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

Ziff Davis, Inc. (NASDAQ: ZD) (“Ziff Davis”) today reported unaudited financial results for the third quarter ended September 30, 2022.

"Against a backdrop of global economic uncertainty and pressures, as well as strong headwinds in the advertising market, we were able to once again deliver healthy bottom-line growth," said Vivek Shah, Chief Executive Officer of Ziff Davis. "This speaks to the resiliency and discipline of our hardworking and dedicated employees worldwide."

THIRD 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 nine months ended September 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 nine months ended September 30, 2021, which are on a combined continuing and discontinued operations basis.

Q3 2022 quarterly revenues decreased 3.7% to $341.9 million compared to $355.1 million for Q3 2021. On a pro-forma⁽¹⁾ basis, Q3 2022 quarterly revenues decreased 1.1% to $341.9 million as compared to $345.6 million for Q3 2021.

GAAP net income from continuing operations increased to $18.2 million compared to $6.8 million for Q3 2021 primarily due to a gain on the repurchase of 4.625% Senior Notes, less interest expense due to lower debt in connection with debt repurchases and an unrealized gain on our investment in Consensus less an impairment of a business recognized during the three months ended September 30, 2022. In addition, the Company recognized a loss on the sale of the B2B Backup business unit of $19.2 million, net of tax in the prior period that did not recur.

Adjusted non-GAAP net income from continuing operations increased by 6.0% to $74.3 million as compared to $70.1 million for Q3 2021. On a pro-forma⁽¹⁾ basis, Adjusted non-GAAP net income from continuing operations increased by 12.4% to $74.3 million as compared to $66.1 million for Q3 2021.

GAAP net income per diluted share from continuing operations⁽²⁾ increased to $0.39 in Q3 2022 compared to $0.14 for Q3 2021.

Adjusted non-GAAP net income per diluted share from continuing operations⁽²⁾⁽³⁾ for the quarter increased 6.0% to $1.58 as compared to $1.49 for Q3 2021. On a pro-forma⁽¹⁾ basis, Adjusted non-GAAP net income per diluted share from continuing operations⁽²⁾⁽³⁾ for the quarter increased 12.9% to $1.58 compared to $1.40 for Q3 2021.

Adjusted EBITDA⁽⁴⁾ for the quarter increased 0.3% to $120.1 million compared to $119.7 million for Q3 2021. On a pro-forma⁽¹⁾ basis, Adjusted EBITDA⁽⁴⁾ for the quarter increased 4.2% to $120.1 million compared to $115.3 million for Q3 2021.

Net cash provided by operating activities from continuing operations was $100.7 million in Q3 2022. Free cash flow from continuing operations⁽⁶⁾ was $73.8 million in Q3 2022.

Ziff Davis ended the quarter with approximately $801.0 million in cash, cash equivalents, and investments after deploying during the quarter approximately $19.3 million for current and prior year acquisitions and approximately $94.1 million to repay $105.1 million of outstanding principal of its senior notes.

Key unaudited financial results for Q3 2022 versus Q3 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 presented in the attached schedules.

The following table reflects Actual and Pro-Forma Results from Continuing Operations for the third 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 nine months ended September 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 the 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 income per diluted share from continuing operations 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’ (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 condensed consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (“GAAP”), we use the following non-GAAP financial measures: Adjusted non-GAAP net income from continuing operations and Adjusted Pro-Forma net income from continuing operations, Adjusted non-GAAP net income per diluted share from continuing operations and Adjusted Pro-Forma net income per diluted share from continuing operations, Adjusted and Pro-Forma EBITDA, Adjusted EBITDA margin and Pro-Forma EBITDA margin, Free cash flow from continuing operations and Free cash flow from continuing and discontinued operations. 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. We believe 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 that are presented in the attached schedules.

The Company discloses Adjusted non-GAAP 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 non-GAAP diluted EPS measure is broadly used by analysts, rating agencies and investors in assessing the Company’s performance. Accordingly, we believe that the presentation of Adjusted non-GAAP diluted EPS provides useful information to investors.

Adjusted non-GAAP 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 non-GAAP diluted EPS is not based on any comprehensive set of accounting rules or principles. The Adjusted non-GAAP 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 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 non-GAAP diluted EPS measure is broadly used by analysts, rating agencies and investors in assessing the Company’s performance. Accordingly, we believe that the presentation of Adjusted non-GAAP diluted EPS provides useful information to investors.

Adjusted non-GAAP 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 non-GAAP diluted EPS is not based on any comprehensive set of accounting rules or principles. The Adjusted non-GAAP 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 our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: Adjusted EBITDA, Adjusted non-GAAP net income from continuing operations, and Adjusted non-GAAP 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. We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe 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.

Adjusted non-GAAP financial measures exclude the charges listed below. Excluding these charges from the non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude the similar items. We believe that non-GAAP financial measures excluding these items provide meaningful supplemental information regarding operational performance. We further believe these measures are useful to investors in that they allow for greater transparency of certain line items in the Company’s financial statements.

(1) Share-Based Compensation. We exclude stock-based compensation because it is non-cash in nature.

(2) Acquisition, Integration and Other costs. We exclude certain acquisition and related integration costs, including adjustments to contingent consideration, lease terminations, retention bonuses, other acquisition-specific items, and other costs, including severance.

(3) Interest Costs. In June 2014, we issued $402.5 million aggregate principal amount of 3.25% convertible senior notes and in November 2019, we issued $550.0 million aggregate principal amount of 1.75% convertible senior notes. For the three and nine months ended September 30, 2021, we separately accounted for the value of the liability and equity features of the 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, we recognized imputed interest expense on its 3.25% and 1.75% convertible senior notes of approximately 5.8% and 5.5%, respectively, in the Company’s statement of operations during the three and nine months ended September 30, 2021. We excluded the difference between the imputed interest expense and the coupon interest expense of 3.25% and 1.75%, respectively, because this difference was non-cash in nature and because we believe that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding core operational performance. During 2022, we 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 nine months ended September 30, 2022. We have excluded the difference between the imputed and coupon interest expense associated with the 4.625% Senior Notes in each period presented.

(4) (Gain) loss on extinguishment of debt. We exclude gains and losses associated with extinguishment of debt. For the three and nine months ended September 30, 2022, we recorded a gain on extinguishment associated with the repurchase of its 4.625% Senior Notes, which is included within this non-GAAP adjustment.

(5) Amortization. We exclude amortization of patents and acquired intangible assets because it is non-cash in nature.

(6) Change in Value on Investments. We exclude the change in value of its investments, which includes income (loss) from equity method investments, the unrealized gain (loss) on our investment in Consensus and other income (loss) on investments (including Consensus).

(7) Gain (Loss) on Sale of Assets. We exclude the gain (loss) on sale of certain assets.

(8) Lease Asset Impairments and Other Charges. We exclude lease asset impairments and other charges as they are non-cash in nature.

(9) Disposal Related Costs. We exclude expenses associated with the disposal of certain businesses.

(10) Goodwill Impairment on Business. We exclude the goodwill impairment on business because it is non-cash in nature.

(11) Convertible Debt Dilution. We exclude convertible debt dilution from diluted earnings per share.

We present Adjusted non-GAAP cost of revenues, Adjusted non-GAAP sales and marketing, Adjusted non-GAAP research, development and engineering, Adjusted non-GAAP general and administrative, Adjusted non-GAAP goodwill impairment on business, Adjusted non-GAAP interest expense, net, Adjusted non-GAAP gain on sale of businesses, Adjusted non-GAAP interest expense, net, Adjusted non-GAAP (gain) loss on extinguishment of debt, net, Adjusted non-GAAP loss on investments, net, Adjusted non-GAAP unrealized loss on short-term investments held at period end, net, Adjusted non-GAAP Other income (expense), Adjusted non-GAAP income tax expense (benefit), Adjusted non-GAAP income (loss) from equity method investment, net and Adjusted non-GAAP net income because we believe 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 nine months ended September 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.