Ziff Davis, Inc. (ZD) on Q1 2023 Results - Earnings Call Transcript

Operator: Good day, ladies and gentlemen, and welcome to the Ziff Davis First Quarter 2023 Earnings Call. My name is Paul, and I will be the operator assisting you today. [Operator Instructions] On this call will be Vivek Shah, CEO of Ziff Davis; and Bret Richter, Chief Financial Officer of Ziff Davis. I will now turn the call over to Bret Richter, Chief Financial Officer of Ziff Davis. Thank you. You may begin. Bret Richter: Good morning, everyone, and welcome to the Ziff Davis Investor Conference Call for Q1 2023. As the operator mentioned, I am Bret Richter, Chief Financial Officer of Ziff Davis, and I'm 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.ziffdavis.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 e-mail questions to investor@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 and 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 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 slide show for the webcast. We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements. Now let me turn the call over to Vivek for his remarks. Vivek Shah : Thank you, Bret, and good morning, everyone. While the operating environment, particularly the advertising market remains challenging, we're pleased to see incremental improvements in our business and have reasons to be cautiously optimistic about a stronger second half. While we're seeing scattered headwinds in different pockets of our portfolio, along with some exciting tailwinds, it is our tech vertical that is having an outsized impact on revenue growth. Of our 7 verticals, Tech has been, by far, the most negatively affected by the current environment. In fact, excluding tech, total Ziff Davis revenues in the first quarter would have grown over 1% year-over-year. As a result, the tech vertical has shrunk to representing only 8% of total revenues in the first quarter. Most exciting for us in the quarter was the performance of our connectivity and health and wellness verticals. Both businesses experienced double-digit revenue growth. As you'll recall, we recruited Stephen Bay to be the President of the Connectivity division, and he's hit the ground running with the team. Ekahau, an industry leader in WiFi planning and optimization achieved significant year-over-year growth. And we continue to see strong demand within Ookla for core data services across the industry as operators continue to deploy and optimize their 5G networks. In our last call, I mentioned that we were seeing some green shoots in both our consumer and professional pharma ad businesses where pharma digital ad spend appears to have returned to its more predictable pre-pandemic cadence buttressed by a strong 2023 drug launch calendar. And in March, the Everyday Health Group was, for the first time in our history, #1, in Comscore's health category with an unduplicated U.S. reach of 81.8 million unique visitors. My hearty congratulations to Dan Stone and the team at Everyday Health. The gaming vertical declined in the first quarter, but that was primarily due to the timing of humble game releases and a very tough game advertising comp given last year's Q1 release of AAA titles. Shopping was down in the quarter, but retail may not grew for the third quarter in a row, which we view as very important, while Offers.com continued to slide. As I said on the last call, we've reallocated resources to address what is largely a technical set of challenges that offers and believe we can stabilize and return the asset to grow. Cybersecurity and martech were down high single digits year-over-year in revenue in the first quarter, with growth in e-mail being offset by declines in VPN. This represents a slight improvement from Q4, and we believe each subsequent quarter this year will represent an incremental improvement over the last. We're encouraged by strong usage and a robust new business pipeline for our Campaigner and SMTP e-mail solutions and quarter-on-quarter growth in customer adds for our VPN solutions. In addition, as we progress throughout the year, we currently expect a more favorable year-over-year impact from FX, which was a drag in Q1. On the M&A front, we continue to balance our active sourcing program with a commitment to pursuing only the highest confidence opportunities where we are uniquely positioned to unlock value. With nearly $900 million of cash and investments on our balance sheet, we continue to have a great deal of capacity to deploy capital for acquisitions. When the right opportunities arise, we will have the ability to act decisively. But we continue to be patient and selective in a market that is in the midst of a rotation that we believe will result in increasingly attractive opportunities over the balance of this year. We are very aware that our recent pace of acquisition activity has been slower than we expected. However, we believe our patients will ultimately be rewarded, and we're grateful for our shareholders' patience as well. We're always examining our portfolio and making decisions about where to invest and where to monetize assets by divesting or seeking partners to enhance the growth potential of our businesses. It's in this context that we've hired an advisor to explore strategic options for our B2B tech business, and we're pleased with the quality and nature of the discussions we're having. This is not a first for us. In recent years, we have run several successful processes that resulted in a sharper focus for us and an exciting new chapter for the divested enterprise. Portfolio rationalization is an important discipline and healthy exercise for any company. And to be clear, we intend to remain leaders in the B2C tech publishing business with brands such as PCMag, Mashable and our newest addition, I wanted to pick up from some of the discussion we had on our last call about AI. I understand investor interest in the topic is high and rightly so. We're very excited by the potential that AI has to create compelling opportunities across our company. But that's not new. We've been utilizing AI technologies to enhance and streamline our business for over a decade. Machine learning algorithms power our proprietary customer data platform. AI powers many of our products, including Moz and our connectivity solutions at Ookla and Ekahau. AI also supports our compliance and security processes. What is new are the exciting advancements in generative AI and large language models, LLMs. We've identified 3 key categories of opportunities. The first is enhancing the value proposition of our proprietary data to deliver predictive analytics and insights. The second is about creating new conversational experiences across our consumer-facing brands. And the third is about increasing our content velocity and gaining efficiencies in our content production process. On the data front, we possess a significant quantum of proprietary, valuable and permissioned data. We are a global leader in connectivity insights with over 7 billion throughput tests from over 600 million app installs across more than 190 countries every year. We are a category leader in shopping and e-commerce data with over 2 billion annual [impressions] and over 200 million unique visitors. Our Moz brand is one of the most trusted authorities in online search with over 44 trillion indexed links, 1.25 billion keyword suggestion and 670 million analyzed search engine results pages. By harnessing our unique proprietary data, we can enable predictive insights that directly support our customers' objectives and create more value for them. For example, we can leverage our connectivity data to support providers with predictive insights on customers that are likely to churn. We're also excited about leveraging generative AI to create new conversational experiences with our audiences. Until now, audience engagement has primarily been one way. We can soon have two-way interactions through AI-powered virtual assistance that can deepen our audience engagement. For example, in our Lose It! app, we can offer our audience a personalized virtual nutritionist that instantly addresses their queries based on their app inputs. This represents a unique opportunity for us to better support our audiences and objectives, resulting in greater engagement. Lastly, the opportunities to improve efficiency and effectiveness across all of our businesses have increased rapidly. For example, our various editorial teams are actively pursuing the integration of generative AI across multiple steps in the editorial workflow to produce more high-quality content. This has come about bottoms up from the editorial organization itself as our creators see an enormous opportunity to enhance productivity while ensuring the continued creation of trusted editorial content. Before I hand the call back to Bret, let me provide you with an update on our ESG efforts. In April, we released Ziff Davis' 2022 ESG report, and separately, Ziff Davis' 2022 DEI report, both of which can be found on our website. The ESG report includes findings from our most recent greenhouse gas inventory and I'm pleased to report that our 2022 Scope 1, 2 and 3 combined emissions represent a 7% decrease from 2021. This is solid year-over-year progress and illustrates that we are on the right path as we await validation of our science-based emission reduction targets from the SBTi, scheduled to happen later this month. The report also details how we've leveraged our platforms to help implement change in our communities and discusses our extensive data privacy, security and corporate governance practices. The DEI report provides an update on company demographics and our ongoing efforts to increase representation across Ziff Davis. Of note, in 2022, Ziff Davis increased the percentage of women, both hired and promoted and we increased the percentage of people of color who are promoted and are managers as compared to the prior year. The report also includes the latest programs, policies and actions we are taking to foster a workplace in which all can thrive. Needless to say, I'm incredibly proud of the work Ziff Davis has done and continues to do and I hope you'll take some time to review the reports. With that, let me hand the call back to Bret. Bret Richter : Thank you, Vivek. Let's discuss our financial results. Our earnings release reflects both our GAAP and adjusted financial results for Q1 2023. We will focus our discussion today and my commentary will primarily relate to our Q1 2023 adjusted financial results and our comparisons to prior periods. Now let's review the summary of our quarterly financial results on Slide 4. We reported revenue of $307.1 million for the first quarter of 2023 as compared with revenue of $315.1 million for the prior year period, reflecting a decline of 2.5%. FX negatively impacted the Q1 year-over-year growth rate and if the comparable 2022 currency values were applied to our 2023 Q1 results, revenue would have declined by approximately 1.5%. Adjusted EBITDA was $94.3 million for Q1 2023 as compared with $100.8 million for the prior year period, reflecting a decline of 6.4%. Our adjusted EBITDA margin for the quarter was 30.7%. We reported fourth quarter adjusted diluted EPS of $1.10. While Q1 2023 was overall consistent with our expectations, we saw a wide spread in performance between some of our businesses. As Vivek noted, our technology business performance and in particular, our B2B business continues to reflect market pressures and therefore, had a disproportionately negative impact on our year-over-year results. While certain of our other businesses also declined year-over-year, as Vivek noted earlier, several exhibited year-over-year growth, primarily our connectivity and health and wellness businesses. Excluding tech, Ziff Davis Q1 2023 revenue grew more than 1% year-over-year. On Slides 5 and 6, we have provided performance summaries for our 2 primary sources of revenue, advertising and subscription. Slide 5 presents the company's advertising revenue performance. Q1 2023 advertising revenue declined by 8% as compared with the prior year period, consistent with Q4 2022. This performance was also heavily impacted by the challenges within tech. Excluding our technology vertical, year-over-year advertising decline would have been 2%. Trailing 12-month advertising revenue declined by 7%. This was also impacted by the reduction in foreign currency rates as compared with the prior year period. Our net advertising revenue retention and annual trailing 12-month statistic that we update quarterly, was approximately 91% for Q1 2023, largely consistent with the decline in advertising revenue. As defined in the slide, in the first quarter, Ziff Davis had more than 1,700 advertisers with the average quarterly revenue per advertiser of nearly $90,000. This reflects fewer customers at a higher average revenue per customer as compared with the prior year period. Slide 6 depicts our subscription revenue performance. Q1 2023 subscription revenue grew 4.5% as compared with the prior year period and was again negatively impacted by FX. Subscription revenues grew 6% during the last 12 months, excluding the contribution from certain businesses that were divested in 2021. The table on the bottom of Slide 6 includes subscription metrics for the last 9 quarters. Sequentially, total subscription customers were essentially flat primarily reflecting growth in Lose It! subscriptions, offset by slight declines in gaming and privacy. Sequentially, our average quarterly revenue per subscriber grew by 1.7% to $47.14. As noted on our prior call, since Q3 2022, these metrics reflect the inclusion of a full quarter of our recent acquisition, Lose It! which is characterized by a significant number of monthly subscribers at a significantly lower average revenue than the average of our other subscription businesses. Overall, the acquisition of Lose It! has significantly raised our number of subscribers and lowered our average quarterly revenue per subscriber as compared with the prior year period. Our overall churn rate improved 53 basis points from Q4 2022 to 3.28%. This decline reflects a number of factors, including improvements in connectivity, Humble Bundle and martech churn. Additionally, the company's Q1 2023 other revenues declined 2% year-over-year. Slide 7 provides quarterly organic and total revenue growth rates for the last 9 quarters. Revenues from businesses owned for at least a full 12 months are included in organic revenue, while acquired revenue relates to businesses we've owned for less than 12 months. First quarter 2023 organic revenue declined 6%, a small improvement as compared with Q4 2022. This decline was minus 5% adjusted for FX and primarily reflects the business unit performance trends discussed earlier. Turning to our balance sheet. Please refer to Slide 8. Our balance sheet continues to be strong. As of the end of Q1 2023, we had $722 million of cash and cash equivalents and $155 million of short- and long-term investments. We also have significant leverage capacity both on a gross and net leverage basis. As of the end of the first quarter, gross leverage was 2x trailing 12 months adjusted EBITDA, and our net leverage was 0.6x and only 0.3x if you include the value of our financial investments. During Q1 2023, we continue to monetize our stake in consensus selling approximately 52,400 CCSI shares for gross proceeds of $3.2 million. As of March 31, 2023, we held approximately 1 million CCSI shares, and we will continue to be opportunistic with regards to our monetization efforts. As a reminder, we have until October 2026 to complete the disposition of our CCSI stake. Our strong balance sheet is the foundation of our capital allocation strategy. We believe that we are well positioned to continue to pursue M&A investments and other capital allocation alternatives. We closed 1 acquisition for our media business in the first quarter, and we continue to pursue multiple M&A opportunities. We acknowledge that closing transactions in the current environment has been more challenging than anticipated. However, we continue to believe that we are well positioned both operationally and financially to execute upon our aggressive M&A strategy. With regard to stock repurchases, we began repurchasing shares in the second quarter, and we intend to continue to do so at and even above the stock's current market price. Turning to Slide 10. We are reaffirming the fiscal year 2023 guidance range that we presented in February 2023. As a reminder, the high end of our guidance for 2023 revenue, adjusted EBITDA and adjusted diluted EPS reflects growth rates of approximately 1%, 1% and negative 2% as compared with our 2022 adjusted financial results. The low end reflects declines of approximately 3%, 6% and 9%, respectively. As we discussed on our year-end 2022 earnings call, the operating environment remains challenging. Global macroeconomic pressures continue to weigh on the purchasing decisions of our largest advertising clients and in particular, our enterprise technology clients and consumers continue to navigate the pressures of high inflation and rising interest rates. Our Q1 2023 adjusted results reflect the impact of these and other factors as well as the change in certain FX rates. As we noted on our February call, our 2023 guidance reflects the carryforward impact of our 2022 results and an expectation that the macro economy will stabilize during the second half of 2023. As a whole, our performance during the first few months of 2023 was largely consistent with our expectations. As to the balance of 2023, we continue to expect a stronger second half. Assuming we realize this expectation, second half 2023 revenues would reflect approximately 55% of total 2023 revenues. This revenue phasing implies a year-over-year Q2 revenue decline with revenue growth expected in the second half of 2023. Notwithstanding the difficult environment, we have permitted investments and initiatives that we believe holds strong promise and, therefore, have continued hiring into Q2 consistent with our plan, and we expect our Q2 adjusted EBITDA margins to be near or slightly above our Q1 levels. We would anticipate margins to be stronger in the second half resulting in the overall 2023 adjusted EBITDA margins implied by our guidance. In the event we were to consummate a transaction involving our B2B business, we would anticipate adjusting our guidance. 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 reconciliation on Slide 14 that reflects free cash flow. Q1 2023 reflects strong free cash flow conversion. Q1 2023 free cash flow was $85.3 million, a similar amount to the prior year quarter despite a lower level of EBITDA. Note that our semiannual cash interest payments on our outstanding debt occurring Q2 and Q4, which will impact Q2 free cash flow. In addition, we plan to make significantly higher cash tax payments in Q2 2023 as compared with the prior year period. Overall, we believe our Q1 2023 results position us to continue to pursue our 2023 plan, while selectively pursuing strategic alternatives for certain of our businesses and pursuing capital allocation alternatives that we believe will enhance shareholder value. With that, I would now ask the operator to rejoin us to instruct you on how to queue for questions. Operator: [Operator Instructions] And the first question today is coming from Ross Sandler from Barclays. Operator: The next question is coming from Ygal Arounian from Citigroup. Operator: The next question is coming from Shweta Khajuria from Evercore ISI. Operator: The next question is coming from Rishi Jaluria from RBC. Operator: The next question is coming from Shyam Patil from SIG. Operator: The next question is coming from Cory Carpenter from JPMorgan. Operator: The next question is coming from Jon Tanwanteng from CJS Securities. Operator: There are no other questions in the queue at this time. I would now like to hand the call back to Bret Richter for any closing remarks. Bret Richter : Thank you, Paul, and thank you, everyone, for joining us today for our Q1 2023 earnings call. Our upcoming conference participation schedules detailed on our website. We have some activity plan for the next handful of weeks, and we hope to see some of you there. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.
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Related Analysis

Ziff Davis, Inc. (NASDAQ: ZD) Surpasses Earnings Expectations

  • Earnings Per Share (EPS) of $1.64 exceeded the estimated $1.51 and the Zacks Consensus Estimate of $1.48.
  • Reported revenue of approximately $353.58 million, surpassing the estimated $347.13 million.
  • Financial health indicators such as a debt-to-equity ratio of approximately 0.50 and a current ratio of about 1.42 highlight ZD's solid financial foundation.

Ziff Davis, Inc. (NASDAQ:ZD) is a digital media and internet company known for its diverse portfolio of brands and services. The company operates in various sectors, including technology, gaming, and healthcare, providing content, tools, and services to consumers and businesses. ZD competes with other digital media companies, striving to maintain its market position through innovation and strategic growth.

On November 8, 2024, ZD reported earnings per share (EPS) of $1.64, surpassing the estimated $1.51. This performance also exceeded the Zacks Consensus Estimate of $1.48 per share, marking an improvement from the $1.50 per share recorded in the same quarter last year. The company's ability to outperform expectations highlights its strong operational execution and financial management.

ZD's actual revenue for the quarter was approximately $353.58 million, exceeding the estimated $347.13 million. This revenue growth reflects the company's effective strategies in expanding its market reach and enhancing its product offerings. The positive revenue figures also indicate ZD's resilience in a competitive digital media landscape.

The company's financial metrics provide further insight into its performance. With a price-to-earnings (P/E) ratio of approximately 39.89, investors are willing to pay a premium for each dollar of earnings, reflecting confidence in ZD's future growth prospects. The price-to-sales ratio of about 1.84 and enterprise value to sales ratio of around 2.18 suggest a strong market valuation relative to sales.

ZD's financial health is supported by a debt-to-equity ratio of approximately 0.50, indicating a balanced approach to financing its assets. The current ratio of about 1.42 suggests that ZD is well-positioned to cover its short-term liabilities with its short-term assets. These metrics, combined with an earnings yield of about 2.51%, underscore the company's solid financial foundation and potential for sustained growth.

Ziff Davis, Inc. Engages with Investors at Upcoming Conferences

Ziff Davis, Inc. (NASDAQ: ZD) Gears Up for Investor Conferences

Ziff Davis, Inc. (NASDAQ: ZD) is gearing up for a significant presence in the investor community with its announcement to participate in two major investor conferences in May. This move is a strategic effort to engage with investors and stakeholders, showcasing the company's achievements and future prospects. The participation in these high-profile events underscores Ziff Davis's commitment to transparency and active communication with the investment world. The first of these events, the 19th Annual Needham Technology, Media, & Consumer Conference, will be a virtual affair, allowing Ziff Davis to connect with a broad audience without the need for a formal presentation. This approach offers flexibility and a wider reach, potentially attracting more investors' attention. Shortly after, the company will make its way to the 52nd Annual J.P. Morgan Global Technology, Media and Communications Conference in Boston, where it will have a more traditional engagement with a live presentation, further solidifying its presence in the investor community.

Ziff Davis's diverse portfolio, spanning technology, shopping, gaming and entertainment, connectivity, health and wellness, cybersecurity, and martech sectors, positions the company as a versatile player in the digital media and internet space. This diversity not only enhances the company's appeal to a broad range of investors but also mitigates risks associated with market fluctuations in any single sector. By showcasing this diversity at the upcoming conferences, Ziff Davis aims to highlight its robust business model and growth potential in various domains.

The company's current market performance provides a backdrop to its conference participation. Trading at $49.52, Ziff Davis has experienced a slight decrease of $0.59, marking a 1.18% decline. This recent trading activity, with the stock fluctuating between a low of $49.51 and a high of $50.80 during the day, reflects the volatile nature of the market. Despite this short-term volatility, the company's participation in the upcoming conferences could serve as a catalyst for investor interest, potentially impacting its stock performance positively.

With a market capitalization of approximately $2.28 billion and a trading volume of 258,425 shares on the NASDAQ exchange, Ziff Davis demonstrates substantial market presence and liquidity. These financial metrics are crucial for investors, as they indicate the company's size, investor interest, and the stock's marketability. By engaging with the investor community through these conferences, Ziff Davis not only aims to bolster its market position but also to reassure current and potential investors of its growth trajectory and financial health.

In conclusion, Ziff Davis's strategic decision to participate in the upcoming investor conferences is a testament to its proactive approach in engaging with the investment community. By leveraging these platforms, the company seeks to showcase its diverse portfolio, financial performance, and growth prospects. As Ziff Davis prepares to present itself at these significant events, investors and stakeholders will be keenly watching, potentially leading to increased interest and investment in the company.