Classified in: Business
Subjects: EARNINGS, Conference Call, Webcast

Ziff Davis Reports Second Quarter 2022 Results & Revises Full Year 2022 Guidance

Ziff Davis, Inc. (NASDAQ: ZD) ("Ziff Davis") today reported unaudited financial results for the second quarter ended June 30, 2022.

"We continue to skillfully navigate a difficult and challenging operating environment with a strategy of producing near-term earnings growth while positioning the company for an eventual macro-economic recovery," said Vivek Shah, Chief Executive Officer of Ziff Davis. "At the same time, we continue to strengthen our balance sheet as we seek acquisition opportunities that enhance our businesses and grow and diversify our revenue streams."

SECOND QUARTER 2022 RESULTS

On October 7, 2021, Ziff Davis completed the spin-off of its Consensus Cloud Solutions, Inc. ("Consensus") business. Ziff Davis has classified Consensus as a discontinued operation in its financial statements for the three and six months ended June 30, 2021 results. Historical results in this press release represent continuing operations, except for the Statement of Cash Flows, net cash provided by operating activities and free cash flow during the three and six months ended June 30, 2021, which are on a combined continuing and discontinued operations basis.

Q2 2022 quarterly revenues decreased 1.1% to $337.4 million compared to $341.3 million for Q2 2021. On a pro-forma⁽¹⁾ basis, Q2 2022 quarterly revenues increased 2.2% to $337.4 million as compared to $330.0 million for Q2 2021.

GAAP net loss per diluted share from continuing operations⁽²⁾ increased to $0.99 in Q2 2022 compared to $0.52 for Q2 2021. The net loss increase was primarily due to losses on our investment in Consensus.

Adjusted non-GAAP net income per diluted share from continuing operations⁽²⁾⁽³⁾ for the quarter increased 5.3% to $1.58 as compared to $1.50 for Q2 2021. On a pro-forma⁽¹⁾ basis, Adjusted non-GAAP net income per diluted share from continuing operations⁽²⁾⁽³⁾ for the quarter increased 12.1% to $1.58 compared to $1.41 for Q2 2021.

GAAP net loss from continuing operations increased to $46.4 million compared to $23.0 million for Q2 2021 primarily due to losses on our investment in Consensus.

Adjusted non-GAAP net income from continuing operations increased by 10.9% to $74.4 million as compared to $67.1 million for Q2 2021. On a pro-forma⁽¹⁾ basis, Adjusted non-GAAP net income from continuing operations increased by 17.7% to $74.4 million as compared to $63.2 million for Q2 2021.

Adjusted EBITDA⁽⁴⁾ for the quarter increased 0.9% to $118.0 million compared to $117.0 million for Q2 2021. On a pro-forma⁽¹⁾ basis, Adjusted EBITDA⁽⁴⁾ for the quarter increased 5.3% to $118.0 million compared to $112.1 million for Q2 2021.

Net cash provided by operating activities from continuing operations was $76.0 million in Q2 2022. Free cash flow from continuing operations⁽⁶⁾ was $52.6 million in Q2 2022.

Ziff Davis ended the quarter with approximately $849.3 million in cash, cash equivalents, and investments after deploying during the quarter approximately $68.7 million for current and prior year acquisitions, approximately $18.2 million to repay $21.5 million of outstanding principal of its senior notes and approximately $12.7 million with respect to its share repurchase program.

Key unaudited financial results for Q2 2022 versus Q2 2021 are set forth in the following table (in millions, except per share amounts). Reconciliations of Adjusted non-GAAP net income per diluted share from continuing operations, Adjusted EBITDA and free cash flow from continuing operations to their nearest comparable GAAP financial measures are attached to this Press Release.

The following table reflects Actual and Pro-Forma Results from Continuing Operations for the second quarter of 2022 and 2021 (in millions, except per share amounts). Pro-Forma Results from Continuing Operations below excludes the operating results from the Company's B2B Backup business that was sold in the third quarter of 2021.

The following table reflects Actual and Pro-Forma Results from Continuing Operations for the six months ended June 30, 2022 and 2021 (in millions, except per share amounts). Pro-Forma Results from Continuing Operations below excludes the operating results from Voice assets in the United Kingdom and the Company's B2B Backup business that were sold in 2021.

ZIFF DAVIS GUIDANCE

The Company is revising its guidance for revenue, adjusted EBITDA and adjusted non-GAAP Diluted EPS for fiscal year 2022 as follows (in millions, except per share data):

The Company has not reconciled the non-GAAP Business Outlook for 2022 Adjusted EBITDA or Adjusted non-GAAP Diluted EPS and the associated tax rate information included in this press release to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability with respect to costs related to acquisitions and taxation, which are potential adjustments to future earnings. We expect the variability of these items to have a potentially unpredictable and significant impact on our future non-GAAP financial results.

Notes:

About Ziff Davis

Ziff Davis, Inc. (NASDAQ: ZD) is a vertically focused digital media and internet company whose portfolio includes leading brands in technology, entertainment, shopping, health, cybersecurity, and martech. For more information, visit www.ziffdavis.com.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this Press Release are "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995, including those contained in Vivek Shah's quote and the "Business Outlook" portion regarding the Company's expected fiscal 2022 financial performance. These forward-looking statements are based on management's current expectations or beliefs and are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These factors and uncertainties include, among other items: the Company's ability to grow advertising revenues, profitability and cash flows; the Company's ability to make interest and debt payments; the Company's ability to identify, close and successfully transition acquisitions; subscriber growth and retention; variability of the Company's revenue based on changing conditions in particular industries and the economy generally; protection of the Company's proprietary technology or infringement by the Company of intellectual property of others; the risk of losing critical third-party vendors or key personnel; the risks associated with fraudulent activity, system failure or a security breach; risks related to our ability to adhere to our internal controls and procedures; the risk of adverse changes in the U.S. or international regulatory environments, including but not limited to the imposition or increase of taxes or regulatory-related fees; the risk of liability for legal and other claims; and the numerous other factors set forth in Ziff Davis's (formerly J2 Global, Inc.) filings with the Securities and Exchange Commission ("SEC"). For a more detailed description of the risk factors and uncertainties affecting Ziff Davis, refer to the 2021 Annual Report on Form 10-K filed by Ziff Davis on March 15, 2022, and the other reports filed by Ziff Davis from time-to-time with the SEC, each of which is available at www.sec.gov. The forward-looking statements provided in this press release, including those contained in Vivek Shah's quote and in the "Business Outlook" portion regarding the Company's expected fiscal 2022 financial performance are based on limited information available to the Company at this time, which is subject to change. Although management's expectations may change after the date of this press release, the Company undertakes no obligation to revise or update these statements.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following Adjusted non-GAAP financial measures: Adjusted non-GAAP and Pro Forma net income, Adjusted non-GAAP and Pro Forma net income per diluted share, Adjusted and Pro Forma EBITDA and free cash flow. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these Adjusted non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these Adjusted non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results. We believe that both management and investors benefit from referring to these Adjusted non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These Adjusted non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity. We believe these Adjusted non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

For more information on these Adjusted non-GAAP financial measures, please see the appropriate GAAP to Adjusted non-GAAP reconciliation tables included within the attached Exhibit to this press release.

The Company discloses Adjusted non-GAAP net income per diluted share ("Adjusted Diluted EPS") as a supplemental Non-GAAP financial performance measure, as it believes it is a useful metric by which to compare the performance of its business from period to period. The Company also understands that an Adjusted Diluted EPS measure is broadly used by analysts, rating agencies and investors in assessing the Company's performance. Accordingly, the Company believes that the presentation of Adjusted Diluted EPS provides useful information to investors.

Adjusted Diluted EPS is not in accordance with, or an alternative to, net income per diluted share from continuing operations and may be different from Non-GAAP measures with similar or even identical names used by other companies. In addition, Adjusted Diluted EPS is not based on any comprehensive set of accounting rules or principles. The Adjusted Diluted EPS measure has limitations in that it does not reflect all of the amounts associated with the Company's results of operations determined in accordance with GAAP.

The Company discloses Adjusted non-GAAP net income per diluted share ("Adjusted Diluted EPS") as a supplemental Non-GAAP financial performance measure, as it believes it is a useful metric by which to compare the performance of its business from period to period. The Company also understands that an Adjusted Diluted EPS measure is broadly used by analysts, rating agencies and investors in assessing the Company's performance. Accordingly, the Company believes that the presentation of Adjusted Diluted EPS provides useful information to investors.

Adjusted Diluted EPS is not in accordance with, or an alternative to, net income per diluted share from continuing operations and may be different from Non-GAAP measures with similar or even identical names used by other companies. In addition, Adjusted Diluted EPS is not based on any comprehensive set of accounting rules or principles. The Adjusted Diluted EPS measure has limitations in that it does not reflect all of the amounts associated with the Company's results of operations determined in accordance with GAAP.

Non-GAAP Financial Measures

To supplement its condensed consolidated financial statements, which are prepared and presented in accordance with US generally accepted accounting principles ("GAAP"), the Company uses the following Non-GAAP financial measures: Adjusted EBITDA, Adjusted non-GAAP net income from continuing operations, and Adjusted Diluted EPS from continuing operations (collectively the "Non-GAAP financial measures"). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about core operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.

(1) Share Based Compensation. The Company excludes stock-based compensation because it is non-cash in nature and because the Company believes that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. The Company further believes this measure is useful to investors in that it allows for greater transparency to certain line items in its financial statements. In addition, excluding this item from the non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(2) Acquisition Related Integration Costs. The Company excludes certain acquisition and related integration costs such as adjustments to contingent consideration, severance, lease terminations, retention bonuses and other acquisition-specific items. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(3) Interest Costs. In June 2014, the Company issued $402.5 million aggregate principal amount of 3.25% convertible senior notes and in November 2019, the Company issued $550.0 million aggregate principal amount of 1.75% convertible senior notes. For the three and six months ended June 30, 2021, the Company separately accounted for the value of the liability and equity features of its outstanding convertible senior notes in a manner that reflects the Company's non-convertible debt borrowing rate. The value of the conversion feature, reflected as a debt discount, was amortized to interest expense over time. Accordingly, the Company recognized imputed interest expense on its 3.25% and 1.75% convertible senior notes of approximately 5.8% and 5.5%, respectively, in its statement of operations during the three and six months ended June 30, 2021. The Company excluded the difference between the imputed interest expense and the coupon interest expense of 3.25% and 1.75%, respectively, because it was non-cash in nature and because the Company believes that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding core operational performance. During 2022, the Company adopted ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, whereby a portion of the convertible senior notes is no longer recorded in equity with a debt discount and amortization in interest expense. Therefore, no similar adjustment was made for the three and six months ended June 30, 2022. The Company has excluded the difference between the imputed and coupon interest expense associated with the 4.625% Senior Notes in each period presented. Further, for the three and six months ended June 30, 2022, the Company recorded a gain on extinguishment associated with the buy-back of its 4.625% Senior Notes, which is included within this Non-GAAP adjustment. The Company has determined excluding these items from the non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(4) Amortization. The Company excludes amortization of patents and acquired intangible assets because it is non-cash in nature and because the Company believes that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(5) Change in Value on Investments. The Company excludes the change in value of its investments, which includes income (loss) from equity method investments, the unrealized gain (loss) on its investment in Consensus and other income (loss) on investments (including Consensus). The Company believes that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance as these items are not part of the Company's core operations. In addition, excluding these items from the non-GAAP measures facilitates comparisons to historical operating results.

(6) Gain (Loss) on Sale of Assets. The Company excludes the gain (loss) on sale of certain of its assets. The Company believes that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the non-GAAP measures facilitates comparisons to historical operating results.

(7) Lease Asset Impairments and Other Charges. The Company excludes lease asset impairments and other charges as they are non-cash in nature and because the Company believes that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the non-GAAP measures facilitates comparisons to historical operating results.

(8) Disposal related Costs. The Company excludes expenses associated with the disposal of certain businesses. The Company believes that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the non-GAAP measures facilitates comparisons to historical operating results.

(9) Goodwill Impairment on Business. The Company excludes the goodwill impairment on business because it is non-cash in nature and the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(10) Convertible Debt Dilution. The Company excludes convertible debt dilution from diluted EPS. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

The Company presents Adjusted non-GAAP Cost of Revenues, Adjusted non-GAAP Research, Development and Engineering, Adjusted non-GAAP Sales and Marketing, Adjusted non-GAAP General and Administrative, Adjusted non-GAAP Interest Expense, Adjusted Gain on Sale of Businesses, Adjusted non-GAAP Loss on Investments, Adjusted non-GAAP Unrealized Loss on Short-term Investments, Adjusted non-GAAP Other (Income) Expense, Adjusted non-GAAP Income Tax benefit (expense), Adjusted non-GAAP (Income) Loss from Equity Method Investment, Net and Adjusted non-GAAP Net income because the Company believes that these provide useful information about our operating results and enhance the overall understanding of past financial performance and future prospects.

Pro-Forma Financial Results

Key pro-forma financial results for the three and six months ended June 30, 2022 and 2021, are set forth in the following table (in millions, except per share amounts). The financial results below reflect the Company's results, on a pro-forma basis, taking into consideration the sale of certain Voice assets in the United Kingdom as well as the sale of the Company's B2B Backup business as if they had occurred January 1, 2021.

Adjusted EBITDA as calculated above represents net income from continuing operations before interest, gain on sale of businesses, unrealized gain on short-term investment, other (income) expense, net, income tax expense, (income) loss from equity method investments, net, depreciation and amortization and the items used to reconcile GAAP to Adjusted non-GAAP financial measures, including (1) share-based compensation, (2) certain acquisition-related integration costs, (3) lease asset impairments and other charges, (4) disposal related costs and (5) goodwill impairment on business. We disclose Adjusted EBITDA as a supplemental Non-GAAP financial performance measure as we believe it is a useful metric by which to compare the performance of our business from period to period. We understand that measures similar to Adjusted EBITDA are broadly used by analysts, rating agencies and investors in assessing our performance. Accordingly, we believe that the presentation of Adjusted EBITDA provides useful information to investors.

Adjusted EBITDA is not in accordance with, or an alternative to, net income from continuing operations, and may be different from non-GAAP measures used by other companies. In addition, Adjusted EBITDA is not based on any comprehensive set of accounting rules or principles. This Adjusted non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company's results of operations determined in accordance with GAAP.

The Company discloses free cash flows from continuing and discontinued operations as supplemental non-GAAP financial performance measure, as it believes it is a useful metric by which to compare the performance of its business from period to period. The Company also understands that this non-GAAP measure is broadly used by analysts, rating agencies and investors in assessing the Company's performance. Accordingly, the Company believes that the presentation of this non-GAAP financial measure provides useful information to investors.

Free cash flows from continuing and discontinued operations is not in accordance with, or an alternative to, Cash flows from operating activities, and may be different from non-GAAP measures with similar or even identical names used by other companies. In addition, the non-GAAP measure is not based on any comprehensive set of accounting rules or principles. This non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company's results of operations determined in accordance with GAAP.

 

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