Ziff Davis, Inc.

Good day ladies and gentlemen and welcome to Ziv Davis first quarter 2022 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, everyone, and welcome to the Ziff Davis Investor Conference Call for Q1 2022. 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 website, 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.zipdavis.com. In addition, you'll be able to access the webcast from this site. After completing the formal presentation, we'll 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 the slideshow for this 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, Brett, and good morning, everyone. Without question, the macroeconomic environment has become challenging and uncertain, with negative GDP growth, high inflation, rising interest rates, continued supply chain problems, geopolitical conflict, and labor shortages. Notwithstanding these challenges, Ziff Davis delivered a very strong set of first quarter results with revenues and pro forma adjusted EBITDA both up by over 5% year over year. And as I pointed out in our last call, this quarter was going to represent a hard comp for us given the relative strength of Q1 2021 and the lapping of our RetailMeNot acquisition. Overall, We're very pleased with our first quarter and to be in a position to reaffirm our guidance for the year. Our advertising revenues declined 4% in the first quarter. As we described in our last two calls, we've been concerned about the impact of supply chain disruptions on our advertising clients. We saw campaigns continuing to be delayed and budgets being curtailed as some of our marketers continue to have production and fulfillment challenges. We also saw fewer clicks from our properties to e-commerce sites, which is an important part of our performance marketing revenues. We also had the added challenge of RetailMeNot lapping itself in the quarter, which a year ago was being managed for lowered revenues but higher EBITDA. As we said in our last call, we were expecting many of these headwinds and therefore not at all surprised. At the same time, we experienced significant growth in the gaming and entertainment and health verticals. In fact, IGN had its largest ad revenue quarter in its history. Ad category diversification proves to be important as we look to weather the present macroeconomic challenges. Our subscription revenues grew over 15% in the first quarter. We saw double-digit growth in several of our subscription businesses, including our connectivity businesses, Ookla and Ekahau, and the benefit of several acquisitions, including RootMetrics and MozSEO. The integration of those businesses has gone very well, and both are on or ahead of plan. Our cybersecurity business was a low single-digit decliner, with continued challenges in direct customer acquisition and some FX headwinds. We have a new Chief Revenue Officer at the Viper Group who brings extensive experience in selling through the channel and managed service providers which are key to the SMBs we serve. In MarTech, we did experience reduced email activity within our customer base in the first quarter. We're also seeing some recovery, and overall, we're pleased with the trajectory of the Moz group. Our organic revenues for the quarter declined 3%, but when excluding RetailMeNot, which was early in its planned revenue reduction in Q1 2021, and FX Headwinds, we were closer to being flat in organic revenues, which is a good outcome considering the macroeconomic challenges in the quarter. In fact, organic growth was a positive 4% when excluding our tech and shopping businesses, meaning health, gaming and entertainment, connectivity, martech, and cybersecurity posted 4% organic growth. I'm also very pleased with our margins in Q1, which held at 32%, which means our acquired revenues were margin accretive, which is often difficult to accomplish in the first year of an acquisition. We will continue to be very judicious about expenditures, given the uncertain operating environment, but we'll also continue to invest in organic growth opportunities. In fact, a number of our verticals saw some strong organic growth rates in Q1, and we want to be sure to continue to support those businesses. We are in one of the best, if not the best, liquidity positions we've ever been in. With nearly a billion dollars of cash and investments, we have the ability to deploy capital for growth, whether within our existing portfolio or to acquire new businesses. Speaking of M&A, in Q1, we acquired a UK-based portfolio of pregnancy and parenting brands, including Emma's Diary. The acquisition solidifies our category leadership position in the UK, where our three primary brands, Baby Center, What to Expect, and Emma's Diary, have a combined unduplicated reach of 2.7 million monthly users and rank in the number one position among the competitive set. This transaction, like the other two in the quarter, is a relatively small tuck-in, but we continue to have very active discussions with larger acquisition targets company-wide. We believe we are entering into a favorable environment as a buyer. and believe our discipline and patience will be handsomely rewarded. We continue to look for assets within our existing verticals, tech, connectivity, shopping, gaming and entertainment, health, cybersecurity, and MarTech, as well as other verticals that share the high-value, intent-driven nature of the ones we're in. Today's If Davis is essentially a portfolio of assets, that were acquired in the last decade, which was arguably one of the most robust seller's markets in recent memory. Nevertheless, our total acquisition spend over estimated adjusted EBITDA is just a tick over five times. We believe we're terrific acquirers and that a more benign market for buyers will only enhance our returns and shareholder value. Now let me turn to our outlook for the rest of the year. We anticipate that Q2 growth rates will be somewhat similar to Q1, as many of the same headwinds we experienced in Q1 are carrying over into Q2. However, we believe the second half of the year will show improvements. First, we should have more favorable year-over-year comps for RetailMeNot. Second, we expect to have new product launches that we believe have a lot of promise. Third, we are getting signals of increased ad spend from major clients including in the pharma category, where we anticipate a favorable drug pipeline, including important new drug launches and a streamlined post-COVID FDA approval process. Of course, if macroeconomic conditions don't stabilize or even worsen, then we'd have to reassess our views of the second half. At the same time, we have line of sight into acquisitions that could close during the balance of the year, which would leave us well-positioned to add incremental revenue and adjusted EBITDA. We are excited for a new strategic partnership we're entering into with Group Black, which is a company attempting to transform the face of media ownership and investment. Group Black is home to one of the largest collectives of Black-owned media and diverse content creators. Group Black and Ziff Davis will collaborate to create, amplify, and monetize content across Ziff Davis' portfolio of media brands. The partnership will also fund and provide new exposure for Group Black's collective of Black-owned content creators by providing them a voice on Ziff Davis' editorial platforms, with Ziff Davis providing ad inventory to Group Black in an effort to support the deployment of advertising investments from Group Black's brand and advertising partners. We also made a $15 million investment in Group Black, which we think will generate great returns while also providing financial and strategic support to black-owned media. Let me provide you with an update on our ESG efforts. In early March, we released Ziff Davis' inaugural ESG report. The report was well-received by our stakeholders, including employees, customers, and shareholders. We were pleased to hold our second annual ESG non-deal roadshow in late March, where we presented highlights from the report, and fielded questions about our ESG efforts. Thank you to those of you who took part. The report highlighted the findings from our first greenhouse gas inventory, and we have now officially committed to setting an emissions reduction target with the science-based targets initiative known as SBTI. SBTI is the gold standard of emission reduction targets. and is the first step in setting a long-term carbon-neutral goal. In recent months, we've also continued to respond proactively to some of the most pressing social issues and humanitarian crises we're collectively facing. Ziff Davis joined HRC's business statement on anti-LGBTQ state legislation, as well as the Texas Competes and Florida Competes business coalitions. In the early days of Russia's invasion of Ukraine, we helped evacuate our Ukraine-based consultants to Poland, and our Humble Bundle community subsequently raised $20 million for several Ukraine-based charities. Needless to say, I'm incredibly proud of the work Ziff Davis has done and continues to do to respond to the enormous environmental, social, and societal challenges upon us. I want to conclude by thanking Richard Russler. who recently announced his retirement from our board for his incredible service to our company over the past two decades. Richard was an early investor when the company was private. He was our CEO for a period of time, and most recently, our chair. His wisdom, intuition, and leadership are extraordinary, and he's been a valuable mentor to me and a steadfast advocate for our shareholders. Fortunately, we have a wonderful successor in Sarah Fay, who has been our lead director, the chair of our compensation committee, and a director since 2018. Sarah possesses fantastic judgment, and her commitment to our company and its stakeholders is unmatched. She was a pioneering executive in the advertising industry, having served as the CEO of Aegis Media North America and president of Cara U.S. and Isobar U.S. Currently, she's a managing director at venture capital firm Class Wing Ventures. With that, let me hand the call back to Brett.