Ziff Davis, Inc.

Good day ladies and gentlemen and welcome to ZIF Davis third quarter 2021 earnings call. My name is Paul and I will be the operator assisting you today. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. On this call will be Vivek Shah, CEO of ZIF Davis, Steve Dunn, Chief Accounting Officer and Alan Steyer, Vice President of Corporate Finance at Ziff Davis. I will now turn the call over to Steve Dunn, Chief Accounting Officer at Ziff Davis. Thank you. You may begin.

Thank you. Good morning, ladies and gentlemen, and welcome to the Ziff Davis Investor Conference Call for Q3 2021. As the operator mentioned, I am Steve Dunn, Chief Accounting Officer at Ziff Davis. I am joined by our CEO, Vivek Shah, and our VP of Corporate Finance, Alan Steyer. Presentation is available for today's call. A copy of this presentation is available at our website. When you launch the webcast, there is a button on the viewer on the right-hand side which will allow you to expand the slides. If you have not received a copy of the press release, you may access it through our corporate website at www.ziffdavis.com. In addition, you will be able to access the webcast from this site. After completing the formal presentation, we will be conducting a Q&A session. The operator will instruct you at that time regarding the procedures for asking a question. In addition, you may email questions to investor at ZiffDavis.com. Before we begin our prepared remarks, allow me to read the safe harbor language. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our SEC filings, including our 10-K filings, recent 10-Q filings, various proxy statements, and 8-K filings, as well as additional risk factors that we have included as part of the slideshow for the webcast. We refer you to discussions in those documents regarding safe harbor language, as well as forward-looking statements. Now, let me turn the call over to Vivek for his remarks.

Thank you, Steve, and good morning, everyone. I'm pleased to welcome you to our first earnings call since the successful completion of our spinoff of ConsenSys and the renaming of our company to Ziff Davis, which reflects our position as a leading vertically focused digital media and internet company. The team at ConsenSys are off to a tremendous start, and we wish them continued success. While Steve will provide an overview of our financial results, including and excluding consensus, I'm going to focus my comments on the pro forma results that exclude consensus and divestitures, including the B2B backup business that we sold in September. On that basis, we grew revenues by over 35% and adjusted EBITDA by over 23%, continuing the string of outstanding quarters. We're also reaffirming the guidance we provided about two months ago at the Ziff Davis Analyst Day. I also want to recommend for those who have not yet done so to watch the Analyst Day presentation videos, which are posted on ZiffDavis.com. They're very helpful in understanding the company, our strategy, and priorities. Advertising revenues in the quarter grew by over 44%. We saw strong growth in every one of our verticals. which stands in contrast with some of our digital media peers. Health advertising grew by over 18% as we continue to see traditional pharma advertising dollars flowing into digital platforms. As we've noted in the past, we have significant reach with respect to both patients and providers, which makes us strategically valuable to pharma and other health and wellness marketers. Gaming and entertainment advertising continued its strong growth and momentum as part of the new console cycle, while streaming platforms continue to invest for subscriber growth, and theatrical starts its slow rebound. In our tech vertical, we saw 49% growth in our enterprise and B2B business as tech vendors grew their lead gen and account-based marketing spend with us. Retail grew over 100%. aided mostly by the contribution of RetailMeNot, which we had not yet acquired at this time last year. Over the past couple of weeks, there's been a lot of discussion about the impact of iOS 14 and low opt-in rates for IDFA. As I've said in the past, we generate a lion's share of our ad revenue through contextually targeted placements, as well as leveraging our first-party data. In addition, A vast majority of our advertising is browser-based, not mobile app-based, which is another layer of protection from iOS changes. Therefore, we believe that the headwinds associated with iOS 14 and the broader movement to limit ad tracking and targeting based on behaviors don't apply to us. I'd go further and say that an attractive aspect of our advertising franchise is that we have endemic advertisers who value the editorial environments and qualified clicks and leads we're able to deliver. Nonetheless, in the short term, we'll closely watch for any shifts in advertiser confidence, but feel that we're in a very strong position over the long term with ad products and solutions that don't rely on ad tracking. And I will say that this has been a long-term strategic choice. develop business and monetization models that don't rely on third-party cookies and trackers. We're also closely watching for possible cascading effects from supply chain disruptions. We certainly saw in Q2 2020 how limited product supply led to marketers asking us to reduce the demand we were generating for them. I know many of our retail partners are looking to stimulate online purchasing much earlier this year to give themselves more time to meet demand. We've responded by organizing our programming and efforts to start earlier too. Obviously, we will be closely watching for any headwinds associated with supply chain challenges. Subscription revenues in the quarter were up over 18% compared to Q3 2020. Our connectivity subscription businesses, which includes Ookla and Ekahau, grew by 34% in the quarter as the demand for broadband network intelligence and Wi-Fi planning and deployment continues to strengthen. We also acquired a small but strategic asset in the quarter called Solutelia, which we believe extends UCWA's depth of network measurement capabilities while also broadening our competencies in network building and site assessment. The cybersecurity and martech businesses grew nearly 20% in the quarter, driven by the acquisition of Moz, which is proving to be a strong addition to our MarTech portfolio. At the beginning of 2021, we began investing to establish sustained organic growth at these businesses, which have historically maintained conservative levels of sales and marketing. The competition for subscribers is fierce, and it will take time to scale customer acquisition programs that fit our profitability goals. and to see the impact of our investments on recurring revenue. We're committed, however, to finding a path to balanced total growth while still delivering market-leading margins, as we believe cybersecurity and MarTech represent two of the most valuable segments in the market today. Our adjusted EBITDA grew by over 23%, with margins close to 34%, down about 300 basis points versus last year. A good chunk of the increased expenses are subscriber acquisition expenses in cybersecurity and MarTech, with the balance coming from lower margins at newly acquired businesses and the return of expenses that were light during quarantine. We should see margins improve to roughly 40% in Q4 and bring the full-year margins to over 35% which is our target for the company now and going forward. As I indicated earlier, we are reaffirming our full-year guidance, which I should remind you contemplates an expected deceleration in revenue growth to about 10% in Q4 for three reasons. Number one, the year-over-year benefit from the RetailMeNot acquisition is mostly gone, given the acquisition took place in November 2020. Two, a difficult year-over-year Q4 comparison. Last year's holiday season disproportionately favored online sales, and many advertising programs paused in Q2 at the outset of the pandemic came back in Q4. And three, we saw a one-time benefit from the introduction of the new gaming consoles. At the midpoint of our range, our full-year guidance represents revenue and adjusted EBITDA growth of roughly 26%. A key contributor to our growth has been and will continue to be our acquisition system. With our focus on executing the spin, we've been somewhat quiet on the buy side for the last year. Steve will walk you through this, but on a pro forma basis, we have $726 million in cash, $368 million of investments and gross debt of $1.217 billion, which represents a gross debt to EBITDA ratio of 2.5 at the midpoint of our 2021 guidance. In other words, we're well capitalized and have a very healthy balance sheet. We will continue to be patient and disciplined in our deployment of our capital and believe there are a number of attractive digital media and internet assets for us to consider. Just a quick update on our CFO search. Because of the great finance team we have, including Steve and Alan, who are with me today, I've had the opportunity to be deliberate and thorough in the search. We're seeing some fantastic candidates, and I believe it's realistic to expect a new CFO in place by our next earnings call. In the meantime, We shouldn't miss a beat, as we have a deep and talented operational finance team in place. Before I hand the call back to Steve, let me provide you with an update on our ESG efforts. We are on the midst of our first greenhouse gas audit, where we're calculating our carbon emissions for 2019, 2020, and 2021. We expect to complete the audit by early January and plan to communicate our findings in our 2021 ESG report, which will be published in Q1. As you may know, measuring GHG emissions is the key element for sustainability reporting, and this audit will enable us to set science-based targets and net zero goals for the company next year. In addition to our environmental efforts, we're also heavily focused on the S, or social. in esg especially as it pertains as it pertains to dei since our last earnings call we released our 2021 diversity report which highlights key data around our workforce representation hiring and inclusivity senior leadership and management promotions and employee resource groups among other topics the diversity report is both comprehensive and informative and can be found on ZiffDavis.com. I'm very pleased with the ESG strides we've made this year, and I'm confident that we'll continue to build upon our efforts and the foundation that we've created. With that, let me hand the call back to Steve.