Ziff Davis, Inc.

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Good day, ladies and gentlemen, and welcome to Ziff Davis Q4 and year-end 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 Ziff Davis, and Brett Richter, Chief Financial Officer of Ziff Davis. I will now turn the call over to Brett Richter, Chief Financial Officer of Ziff Davis. Thank you. You may begin.

Thank you. Good morning, ladies and gentlemen, and welcome to the Ziff Davis Investor Conference Call for Q4 in fiscal year 2021. As the operator mentioned, I am Brett Richter, Chief Financial Officer of Ziff Davis, and I am joined by our Chief Executive Officer, Vivek Shah. A 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'll be able to access the webcast from this site. After completing the formal presentation, we will be conducting a Q&A. The operator will instruct you at that time regarding the procedures for asking questions. In addition, you can email questions to investor at zipdavis.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 our slideshow for the webcast. We refer you to discussions in those documents regarding safe harbor language, as well as forward-looking statements. In addition, please note that these fourth quarter and full year 2020 and 2021 results are preliminary, unaudited, and subject to adjustments. In particular, due to the complexity of the October 7, 2021 spinoff of consensus and the related transactions, including the debt-for-debt exchange, presentation of the transaction's impact on the company's financial statements, including the presentation of continuing and discontinued operations, and the size of the gain associated with the retention of 19.9% stake in consensus is still being finalized. Any change to the impact of the unrealized gain on investment of $290 million associated with the retention of the 19.9% staking consensus would be material to our gap net income from continuing operations. As a result of the foregoing, certain information provided herein is subject to change. Now let me turn the call over to Vivek for his remarks.

Thank you, Brett. I've got to say, it's great to have you on our team. Good morning, everyone. We're very pleased to have capped off an exceptional 2021 with a strong fourth quarter. While the successful spinoff of consensus justifiably garnered a lot of attention in 2021, Ziff Davis delivered exceptional pro forma results at the same time. Revenues of nearly $1.4 billion, up over 26% year over year, and adjusted EBITDA of $485 million, up over 28% year over year. We also exited the year with the strongest balance sheet and deepest financial resources we've ever had. We posted over 10% revenue growth in Q4, with advertising revenues up 7%, and subscription revenues up 15%. As I described in our last call, we expected to see a deceleration in growth in Q4, with RetailMeNot lapping itself, as well as a tough comp with strong online shopping season and the introduction of a ninth generation of gaming consoles during 2020's Q4. On the advertising front, our growth was driven primarily by our health and wellness properties, where we continued to see strong demand from pharma marketers looking to reach patients and physicians within relevant content. In January, Everyday Health announced the addition of Cleveland Clinic to its Trusted Care Access portfolio. In a multi-year partnership, Everyday Health will exclusively represent ad inventory on clevelandclinic.org and bring first-to-market solutions to our advertising partners. We're proud to have been entrusted to further the Cleveland Clinic's mission and support their best-in-class medical content. Our pregnancy and parenting business, led by Baby Center, has been increasingly active in supporting clinical trial recruiting and pregnancy exposure registries, including key COVID-related studies. Our shopping properties were slightly up in the quarter, even with RetailMeNot lapping itself beginning in November and the tough overall shopping comp. Advertising and gaming and entertainment was also slightly up a year after the new gaming consoles were released and our B2B tech advertising continued its momentum from Q3 with strong ad revenue growth. We continue to believe that our advertising franchise has some meaningful advantages. First, We match advertising to relevant content, not the behavioral data. In other words, our ads are placed based on the content you're consuming, not based on third party data. Second, we operate in high value verticals like tech, gaming, health, and shopping, where there are endemic advertisers who value audiences exhibiting purchase intent. Third, our advertising solutions attract large blue chip marketers who tend to spend more consistently over time than small marketers. And finally, our advertising solutions are performance-driven, providing measurable results for clients. On the subscription front, we saw some very nice growth out of our connectivity businesses with continued strength from our Ookla and Ekahau offerings. We also saw a nice boost to subscription revenue from the timing benefit of our Moz acquisition, which closed in June of 2021. This is an acquisition that we remain very excited about, as evidenced by the renaming of our marketing technology business to the Moz Group. The Moz Group now consists of an integrated portfolio of marketing technology offerings that includes SEO, email marketing, and second line voice services. Our cybersecurity business was flat in the quarter. We continue to explore growth opportunities for the business. Our guidance for 2022 projects overall revenue growth of approximately 10% at the midpoint. I'll point out that we have not incorporated any future acquisitions into our guidance. Therefore, we are only providing an outlook for the businesses that we currently own. We will update guidance as appropriate if acquisitions materially affect our range. We're projecting our advertising revenue to grow high single digits in 2022. We expect stronger growth in the second half than the first half for two reasons. First, Q1 and Q2 of 2021 were strong growth quarters for us, making the comps more challenging. Second, as I discussed in our last call, we are cautious about the impact of supply chain disruptions on our advertising clients. We are seeing campaigns being delayed and budgets being curtailed as some of our marketers, especially in tech and retail, are having production and fulfillment challenges. These delays are sector specific because in the case of pharma, which is our single largest ad category, we are seeing no supply chain challenges whatsoever. We are protecting our subscription business to grow in the low teens with strong growth at our connectivity and mark tech groups. offset by some weakness at our cybersecurity group. We see continued demand for our expanded set of offerings and connectivity, from Speedtest to Ekahau to DownDetector to our most recent addition, RootMetrics. We believe we are now the most complete source of broadband analytics in the market. We also project our Moz group to have a very strong growth year with a combination of organic and acquired revenue growth. With respect to our other revenues, which are still very small at about 3% of revenues, we are seeing strong growth of over 50% with our Humble Games publishing business continuing to drive this growth with our newest indie hit, Unpacking, already selling over 300,000 units since its release in December 2021. We continue to look for ways to scale our indie publishing operations. We are projecting adjusted EBITDA margins of 36%, which is about 100 basis points better than 2021. That translates into about 13% adjusted EBITDA growth at the midpoint. As you know, the company stated goal is to double earnings every four to five years, which implies a 15 to 20% earnings tager. Since 2012, we've done better than that by doubling earnings three times. But this is not a linear endeavor. There is an understandable lumpiness that comes with a capital allocation and programmatic acquisition strategy. We invest our shareholders' capital responsibly and where we believe we can generate outstanding returns. If and when we consummate transactions in 2022, then it should only enhance our growth rates. Let me provide you with an update on our ESG efforts. We're getting ready to publish our inaugural ESG report for 2021 in the next few weeks. The report will include findings from the company's first greenhouse gas inventory, which calculates our carbon emissions for 2019, 2020, and 2021. In doing so, we've laid the groundwork to set a science-based target. The report also reflects the company's efforts to align with GRI, SASB, and TCFD reporting standards. In addition to our environmental efforts, we're also heavily focused on our DEI efforts. The report highlights key data points around our workforce representation, hiring, and inclusivity, and promotions among others. It also details the policies, programs, and practices which address the material topics most important to our company and its stakeholders. In this realm, I'd just like to mention that Zip Davis recently received a perfect score on the Human Rights Campaign's 2022 Corporate Equality Index, earning us the designation as a best place to work for LGBTQ plus equality. In sum, we've made great strides in the company's ESG journey and look forward to publishing our upcoming report. Lastly, in the spirit of Black History Month, I'd like to mention a few exciting initiatives. In 2020, Humble Bundle launched its Black Game Developer Fund, committing a million dollars annually towards this unique program, which provides black game developers the assistance and resources to create and publish games. Since its inception, the Black Game Developer Fund has signed and provided support to over 20 qualifying developers. We've also continued our focus on health inequality and everyday health with our Black Health Facts Resource Center. We have launched a new six-part series on health changemakers, celebrating those who have made a positive impact on the health and well-being of their communities and beyond. These are just a couple of examples of how Ziff Davis leverages its platforms to support communities of color. Now, let me pass the call back to Brett.

Thank you, Vivek. Let's discuss our financial results. Our earnings release reflects both our GAAP and non-GAAP financial results for Q4 2021 and the full year 2021. Our earnings release also reflects pro forma adjustments for the impact of various asset dispositions. Explanations for and reconciliations of these adjustments are provided in our earnings release. As you may recall from our previous earnings calls, we sold our Australian and New Zealand voice assets in August 2020 and our UK voice assets in February 2021. In September 2021, we completed the sale of our B2B backup business. As a result, While certain of these divestitures impact Q4 2020, none of these divestitures impact our Q4 2021 results. On October 7th, 2021, we completed the spinoff of ConsenSys. I'd like to recognize my colleagues at Zip Davis and many of the company's former team members that joined ConsenSys for executing such an important transaction for our company and its shareholders. Our GAAP income statement and balance sheet reflect the financial activity related to consensus through October 7th, 2021 in discontinued operations. We will focus our discussion today, and my commentary will primarily relate to our pro forma non-GAAP financial results from continuing operations, which exclude the contributions from the consensus from our divested businesses the periods that they were owned by Zip Davis. Now let's review the summary of the quarterly financial results on slide four. We reported pro forma revenue from continuing operations of $408.6 million for the quarter, as compared with $370.1 million for the prior year period, reflecting growth of 10.4%. Pro forma adjusted EBITDA from continuing operations was $161.6 million for Q4 2021, as compared with $151.3 million for the prior year period, reflecting growth of 6.8%. Our adjusted EBITDA margin for the quarter was 39.5%. Let's turn to EPS. But first, I should highlight that our gap net income in EPS for Q4 2021 reflect the sizable gain associated with our retained staking consensus. As we have discussed on prior calls, we are pursuing alternatives that would allow us to achieve a tax-free disposition of our staking consensus. And as a result, our financial statements do not reflect taxes on this GAAP gain, resulting in a significant after-tax contribution from this gain to GAAP net income and EPS for the quarter. This gain is not reflected in our adjusted non-GAAP earnings per diluted share. As for our adjusted non-GAAP earnings per diluted share, for the fourth quarter, we recorded $2.17. This figure reflects a 0.5% increase as compared with our Q4 2020 pro forma results. Please note that our Q4 2021 EPS reflects the dilutive effect of the retirement of our 3.25% convertible notes earlier this year, offset in part by certain recent share repurchases, which I will discuss shortly. Turning to slide five, for our fiscal year, we delivered very strong pro forma growth in revenue, adjusted EBITDA, and adjusted non-GAAP earnings per diluted share for continuing operations. 2021 total pro forma revenue grew 26.8%, to $1.383 billion. Pro forma adjusted EBITDA grew 28.3 percent to $484.6 million, and we had adjusted EBITDA margins of 35 percent. Pro forma adjusted non-GAAP earnings per diluted share grew 31.4 percent to $6.11. On slide six and seven, we have provided performance summaries for our two primary types of revenue. advertising and subscriptions. In addition to the quarterly and annual revenues, we have also started disclosing new metrics related to these revenue streams on a quarterly basis for 2021. As you can see on slide six, Q4 pro forma advertising revenue grew 7% as compared with the prior period. Our annual advertising revenue grew 34%. Net advertising revenue retention is an annual trailing 12-month statistic. that we update quarterly. Net advertising revenue retention compares advertising revenue generated by a defined group of advertisers in one trailing 12-month period to advertising revenue generated by these advertisers in the prior comparable period. Our goal is to have retention in excess of 100%, which we had in all four quarters in 2021, with Q4 coming in at a very strong rate of 112%. In the fourth quarter, Zip Davis had more than 2,000 advertisers with a quarterly spend of at least $2,500 each. Quarterly revenue per advertiser was at its highest level this year at more than $131,000. Slide 7 depicts our subscription revenue performance. Q4 pro forma subscription revenue grew at 15%, the same level of subscription revenue growth that we achieved for the year. Subscribers were down slightly. as compared to the year's prior quarters, primarily due to modest decreases at cybersecurity and humble bundle. However, average monthly revenue per subscriber reached its highest level this year at nearly $20 per subscriber, with an increase of higher revenue value Moz and connectivity customers, and our churn rate remained at 3%. Slide 8 provides quarterly and year-over-year pro forma revenue growth rates delineated by organic and acquired revenue growth. Revenues from businesses owned for at least a full 12 months are included in organic revenue, while acquired revenues are from those businesses we've owned for less than 12 months. For the full year 2021, we achieved a 10% organic revenue growth rate. This rate slowed in the fourth quarter as expected because of RetailMeNot being included in November and December of both periods and the relative strength of IGN advertising during last year's Q4. If you exclude the impact of RetailMeNot and IGN, the quarter's organic growth was about 5%. Before turning to guidance, I'd like to spend a moment on slide 9, which depicts a number of elements of our balance sheet. Our balance sheet is extremely strong and, as discussed on prior calls, was enhanced through certain transactions related to the spinoff of consensus. We have significant cash liquidity with $695 million of cash and cash equivalents as of year end. more than $350 million of short and long-term investments and significant leverage capacity, both on a gross and net leverage basis. We continue to be committed to keeping gross leverage at three times adjusted EBITDA or below. And we are currently well within this metric with year-end 2021 gross leverage of 2.5 times adjusted EBITDA. As of 2021 year-end, our net leverage was one times and only 0.3 times if you include the value of our short and long-term investments. We will continue to be thoughtful and opportunistic as we allocate our investable resources to pursue enhanced shareholder value. During the fourth quarter, we did just that. We repurchased $25.4 million of our 4% and 5.8% notes and repurchased $47.7 million of our common shares. These repurchase activities continued in the first quarter when we repurchased an additional $54.6 million of Visa notes and $58.7 million of our shares. In all, we repurchased 1 million shares at an average price of $106.43, which is part of our opportunistic share buyback program, in which we repurchase shares when the return profile, we believe, is highly compelling. As you may recall from our prior calls, in order for the cash distribution that we received from ConsenSys to be tax-free to Zip Davis, these proceeds must be used within one year of the spin for a specific set of allowed disbursements. These repurchases qualify. We also deployed approximately $30 million in cash for a number of Q4 and prior period acquisitions. Again, all consistent with our balanced approach to capital allocations. Moving forward, we will continue to consider repurchase activities that we believe are accretive to shareholder value, while seeking investment opportunities that we believe are particularly attractive opportunities for us to grow our business and generate attractive returns. I'd like to provide a few additional details related to our guidance, which is described on slides 11 and 12. Overall, our Q4 2021 preliminary unaudited results were consistent with or better than the midpoints of the guidance that we updated last quarter. With regards to our 2022 guidance, the midpoints of our revenue-adjusted EBITDA and adjusted non-GAAP income per diluted share guidance imply growth rates of approximately 10%, 13%, and 9% as compared with the 2021 preliminary unaudited pro forma results from continuing operations that we presented today. We believe that these expectations are strong, particularly in consideration of the current business environment. With regards to certain details underlying this guidance, in 2022, we expect advertising revenue growth in the high single digits, subscription revenue growth in the low teens, and other revenue growth of nearly 50%. Given the seasonality of our digital media properties We anticipate that roughly 20% and 30% of our revenues will be in the first quarter and fourth quarter, respectively. The company expects to have an adjusted EBITDA margin of approximately 36% for the year. Post the spinoff of consensus, which had a higher concentration of international revenue as compared with Ziff Davis, we expect our non-GAAP tax rate to increase. Many factors go into a projected tax rate, but we currently expect an annual rate of between 23.5% to 25%. Note, these rates often fluctuate quarterly. Additional details related to our share-based comp and anticipated share count are outlined on the slides as well. Following our business outlook slides are our supplemental materials, including reconciliation statements for the various non-GAAP measures to the nearest GAAP equivalent. This section includes a GAAP reconciliation on page 15 that reflects free cash flow from continuing operations and discontinued operations for 2021 of $402.5 million. This figure reflects contributions from the disposed assets and consensus through their disposal dates or the distribution date, respectively. Going forward on an annual basis, we expect free cash flow to approximate adjusted EBITDA, less capital expenditures, interest in taxes, the impact of working capital, and any sources and uses that are excluded from our non-GAAP financials. Note that given the timing of interest, tax payments, and changes in working capital, quarterly cash flows can fluctuate meaningfully. It's been a milestone quarter for the company, and we are excited to pursue additional opportunities in 2022. With that, I would now ask the operator to rejoin us to instruct you on how to queue for questions.

Thank you. We will now be conducting a question and answer session. In the interest of time, we ask that you please limit yourself to one question. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in question queue. You may press star two if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we begin. And the first question is coming from Sham Patil from Susquehanna International Group. Sham, your line is live.

Hey, guys. Congrats on the fourth quarter and the outlook. I just had a couple of quick questions. First question, Vivek, can you talk a little bit about the supply chain issues you commented on? I mean, certainly those seem to be impacting a lot of companies in the sector. Maybe if you could talk about, you know, which businesses, which verticals, And then just, you know, your level of confidence that these are less of an issue in the second half. And then second, on the M&A environment, just curious, just your take on, you know, whether or not the changes in the public markets and valuations that we've seen over the past few months, is that something that you think helps you guys be more aggressive in terms of doing M&A? Or is that something that could potentially to a slowing, I mean, certainly you guys have been quite aggressive since you've been CEO, but just kind of curious for your take there.

Yeah, great. Thank you. And good morning, Sean. So on your first question with respect to supply chain challenges, they're manifest or would manifest primarily in our retail and tech categories. And the way that would work is that look, and we saw this at the beginning of the pandemic, where there were supply issues at a number of retailers and the retailers came to us and said, look, it's not useful for you to generate demand for products that we can't fulfill. And so while we're not quite at that level of challenge, we are seeing signs of it. It is built into our expectations, into our guidance, really for the first to second quarter. But we're pretty optimistic based on the discussions that we're having with our marketing clients and our advertising partners that this will alleviate over time. I think also the tech hardware category, which is not insignificant for us, given that tech is an important category, though it is more software than hardware, I will point out, but you do have chip shortages, and chip shortages also contribute to lack of availability. So to answer your question, I think we have appropriately built in any potential challenges around supply chain into our guidance and remain pretty confident that over the course of the year, those will work themselves out. Now, on your second question with respect to the M&A environment, I do think you're right that generally speaking, there is more sobriety in the marketplace around valuations, which obviously always plays to our advantage as an active buyer of businesses. And obviously right now, we're as well capitalized and positioned as we've ever been to execute against transactions. So that combination is frankly very exciting for us. And now with the team very focused on the acquisition program and system after a year where not only did we have the spinoff of ConsenSys, we had a number of other dispositions. It was a very, very active transactional year. It wasn't an active acquisition year, which everyone has seen. And I think that energy that we were allocating to the various activities to spin off and to divest will show up in our M&A activity. And I think it is a more benign environment for us. So that's what I would say. And I would also say, And just to remind everyone that the way in which we source and generate opportunities is across every single business unit, inside of every division, and at the corporate level. And so that combination and that approach to sourcing generally yields a pretty robust pipeline of opportunities for us to consider.

Great. Thank you.

Thank you. Next question is coming from Corey Carpenter from JP Morgan. Corey, your line is live. Great. Thank you.

I have two as well. I think you were one of the few companies that got into margin expansion this year. So just hoping you could talk about the drivers here and how you were able to alleviate some of the cost pressures other companies are seeing. And then I think secondly on M&A, hoping you could talk a bit about the acquisition of MS Diary that you announced a few weeks ago. Thank you.

Thanks, Corey. Look, I think that, and I'm happy you point this out, we have always been careful spenders at Zip Davis and really thoughtful about how we spend shareholders' money. And so we have been very focused on operating expenses and ensuring that we're seeing the appropriate returns from everything that we put forward and every dollar that we spend. And I think that the process around the consensus spin also gave us an opportunity to really review everything. And so it's not one thing. I think it's the continued mindset and ensuring that we stay at or above our target margins, which are in the mid-30s. And I'm glad that we've gotten, we've arrived there sooner. And this is in an environment where, you know, a lot of expenses are returning to the P&L and to the business, whether those are travel expenses, etc., I will also point out that our business model is generally, particularly around the advertising model, a lot of the advertising revenues have high operating leverage. So the degree to which we can outperform in advertising, the flow through to EBITDA can be quite attractive and can be quite accretive then to the overall margin profile of the company. On your second question around EMMAs, we're really excited for the brand. As you may know, Our parenting and pregnancy business has been predominantly in the US. Baby Center and What to Expect are very strong and very popular US-based pregnancy applications and brands. Obviously babies are born all over the world. And so we've had a real desire to start to expand our footprint and take our business model, our proven business model in the category to territories outside of the United States. The UK happens to be our second biggest territory, but much smaller, particularly for baby center. And so the opportunity for us to expand in a market that would be a natural market for us to expand in with a brand that is of the caliber of the brands that we own in its market, and where we believe we've got a monetization formula and a business model that will help to unlock revenues makes it an exciting deal. It is small, it is a smallish deal, but I think it is representative of our ambition in this category.

Thank you.

Thank you.

Thank you. And the next question is coming from Dan Ives from Wedbush. Dan, your line is live.

Yeah, thanks. So just on M&A, can you talk about from a size of deals, like is there an appetite to do some larger deals here? You know, just given the position you're in, whether it's you may be at another pillar. I mean, how should we just think about that for the rest of the year?

Yeah, Dan, you know, it's a good question. And as I've said in the past, I guess I'll reiterate here. is there is a sweet spot of deals for this company over the last decade that has worked really, really well, sort of lower mid-market type acquisitions. And I think we're going to continue to stay there. I don't think the fact that we have more capacity means larger deals. I think it just may mean more of the kind of deals that we've done, which we feel comfortable with given that we have so many different business units that are competing for capital and have the wherewithal to create value from acquisitions. I just think it mitigates our risk, it spreads our bets, and I think it feeds more parts of the company in a really healthy and productive way. Having said all of that, we are always open to a larger deal, our level of confidence must be extremely high and as you know and think of those as more platform type deals we haven't done many right in the history of the company i'd say the first platform deal was the acquisition of ziff davis itself in 2012 followed by the acquisition of the everyday health business in 2016 and then four years after that. So it seems to happen on every four year cadence. There, there was the retell me not acquisition, but, but in no case did we expend in excess of, you know, what would have been, you know, $500 million or 10%, it's far less than 10% of the enterprise value of the company. I have had a sort of a, a threshold that we would never entertain anything that was in excess of 20% of the enterprise value of the company. But again, we haven't come close to that level of transaction. So I wouldn't conclude that given the healthy balance sheet, we are big game hunting. I think our hunting is the same hunting it's been. It's just we think we can, we have the capacity to transact on more opportunities.

Great, thanks.

Thank you.

Thank you. And the next question is coming from James Breen from William Blair. James, your line is live.

Thanks for taking the question. Just one, again, on the M&A side around the gaming industry. Obviously, we've seen some large M&A deals happen around gaming. Just any thoughts there, whether there's opportunity for M&A or potentially to sell some of the assets you have? And then, secondly, on Ookla, you know, with 5G rolling out and the government broadband build out, you know, any additional inquiries you're seeing around that just for businesses to get more insight into what's happening in the broadband markets? Thanks.

Hey, Jim, these are great questions. So obviously the gaming industry, there's been a number of pretty high profile and significant transactions in the industry, which we watch with, you know, with great attention and we think it could yield actually more revenue and more marketing dollars unlocked as some of these larger, more consolidated players tried to start to deliver on the promise of these combinations. So there could be some positive tailwinds around our assets with respect to what's going on. I also think it shows up in our other revenues, which are still small, but our efforts in the humble games publishing area also I think is beneficial as I think a lot of these larger platform companies want to continue to build their libraries and will seek indie publishers like us and our titles to add to their libraries so we become a little bit of an arms dealer to some of these platforms which was something we were anticipating so that also aligns I think with what we're seeing in the in the marketplace and then remember because we're largely you know, games, media, yes, digital storefront as well, I do think that we can still transact in the space without being concerned about asset values making it hard for us to acquire in the space. So I'm not concerned about that. On the aspect of, you know, Can we unlock value? I would say this about all of our businesses, and I think demonstrated by what we experienced last year with the consensus. If we see an opportunity to unlock meaningful and sustained shareholder value through a separation, whether it's a sale or a spin or a Caravagno IPO or whatever, we're going to continue to really ensure that if those are available to us, we will take advantage of those. And so I think we have our eyes open across our portfolio for opportunities like that. That's not a new statement. That's something we've always said. But I think given that we've acted in a meaningful way with the consensus spin and the confidence that we frankly garner from that experience, we feel that there may well be opportunities like that as we think about the company's portfolio. So, look, I think that there's a lot to like. Now, you asked about connectivity and 5G. It is worth pointing out that the connectivity set of businesses, the Ookla, Ekahau group of assets are our fastest growing assets, however you look at them, organically, total growth, et cetera. We executed a really important transaction strategically in route metrics. So for those who follow broadband analytics and testing, there has been a long held sort of bifurcation in the market. There are those who believe in crowdsourced testing and analytics. That's what we have historically done. Where individuals test their speeds and the aggregated analytics help inform network owners and operators I said the quality of their networks as benchmarked against their competition. But there's also something called drive testing, which is to actually equip vehicles with devices and software to measure how those devices are performing in motion, driving along a highway. And that is drive testing. We've never had drive testing data or capabilities within this group. So the opportunity now to bring drive testing and root metrics is certainly the market leader in drive testing, has been for a while. And I'm sure you've seen all the ads where people are promoting their root metric scores. Having that combination puts us now complete in terms of an analytics point of view. We no longer are engaging in the debate of which is better. We have all of it. And so we have any and all views into network performance, which we think is going to be very powerful. And I think 5G just builds into that, right? These are networks. How are they doing? Are they meeting the need? I think that's just going to open up even more opportunity for us.

Great, thanks.

Thank you. Once again, ladies and gentlemen, you can enter the Q&A queue at any time by pressing star 1 on your telephone keypad. That's star 1 to enter the Q&A queue. And the next question is coming from Rishi Jaluria from RBC. Rishi, your line is live.

Wonderful. Thanks, guys. Thanks so much for taking my questions. I have two here, one for Doug, one for Vic. For Brett, I wanted to maybe unpack the organic number a little bit. And, you know, obviously the 2% is a little bit of a decel from what we saw in Q3 and Q2. But I wanted to understand maybe the drivers of that. Number one, we obviously don't have the compares from 2020, and I imagine the compares in Q2 and Q3 were probably substantially easier than they were in Q4. So if we think about that, maybe how much of that is attributed to the tough comps? how much to the retail may not and kind of the drag on organic growth that brings, as well as maybe the tougher e-commerce season. And then for Vivek, look, you know, can you remind us what sort of impact you saw specifically from IDFA, especially in light of what we've seen for some of the larger internet platforms from IDFA and why you feel you're maybe a little bit more insulated from that impact than others in the space? Thanks.

Great. Thanks, Rishi. Let me take the question on organic growth first. I think, you know, first and foremost, while certainly we're here and focused on the quarter, particularly our first quarter after the consensus spin and emerging as sort of our new platform for growth, I think there should be as much focus on the full year organic growth as the fourth quarter, and we'll talk about the fourth quarter in a second. I mean, we did 10% organic growth for the full year, and that is a significant contributor to the overall value creation of our company and the path that we're on. When we talk about our growth ambitions and we talk about being a total growth company, we generally think about getting about half of that growth from organic and half from M&A. And, of course, M&A feeds into all the questions that have been asked on this call and the timing and the nature and whatnot. But on a full-year basis, our organic growth is strong. With regards to the fourth quarter, and yes, maybe a lower rate, there are a handful of factors. One of those factors is we've lapped the retail may not acquisition, and that feeds into the equation. We had very tough comps from last year overall. Last fourth quarter, extremely strong for the industry and the company. And IGN dragged us down a little bit to the quarter as well. But overall, looking at the last 12 months and the growth that we put up, I really believe that's the story.

And then just on the question around IDFA and the overall ad environment, what I would say is that I do believe that the pendulum is swinging in our direction in that content-oriented and contextually driven advertising solutions are coming into favor where, as I described, advertising is placed against the specific content, adjacent to specific content, versus based on interest and data collection. And since IDFA was really designed with the changes with respect to IDFA to somewhat disable interest-based advertising targeting, that obviously has had a negative impact on the platforms that rely on it. That's not us. And so from our point of view, the challenges relating to IDFA, third-party cookie deprecation, and the overall market view of swinging back to being in environments that they value, premium environments where the content and the fact that you're consuming the content indicates something about your purchase intent, that is what we do. And so I do believe that we're going to find ourselves in a favored position. I'll make one other point on this, which is, you know, some of the, all of the larger platforms have a full range of customers from large enterprise buyers of advertising down to the smallest businesses. And if you parse some of their challenges, it's been more on the long tail. Our advertising business is really ahead of the tail type business, you know, over 2000 enterprises. level buyers of advertising, which demonstrate far more retention and recurrence of revenue. I mean, you know, one thing I would say for those who watch the company and study the company, the net ad revenue retention statistics are remarkable. They are enviable no matter what industry you look like. They're SaaS-like revenue retention, really sticky. really retentive, and that is, I think, a characteristic of the customer base that we have. So, you know, there's a lot of new information in today's report and presentation. It's a lot to get through, I know, but we felt that it was important, and this are, you know, really our first opportunity to really talk about Zip Davis going forward and how to think about the company. So I would encourage everyone to spend some time with the data that's in there.

Wonderful. Thank you so much.

Thank you. And the next question is coming from Charlie Ehrlich from Baird. Charlie, your line is live.

Great. Hey, thanks for taking the question. I just wanted to dig into the strong expected subscription growth in 2022. It's great to see that. Just love to get a little bit more detail on what's driving that, you know, what are the key pieces there, and Yeah, any color on that would be great. Thanks.

Yeah, no, thank you. So it's a combination of real strength in the broadband business. So remember, the subscription business is roughly 60% the cybersecurity and more tech subscription offerings. And then the balance is the connectivity subscriptions and gaming subscriptions. So in that mix, The strength of the connectivity offerings is the primary organic driver of growth. Add to that expected organic growth within the MarTech offering, and that group is now called the Moz group, plus the acquisition timing benefit of Moz itself. Remember, Moz was a mid-year 2021 acquisition, and so there is a timing benefit going into 2022. It is offset slightly by, you know, a cybersecurity suite that we are still scratching at looking for growth opportunities. It's a great business unit, 2 million of revenue in cybersecurity, mid thirties, even a margin. But as I've talked about in the past, I wouldn't mind trading a little bit of that margin. to accelerate the top-line growth, because I think the value of a more organically, though profitable, and highly profitable cybersecurity business, the value of that could be quite substantial, given just what the cybersecurity market looks like today. But the mix of those things, we're excited for that level of growth, and we see opportunities also within the humble business that could be to be in addition to what we've modeled. So it is a good part and a good story as we look into this year.

Great. Thanks, Zach. And if I can just squeeze one more in for Brett. You guys have talked about a 60% EBITDA free cash flow conversion rate in the past. Is that how we should be thinking about 2022 as well from a free cash flow standpoint? Because I think that might imply that free cash flow might be down year over year if that the conversion rate. So any info on that would be awesome. Thanks.

Yeah. Thanks, Charlie. Yep. Free cashflow and free cashflow conversion continue to be a tremendous focus, you know, for the company, obviously post has been of consensus and they have a, to some degree, different margin dynamics than the overall company. Those margins are going to change. I think first and foremost, thinking about free cashflow, is really a 12-month view. In any given quarter, you have sort of ups and downs. There could be working capital factors, timing of certain payments, our balance sheet, our interest expense, and whatnot. Generally, you know, we think about it in sort of a very holistic way. Just at EBITDA, those are CapEx interest taxes. The working capital will work itself out. Sometimes there's other sources and uses that are typically out close to the company that we exclude for non-GAAP. And all that plays in. But we will continue to target the company towards about a 60% conversion rate of free cash flow. And we think that is healthy overall for a business like ours, producing significant amounts of after-tax, fully leveraged liquidity for us to pursue capital allocation alternatives And yeah, looking, depending on the metric you use, and there's a tremendous amount of ins and outs with the company between dispositions, spinoff, the change in the balance sheet, not sure exactly which metric you're looking at, but we anticipate producing meaningful free cash flow to continue to fuel our strategy.

And the only thing I'll point out is, remember what you're looking at in the document, the historic free cash flows include the fax businesses. Consolidated, discontinued, and continuing ops. So that would obviously, you know, indicate that the free cash flow and the continuing ops would be different.

Yep. Thanks, guys.

Thank you. And the next question is coming from John Tanwantang from CJS Securities. John, your line is live.

Hey, good morning, gentlemen. Thanks for taking my question. My first one is for Vivek. Do you expect to continue to see that pendulum swing towards you in that spending this year, or do you expect maybe some of the bigger players could claw some of that back as they adjust and adapt their business models to the new privacy and regulatory pressures that are out there? We saw Snap do that. I'm wondering if there's any possibility that the other bigger players could do that as well.

I mean, look, there's always that possibility, and you can't underestimate the empire's that exist in our world and their ability to try to manage through the challenges. But I, you know, look, I think that, you know, even prior to the IDFA changes, we had a lot of strength and momentum because I think our performance driven solutions and the verticals we're in aren't relying on a disabling of interest-based advertising. They compete well side by side. So I would say that even if, if, There is that response from the large platforms around some of their challenges. I don't think that changes our view of our growth potential and where we're looking to go. And so, no, I'm not concerned about that. I think more if the pendulum does swing our way, it's just more upside for us. But I don't view it as a threat because we've operated for a long time in an environment where we've had to sit side by side with very large hegemonic level players within the advertising ecosystem.

Got it. That's your caller. Brett, just a question on the guidance. Can you talk about the EPS growth rate this year versus the EBITDA growth rate? Just why the discrepancy? I would normally expect the EPS growth rate to be higher than EBITDA.

Yeah, I think, look, there's a couple of factors there. Again, we have to be very careful about our comparable periods and what we're looking at. given the changing dynamics of the company. Keep in mind that in the second half of this year, we converted the three and a quarter percent converts, which increases our share count going forward. It only blends in in the current period. We started to purchase some stock late in the fourth quarter. And in the first, that really doesn't factor in. into the fourth quarter. So again, the measure that you're looking at, our tax rate performer for the consensus spin is going to go up. The consensus business had a much higher concentration of international revenues and in venues of lower taxes, and in some cases, different tax dynamics and credits. So as we said in our guidance, we're going to see a little bit of a higher tax rate. But generally, The top line growth is going to feed the earnings machine. And on a per share basis, that really may be dilution and tax dynamic that are the two biggest contributors.

Okay, great. Thank you. And if I could sneak one more in there. Vivek, do you have the pipeline today to drive that earnings growth you're expecting to achieve over the next several years? Or is that something that you're still going to need to find the targets for? Just help us understand what you have in the pipeline against that goal of earnings growth.

Listen, you know, so step back. Our stated goal is to double earnings every four to five years. That's what we are looking to do. And we've done that three times in the last decade. So we're ahead of plan. And that combination is, it's a combination of growing earnings from the portfolio we own and adding to our portfolio. So remember this guidance, which from an earnings point of view, 13% at the midpoint, essentially gets us there as no M&A from this point forward baked into the year. And as you can see on the schedule in the slides, we add a fair amount of acquired revenue each year. So I would say that I think I would look at it as the fact that we're growing this much without a lot of M&A activity in 2021 and without building in any into 2022 guidance puts us, I think, in a very enviable position for this year. Longer term, I would simply say that given the balance sheet we have and given the 10-year track record of putting our balance sheet to work, I remain confident in our ability to double earnings every four to five years.

Great. Thank you. Thank you.

Thank you. And the next question is coming from Joe Goodwin from JMP Securities. Joe, your line is live.

Great, thank you, good morning. Can you just share what the assumptions are for organic growth within the guidance for 2022? It's about half of the revenue. Okay, so consistent with, okay. And then I guess, could you, can you describe maybe just what are some of the headwinds that you're seeing on the cybersecurity

business today or the weaknesses that you're seeing it like kind of what's going on there and then yeah you say you know you're looking at some of the different strategies but i guess what are some of those strategies that you're exploring yeah the biggest issue we've got there is how do you compete for customer acquisition in a very profit environment where you know competitors have allowables higher than ours because they're willing to not generate profit and so And we've run into this before, and I think we just have to be clever and crafty in the way in which we market. The customer acquisition LTV equation is very hard right now in the cybersecurity space. But to be clear, we have a very good franchise. It's just not a high-growth franchise and not a contributor to the overall organic growth of the company, right? If you're not an organic grower, you are definitionally not contributing to the organic growth, and it is a $200 million-ish revenue business. So we would like to return to growth. I think if I were to look in the portfolio, the area where we're seeing kind of the most challenges specifically in the VPN space, it's a very competitive space and we've got competitors who are prioritizing top line growth over profitability in, I think, non-sustainable ways that I think will, as I've seen in many other markets, will at some point work itself out, but that's the environment But it is a customer acquisition issue. There's certainly things we need to do on the product side that we're working on. That's a matter of time, ways in which we can improve our offerings and the user experience. But those are all in the pipeline, and I feel confident about that. It really comes down to how do we get the CAC LTV equation right for the businesses.

Thank you.

Thank you. And there are no other questions in queue at this time. I would now like to hand the call back to Brett Richter for any closing remarks.

Thank you, Paul. First and foremost, I just want to say we appreciate you all joining us today and joining me for my first call with the company. I've already had the opportunity to meet many of you and I look forward to spending time with each of you in the near future. It's really and truly a really exciting time for Zip Davis and a privilege for me to be part of the team. We'll be issuing a press release later this month with regards to which investor conferences we'll be at in the near future. We hope to see some of you there. And again, thank you and have a great day.

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.