Ziff Davis, Inc.

Good day, ladies and gentlemen, and welcome to the ZIF Davis fourth quarter and year-end 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 ZIF 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 Q4 and Fiscal Year 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 on 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.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 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 in 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. These are challenging times, particularly for businesses in the digital media and advertising market. Our strategy in this difficult environment is uncomplicated. First, focus on earnings and mitigating risks in the portfolio. Second, Invest for organic growth through the careful reallocation of resources and costs. Third, attract and retain the best talent in our markets. And fourth, continue to build our balance sheet so that we're in a position to acquire highly accretive and quality assets. For the fourth quarter, we grew our adjusted EBITDA by over 4%, notwithstanding a nearly 3% decline in revenues. For the full year 2022, we grew revenue excluding our divested assets by 1% and adjusted EBITDA by nearly 5%. We're proud to have generated revenue growth in this climate while also expanding our adjusted EBITDA margin by nearly 150 basis points. While we experienced an organic revenue decline in Q4 that was consistent with what we experienced in Q3, We take some solace in the flattening of organic decline, particularly in the fourth quarter, which represents the largest quarter of our fiscal year. I'll discuss our 2023 outlook in a moment, but let me provide some texture around our Q4 and fiscal 2022 results. Advertising revenues declined by 8% in the quarter. Like I've described in previous quarters, it's always useful to unpack this by category. Our gaming vertical, which has been a bright spot for most of 2022, saw a mid-single digit decline, largely due to the delay in the release of AAA titles. In the shopping vertical, we were pleased to see that RetailMeNot grew low single digits, following up a Q3 that was flat. Where we continue to see decline is at our smaller offers.com property, which, as I said in our last call, we think can be addressed by allocating some additional resources. Our health advertising business was down low single digits as the typical high volume of Q4 buying did not materialize as in prior years. The bright spot is that we're seeing some green shoots in both our consumer and professional pharma ad businesses with 2023 ad upfronts up high single digits year over year. As has been the case for the entire year, the tech category continues to be our biggest challenge, where we saw yet another double-digit decline. This sector continues to present challenges for us, but as I said last quarter, this is a cycle that will need to play itself out, and we believe having diversification across multiple categories, including shopping, healthcare, tech, and gaming and entertainment, is a competitive advantage. Subscription revenues grew over 4% in the quarter. We continue to see very strong growth out of our connectivity business, with revenues up strong double digits through organic gains and the benefit of the root metrics acquisition. Connectivity has been a consistent total and organic revenue grower over the last eight years, as we believe we have carefully assembled a category-leading roster of brands and capabilities in the broadband services markets. Our tools and products are designed to be instrumental in the ongoing development of digital infrastructure and helping individuals and businesses access connectivity solutions to meet their growing needs. We have made nine acquisitions in the space, including Ookla, Ekahau Down Detector, and Root Metrics, establishing us as a worldwide leader in network intelligence, network design, development, deployment, and optimization, and connectivity insights. It's why we recruited a fantastic new president, Stephen Bai, to lead it. Stephen is a broadband and wireless industry veteran, having served as the chief commercial officer of Dish Network and where he was recently appointed to its board of directors, also president of C Spire, chief technology officer of Sprint, and in senior roles at Cox and AT&T. Stephen is widely known and respected in the industry and possesses a rare combination of highly technical engineering skill with very strong business and financial acumen. He has been instrumental in the development and deployment of DISH's standalone 5G network. He has had success at public multinational telecommunications companies as well as at growth-oriented private companies. We're very excited to see Stephen take our connectivity business to the next level. Our cybersecurity and MarTech businesses had a challenging Q4 with a close to 10% decline in revenues. Approximately two percentage points of decline was driven by less favorable FX rates versus Q4 2021. For the year, excluding the divested businesses, the business was essentially flat in revenue and up nearly 12% in adjusted EBITDA. So while we believe we've done an excellent job in growing our bottom line, we continue to have challenges on the customer acquisition front, mainly in direct-to-consumer cybersecurity solutions. We believe we made good progress on this front in Q4, launching our new subscription buying experience on IPVanish.com with localization, new payment options, and other enhancements that should help us acquire customers, especially outside of North America. In our B2B cybersecurity business, our new sales org started to hit its stride in Q4 with some nice logo wins for our email security offerings. Just a word about margins. Obviously, we saw strong margin expansion in 2022. We were very conscious about headcount throughout the year. We managed our headcount down by over 10%. While we did execute a reduction in force in Q4, more than half of the 2022 FTE reduction was achieved through managing natural attrition. Doing so allowed us to manage expenses in a manner that wasn't disruptive to the company and further demonstrates that we work hard to not be surprised or unprepared by market shifts. Notwithstanding our focus on managing headcount and costs, it's important to point out that we're continuing to hire where we see promising returns, and we do plan to continue hiring for key positions in 2023. There are too many attractive growth opportunities in the company that we want to be sure to pursue. For instance, in our health and wellness vertical, we are leveraging our content creation expertise to build top-of-funnel, qualified traffic to our DTC businesses like Luzit. At our Healthy Careers job listings business where we connect HCPs with top healthcare employers, we're building a rapidly growing nurse recruitment business alongside our long-standing doctor recruitment business. In our shopping vertical, we're seeing great unit economics with RetailMeNot members who engage in our cashback offers and install our browser extension. In MarTech, we believe we can unlock value for email marketing customers by leveraging delivery and engagement signals to drive better campaign performance in cyber security we have a growing email security business and with the opportunity to grow this business in new markets and with larger customers and channel partners as we think about 2023 We anticipate that the organic growth declines we experienced in the second half of 2022 will continue into the first quarter and then start to improve sequentially, particularly as we get into the second half given the benefit of lower comps. While it's very difficult to call the bottom in declining markets, we feel that we might be there based on some green shoots we're seeing in the business. We do have some revenue benefit from prior year acquisitions as well. So from a full year perspective, we could see total revenue growth of about 1%. But if current challenges persist into the second half, then we could see total revenues decline by low single digits. I should also point out that we're not including any prospective acquisitions in these estimates, which, depending on the timing and scale, could represent some meaningful upside. With respect to our adjusted EBITDA margin, we're confident in our abilities to match 2022's 36.5% margin at the high end of our range. Towards the bottom end of our range, we would anticipate margins narrowing by 100 basis points, given the high flow-through nature of much of our revenues and given our commitment to continue to fund future growth. We finished 2022 with over $800 million of cash and investments and a ratio of two times gross debt over EBITDA. Our powder is dry. We have been patient. In fact, we didn't acquire a single asset in Q4 of 2022. The last time that happened was Q2 2020, which was the onset of COVID-19. but that didn't last long as we deployed nearly $500 million over the remainder of that year. We are currently very active, looking for opportunities at each of our seven platforms, tech, gaming, shopping, connectivity, health, cybersecurity, and more tech, as well as acquisitions that could represent an eighth platform. Finally, let me provide you with an update on our ESG efforts. Last March, Ziff Davis committed to setting emissions reduction targets with the Science-Based Targets Initiative, known as SBTI. SBTI defines and promotes best practices in near-term science-based target setting. And I'm pleased to share that in November, we formally submitted our targets to SBTI for validations. This is exciting because we are committing to comprehensive scope one, two, and three emissions reduction targets, and we'll be working over the next several years to meet them. In addition to being a leader in the zero carbon transformation, we remain committed to being a workforce of engaged and compassionate citizens. And the work we have done to date, our commitments, and our prioritization of ESG is beginning to be recognized. In late December, MSCI re-rated Ziff Davis, giving us a double A, which they deem a leader, and up a remarkable four ranking levels. ISS has also given us their top score of a one in both their social and governance quality scores. I continue to be incredibly proud of the work Ziff Davis has done and continues to do in the area of ESG. Let me hand the call back to Brett.