months (“LTM Revenue”), less a discount for the lack of marketability of our common stock (“Liquidity Discount”). Based on the Total Enterprise Value and our board of directors’ belief that it is customary and standard practice for high growth companies in the Company’s industry to use a revenue multiplier to value a company, our board of directors determined that the most appropriate representation of the value of the Company was to attribute value based on LTM Revenue multiplied by 14, less a Liquidity Discount. The LTM Revenue utilized in the per share valuation was the twelve months ended September 30, 2020, which was the most recent month ended prior to the Company entering into a definitive agreement for the Concurrent Private Placement and the most recent historical financial information provided to the Concurrent Private Placement investors.

For grants of stock options and RSUs subsequent to closing of the Concurrent Private Placement (summarized above), our board of directors continued to utilize this formula of (LTM Revenue × 14) x Liquidity Discount. The Liquidity Discount was determined by our board of directors to be 15% for the valuation following the Concurrent Private Placement, resulting in the following formula: Valuation = (LTM Revenue × 14) x 0.85. The liquidity discount decreased over time leading up to the IPO. In addition to looking at historical revenue, our board of directors also considered projected 2021 revenue in setting the valuation for grants of stock options and RSUs subsequent to closing of the Concurrent Private Placement, primarily as a guidepost to ensure that the historical LTM revenue formula was reasonable.

Current Valuation Approach

Following the completion of our IPO, our board of directors no longer determines the fair value of our common stock in accordance with the valuation formula described above under “— Historical Valuation Approach.” Instead, our board of directors determines the fair value of our common stock based on the closing price of our common stock as reported on the date of the grant. The closing price (and therefore, the fair value) of our common stock may fluctuate significantly based on a number of factors that are outside of our control. See “Risk Factors — Risks Related to Our Common Stock — The market price of our common stock may be volatile and could decline regardless of our operating performance.”

Taxes

We account for income taxes using the asset and liability method, in accordance with ASC 740, Accounting for Income Taxes. This approach requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities.

We record a valuation allowance when it is determined that it is more-likely-than-not, based upon all available evidence both positive and negative, that a portion or all its deferred tax assets will not be realized. At each reporting period, management assesses the realizability of its deferred tax assets.

For certain tax positions, we use a more-likely-than-not threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefits determined on a cumulative probability basis, which are more-likely-than-not to be realized upon ultimate settlement in the financial statements. Interest and penalties are recognized as part of income tax expense.

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Recent Accounting Pronouncements

See Note 2, Basis of Presentation and Summary of Significant Accounting Policies to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information on the adoption of recent accounting pronouncements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere within this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

The following generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussion of historical items and year-to-year comparisons between 2022 and 2021 that are not included in this discussion can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022. References to “Notes” are notes included in our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Company Overview

We are one of the industry’s leading media effectiveness platforms that leverages AI to drive superior outcomes for global brands. By creating more effective, transparent ad transactions, we make the digital advertising ecosystem stronger, safer and more secure, thereby preserving the fair value exchange between buyers and sellers of digital media.

Our software platform is integrated across the entire digital advertising ecosystem, including programmatic platforms, social media channels, and digital publishers. We deliver unique data analytics through our customer interface, DV Pinnacle, to provide detailed insights into our customers’ media performance on both direct and programmatic media buying platforms and across all key digital media channels, formats, and devices, with coverage spanning 110 countries where our customers activate our services. Our customers include many of the largest global advertisers and digital ad platforms and publishers. We provide a consistent, cross-platform measurement standard across all major forms of digital media, making it easier for advertisers and supply-side customers to benchmark performance across all of their digital ads and optimize business outcomes in real-time.

Our company was founded in 2008 and introduced our first brand safety and suitability solution in 2010. We launched our first viewability and fraud solutions in 2013 and 2014, respectively. As the global digital advertising market has evolved, we have continued to expand our measurement capabilities and market coverage through new product innovation, increasing our international footprint and new platform partnerships. We announced our first social media platform partnership in 2017 and launched our CTV certification program in 2020.

We have experienced rapid growth and achieved significant profitability in recent years as evidenced by the following:

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For the years ended December 31, 2023 and December 31, 2022, we generated 92% and 90% of our revenue, respectively, from advertiser customers. We derive revenue primarily from our advertiser customers based on the volume of media transactions, or ads, that our software platform measures (“Media Transactions Measured”). Advertisers utilize the DV Authentic Ad, our definitive metric of digital media quality, to evaluate the existence of fraud, brand safety, viewability and geography for each digital ad. Advertisers pay us a Measured Transaction Fee per thousand impressions based on the volume of Media Transactions Measured on their behalf. The price of most of our solutions is fixed. On platforms that charge based on percent of media spend, our pricing includes caps which effectively mirror our standard fixed fees.

We maintain an expansive set of direct integrations across the entire digital advertising ecosystem, including with leading programmatic, CTV, and social platforms, which enable us to deliver our metrics to the platforms where our customers buy ads. Further, our services are not reliant on any single source of impressions and we can service our customers as their digital advertising needs change. In 2023, we estimate that approximately 52% and 48% of Media Transactions Measured within post-campaign measurement were for display and for video ad formats, respectively. In 2022, approximately 55% and 45% of Media Transactions Measured were for display and for video ad formats, respectively. In 2023, approximately 78%, 17% and 5% of Media Transactions Measured were for mobile devices, desktop devices, and emerging digital channels, respectively. In 2022, approximately 76%, 20% and 4% of Media Transactions Measured were for mobile devices, desktop devices, and emerging digital channels, respectively. For the years ended December 31, 2023 and December 31, 2022, 8% and 10% of our revenue, respectively, was generated from our supply-side customers to validate the quality of their ad inventory. We generate revenue from supply-side customers based on monthly or annual contracts with minimum guarantees and tiered pricing when guarantees are met.

We believe that there are meaningful long-term growth opportunities within the digital advertising market. We plan to continue to invest in the development of new and premium solutions that increase our value proposition to customers and to extend our solutions capabilities to cover new and growing digital media environments, channels and devices, including CTV, new mobile apps and other emerging areas of digital ad spend. We plan to continue to invest in sales and marketing to grow our existing customer relationships and acquire new customers. In addition, we have completed six acquisitions since 2018 and maintain an active pipeline of potential M&A targets and intend to continue evaluating add-on opportunities to bolster our current solutions suite and complement our organic growth initiatives.

Furthermore, we believe that there are significant long-term growth opportunities in markets outside of North America. We expect to continue to make investments in product development, sales and marketing, information technology, financial and administrative systems and controls to support our global growth.

Factors Affecting Our Performance

There are a number of factors that have impacted, and we believe will continue to impact, our results of operations and growth. These factors include:

Significant Growth in Digital Ad Spend. Magna Global estimated that global digital ad spend, excluding search, reached over $280 billion in 2023 and is expected to grow to $386 billion by 2027. Our revenues have grown substantially as a result of the growth in digital advertising as well as the continued adoption of digital measurement solutions and analytics. As the digital advertising market has grown, advertisers have increasingly shifted their digital media spend to both programmatic and social media channels in order to directly target advertisements to achieve desired business outcomes. We have been direct beneficiaries of this growth by virtue of our integrations with leading programmatic and social media platforms. In the year ended December 31, 2023, the revenue we generated by providing our activation solutions through programmatic and social integrations and our measurement solutions through social integrations grew 31% and 48%, respectively, over the prior year period. In the year ended December 31, 2022, the revenue we generated by providing our activation solutions through programmatic and social integrations and our measurement solutions through social integrations grew 50% and 28%, respectively, over the prior year period.

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Growth of Existing Customers. Our customers include many of the largest digital advertisers in the world and we have maintained exceptional customer retention with gross revenue retention rates of over 95% in each of the years ended December 31, 2023 and 2022. We define our gross revenue retention rate as the total prior year revenue earned from advertiser customers, less the portion of prior year revenue attributable to lost advertiser customers, divided by the total prior year revenue from advertiser customers, excluding a portion of our revenues that cannot be allocated to specific advertiser customers. Gross retention rates demonstrate strength in underlying business, recurring business profile, level of client satisfaction and lack of churn. We expect to continue to grow with our existing customers as they increase their spend on digital advertising and as we introduce new solutions across key channels, formats, devices and geographies. We have generated strong historical net revenue retention rates, with 124% for the year ended December 31, 2023 and 127% for the year ended December 31, 2022. We define our net revenue retention rate as the total current period revenue earned from advertiser customers, which were also customers during the entire most recent twelve-month period, divided by the total prior year period revenue earned from the same advertiser customers, excluding a portion of our revenues that cannot be allocated to specific advertiser customers. Net retention rates demonstrate strength in underlying business, recurring business profile, level of client satisfaction and lack of churn. Limitations for these metrics include limiting their usefulness as a comparative measure and the metrics not being the best indicator of our cash flows or future operating results.  You should compensate for these limitations by relying primarily on the Company’s GAAP results and using the non-GAAP financial measures only supplementally.

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New Solutions and Channels. We have a strong track record of developing new solutions that have high adoption rates with our existing customers. We intend to extend our solutions capabilities to new adjacencies and cover new and growing digital channels and devices, including CTV, new mobile apps and other emerging areas of digital ad spend. At the end of 2018, we launched our Authentic Brand Suitability solution that allows advertisers to create a centralized set of brand suitability controls that can be automatically deployed across multiple programmatic buying platforms and campaigns. Authentic Brand Suitability, which significantly reduces wasted ad spend, generated $182.0 million and $123.3 million of revenue in 2023 and 2022, respectively. In 2023, we developed and launched several new solutions: (i) Scibids AI, through our acquisition of Scibids Technology SAS in August 2023, empowers global brands to leverage Demand-Side Platform impression-level data, first-party data, measurement data and cost data in order to build algorithmic models that more effectively drive specific key performance indicators and tangible outcomes while improving operational efficiency and reducing manual lift, (ii) expanded brand safety and suitability measurement and activation to enable advertisers to monitor and avoid MFA sites and (iii) expanded brand safety and suitability measurement capabilities to YouTube Shorts and widened TikTok coverage across key markets in Latin America, Europe, and Asia-Pacific.

New Geographies. Our customer base is predominately U.S.-based today. We intend to grow our presence in international markets in order to meet the needs of our existing customers and accelerate new customer acquisition in key geographies outside of North America. With offices or commercial operations in 30 locations across 24 countries, our expansion to new geographies has helped us to win the international business of our existing customers and to establish relationships with some of the world’s largest international advertisers. As of December 31, 2023, 453 of our employees were based outside of the Americas.

While the factors above may present significant opportunities for us, they also pose significant risks and challenges. See “Risk Factors” for more information on risks and uncertainties that may impact our business and financial results.

Components of Our Results of Operations

We manage our business operations and report our financial results in a single segment.

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Revenue

Our customers use our solutions to measure the effectiveness of their digital advertisements. We generate revenue from our advertising customers based on the volume of Media Transactions Measured on our software platform, and for supply-side customers, based on contracts with minimum guarantees or contracts that have tiered pricing after minimum guarantees are achieved.

For the years ended December 31, 2023 and 2022, we generated 92% and 90% of our revenue, respectively, from advertiser customers. Advertisers can purchase our services to measure the quality and performance of ads after they are purchased directly from digital properties, including publishers and social media platforms, which we track as Measurement (f/k/a Advertiser – direct) revenue. Advertisers can also purchase our services through programmatic and social media platforms to evaluate the quality of ad inventories before they are purchased, which we track as Activation (f/k/a Advertiser – programmatic) revenue. We generate the majority of revenue from advertisers by charging a Measured Transaction Fee based on the volume of Media Transactions Measured on behalf of our customers. We recognize revenue from advertisers in the period in which we provide our measurement and activation solutions. Advertisers typically leverage the full suite of our proprietary DV Authentic Ad metric to evaluate and measure the existence of fraud, brand suitability, viewability and geography for their digital ad investments. We have long-term relationships with many of our customers, with an average relationship of approximately eight years for our top 25, 50 and 75 customers, and ongoing contractual agreements with a substantial portion of our customer base.

For the years ended December 31, 2023 and 2022, we generated 8% and 10% of our revenue, respectively, from supply-side customers who use our data analytics to validate the quality of their ad inventory and provide data to their customers to facilitate targeting and purchasing of digital ads, which we refer to as Supply-side revenue. We generate revenue for certain supply-side arrangements that include minimum guaranteed fees that reset monthly and are recognized on a straight-line basis over the access period, which is usually twelve months. For contracts that contain overages, once the minimum guaranteed amount is achieved, overages are recognized as earned over time based on a tiered pricing structure.

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See “Critical Accounting Policies and Estimates — Revenue Recognition” for a description of our revenue recognition policies.

Operating Expenses

Our operating expenses consist of the following categories:

Cost of revenue. Cost of revenue consists primarily of costs from revenue-sharing arrangements with our partners, platform hosting fees, data center costs, software and other technology expenses, other costs directly associated with data infrastructure, and personnel costs, including salaries, bonuses, stock-based compensation and benefits, directly associated with the support and delivery of our software platform and data solutions.

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Product development. Product development expenses consist primarily of personnel costs, including salaries, bonuses, stock-based compensation and benefits, third party vendors and outsourced engineering services, and allocated overhead. Overhead costs such as information technology infrastructure, rent and occupancy charges are allocated based on headcount. Product development expenses are expensed as incurred, except to the extent that such costs are associated with software development that qualifies for capitalization, which are then recorded as capitalized software development costs included in Property, plant and equipment, net on our Consolidated Balance Sheets. Capitalized software development costs are amortized to depreciation and amortization.

Sales, marketing, and customer support. Sales, marketing, and customer support expenses consist primarily of personnel costs directly associated with sales, marketing, and customer support departments, including salaries, bonuses, commissions, stock-based compensation and benefits, and allocated overhead. Overhead costs such as information technology infrastructure, rent and occupancy charges are allocated based on headcount. Sales and marketing expense also includes costs for promotional marketing activities, advertising costs, and attendance at events and trade shows. Sales commissions are expensed as incurred.

General and administrative. General and administrative expenses consist primarily of personnel expenses associated with our executive, finance, legal, human resources and other administrative employees. General and administrative expenses also include professional fees for external accounting, legal, investor relations and other consulting services, expenses to operate as a public company, including costs to comply with rules and regulations applicable to companies listed on a U.S. securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, other overhead expenses including insurance, as well as third-party costs related to acquisitions.

Interest expense. Interest expense for the years ended December 31, 2023 and 2022, consists primarily of debt issuance costs, commitment fees associated with the unused portion of the New Revolving Credit Facility, interest on balances that were outstanding under the New Revolving Credit Facility and interest on finance leases. The New Revolving Credit Facility bears interest at SOFR plus an applicable margin per annum. See “Liquidity and Capital Resources—Debt Obligations.”

Other (income) expense. Other (income) expense consists primarily of interest earned on interest-bearing monetary assets, gains and losses on foreign currency transactions, and change in fair value associated with contingent consideration related to our acquisitions.

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Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

The following tables show our results of operations for the years ended December 31, 2023 and 2022:

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Note: Percentages may not sum due to rounding.

Revenue

Total revenue increased by $120.1 million, or 27%, from $452.4 million in the year ended December 31, 2022 to $572.5 million in the year ended December 31, 2023.

Total Advertiser revenue increased by $117.9 million, or 29%, driven primarily by a 25% increase in Media Transactions Measured and a 3% increase in Measured Transaction Fees.

Activation (f/k/a Advertiser – programmatic) revenue increased by $77.7 million, or 31%, driven primarily by greater adoption of our Authentic Brand Suitability (ABS) solution, as well as by new customers activating our non-ABS activation solutions, including Scibids.

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Measurement (f/k/a Advertiser – direct) revenue increased by $40.1 million, or 25%, driven primarily by greater adoption of our social measurement solutions across emerging platforms and formats including short-form video.

Supply-side revenue increased $2.3 million, or 5%, driven primarily by an increase in revenue from existing and new platform customers.

Cost of Revenue (exclusive of depreciation and amortization shown below)

Cost of revenue increased by $28.8 million, or 37%, from $77.9 million in the year ended December 31, 2022 to $106.6 million in the year ended December 31, 2023. The increase was due primarily to growth in Activation (f/k/a Advertiser – programmatic) revenue which drove increases in partner costs from revenue-sharing arrangements, as well as investments in cloud services to provide scale and flexibility necessary to support future growth.

Product Development Expenses

Product development expenses increased by $30.3 million, or 32%, from $95.1 million in the year ended December 31, 2022 to $125.4 million in the year ended December 31, 2023. The increase was due primarily to an increase in personnel costs, including stock-based compensation, of $24.8 million and an increase in third party software costs and outsourced consulting and engineering services of $4.4 million to support our product development efforts.

Sales, Marketing and Customer Support Expenses

Sales, marketing and customer support expenses increased by $18.5 million, or 17%, from $107.4 million in the year ended December 31, 2022 to $126.0 million in the year ended December 31, 2023. The increase was due primarily to an increase in personnel costs, including stock-based compensation and sales commissions, of $13.6 million to support sales and account management efforts globally, and drive continued expansion with existing and new customers. Marketing activities, including advertising, promotions, events and other activities, increased $1.1 million, and personnel travel and entertainment expenses to support marketing and sales activities increased $1.6 million.

General and Administrative Expenses

General and administrative expenses increased by $9.3 million, or 12%, from $78.7 million in the year ended December 31, 2022 to $88.0 million in the year ended December 31, 2023. Personnel costs, including stock-based compensation, increased by $8.9 million. Bad debt expenses increased by $5.0 million, including a reserve established in connection with outstanding amounts owed to us by our activation partner, MediaMath Holdings, Inc., which filed for Chapter 11 bankruptcy protection on June 30, 2023. Cost increases were offset by a decrease of $4.7 million in other costs which include costs related to the departures of the Company’s former Chief Operating Officer and Chief Customer Officer, the impairment of subleased office space and the disposal of furniture for unoccupied lease office space that did not recur in the year ended December 31, 2023.

Depreciation and Amortization

Depreciation and amortization increased by $6.6 million, or 19%, from $34.3 million in the year ended December 31, 2022 to $40.9 million in the year ended December 31, 2023. The increase was due primarily to an increase in capitalized software development costs, an increase in leasehold improvements at the Company’s new global headquarters, and an increase in intangible assets related to the acquisition of Scibids.

Interest Expense

Interest expense increased by $0.2 million, from $0.9 million in the year ended December 31, 2022, to $1.1 million in the year ended December 31, 2023 due primarily to an increase in interest costs related to finance leases.

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Other Income, Net

Other income increased by $10.0 million, from $1.2 million in the year ended December 31, 2022, to $11.2 million in the year ended December 31, 2023. The increase was due to an $8.5 million increase in interest income earned on monetary assets, and a $1.2 million gain related to the change in fair value associated with contingent consideration related to the Scibids acquisition.

Income Tax Expense

Income tax expense increased by $8.3 million, from $16.1 million in the year ended December 31, 2022 to $24.4 million in the year ended December 31, 2023. The increase was due primarily to an increase in pre-tax book income.

Adjusted EBITDA

In addition to our results determined in accordance with GAAP, management believes that certain non-GAAP financial measures, including Adjusted EBITDA and Adjusted EBITDA Margin, are useful in evaluating our business. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenue. The following table presents a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to the most directly comparable financial measure prepared in accordance with GAAP.

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We use Adjusted EBITDA and Adjusted EBITDA Margin as measures of operational efficiency to understand and evaluate our core business operations. We believe that these non-GAAP financial measures are useful to investors for period to period comparisons of our core business and for understanding and evaluating trends in operating results on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Some of the limitations of these measures are:

In addition, other companies in our industry may calculate these non-GAAP financial measures differently, therefore limiting their usefulness as a comparative measure. You should compensate for these limitations by relying primarily on our GAAP results and using the non-GAAP financial measures only supplementally.

Selected Quarterly Results of Operations

The following tables set forth our unaudited consolidated quarterly results of operations for each of the 8 quarters within the period from January 1, 2022 to December 31, 2023. Our quarterly results of operations have been prepared on the same basis as our consolidated financial statements, and we believe they reflect all normal recurring adjustments necessary for the fair presentation of our results of operations for these periods. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. These quarterly results of operations are not necessarily indicative of our results of operations for a full year or any future period.

We experience fluctuations in revenue that coincide with seasonal fluctuations in the digital ad spending of our customers. Advertisers typically allocate the largest portion of their media budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. As a result, the fourth quarter of the year typically reflects our highest level of measurement of digital ads while the first quarter reflects the lowest level of such activity. We expect our revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole. While our revenue is highly recurring, seasonal fluctuations in ad spend may impact quarter-over-quarter results. We believe that the year-over-year comparison of results more appropriately reflects the overall performance of the business.

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The following table sets forth our unaudited consolidated results of operations for the specified periods as a percentage of revenue:

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Note: Percentages may not sum due to rounding.

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The following table presents a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to the most directly comparable financial measure prepared in accordance with GAAP.