Ziff Davis Reports Fourth Quarter and Full Year 2022 Financial Results and Provides 2023 Guidance

Ziff Davis, Inc. (NASDAQ: ZD) (“Ziff Davis”) today reported unaudited financial results for the fourth quarter and year ended December 31, 2022.

"Delivering bottom-line growth in Q4 and throughout 2022 is impressive given the challenges in the advertising market and the overall tech sector," said Vivek Shah, Chief Executive Officer of Ziff Davis. "While we've been judicious in our spending, we continue to confidently pursue organic growth and seek compelling investment choices for our capital."

FOURTH 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 months and year ended December 31, 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, which are on a combined continuing and discontinued operations basis⁽¹⁾.

Q4 2022 quarterly revenues decreased 2.9% to $396.7 million compared to $408.6 million for Q4 2021.

Net income from continuing operations decreased to $69.2 million compared to $378.9 million for Q4 2021 primarily due to the unrealized gain on investment of $298.5 million recorded during the three months ended December 31, 2021 in connection with the Company’s investment in Consensus that did not recur.

Adjusted net income from continuing operations⁽²⁾ increased by 0.9% to $106.0 million compared to $105.1 million for Q4 2021.

Net income per diluted share from continuing operations⁽³⁾ decreased to $1.37 in Q4 2022 compared to $7.81 for Q4 2021. The decrease is primarily driven by the unrealized gain on investment of $298.5 million ($6.15 per share, after tax) recorded during the three months ended December 31, 2021 in connection with the Company’s investment in Consensus that did not recur.

Adjusted net income per diluted share from continuing operations⁽³⁾⁽⁴⁾ (or “Adjusted diluted EPS”) for the quarter increased 3.7% to $2.26 compared to $2.18 for Q4 2021.

Adjusted EBITDA⁽⁵⁾ for the quarter increased 4.1% to $168.3 million compared to $161.6 million for Q4 2021.

Net cash provided by operating activities from continuing and discontinued operations was $43.2 million in Q4 2022 compared to $86.3 million in Q4 2021. Free cash flow from continuing and discontinued operations⁽⁶⁾ was $17.8 million in Q4 2022 compared to $60.0 million in Q4 2021.

Ziff Davis ended the quarter with approximately $839.1 million in cash, cash equivalents, and investments after deploying approximately $1.4 million during the quarter for prior year acquisitions. No funds were deployed in Q4 2022 for current year acquisitions.

Key unaudited financial results for Q4 2022 versus Q4 2021 are set forth in the following table (in millions, except per share amounts). Reconciliations of Adjusted net income per diluted share from continuing operations, Adjusted EBITDA and Free cash flow from continuing and discontinued operations⁽¹⁾ to their nearest comparable GAAP financial measures are presented in the attached schedules.

The following table reflects Actual Results from Continuing Operations, except for Cash provided by operating activities and Free Cash Flow, which are on a combined basis of continuing operations and discontinued operations⁽¹⁾, for the fourth quarter of 2022 and 2021 (in millions, except per share amounts).

FULL YEAR 2022 HIGHLIGHTS

2022 revenues decreased 1.8% to $1.39 billion compared to $1.42 billion for 2021. Excluding divested businesses⁽⁸⁾, 2022 revenues increased 0.6% to $1.39 billion as compared to $1.38 billion for 2021.

Net income from continuing operations decreased to $65.5 million compared to $401.4 million for 2021 primarily due to an unrealized gain on investment of $298.5 million in the prior year recorded in connection with the Company’s investment in Consensus that did not recur.

Adjusted net income from continuing operations⁽²⁾ increased by 5.0% to $312.6 million as compared to $297.7 million for 2021. Excluding divested businesses⁽⁸⁾, Adjusted net income from continuing operations increased by 8.8% to $312.6 million as compared to $287.4 million for 2021.

Net income per diluted share⁽³⁾ from continuing operations decreased to $1.39 in 2022 compared to $8.38 for 2021. The net income decrease was primarily due to an unrealized gain on investment of $298.5 million ($6.24 per share, after tax) in the prior year recorded in connection with the Company’s investment in Consensus that did not recur.

Adjusted diluted EPS⁽³⁾⁽⁴⁾ for the year increased by 3.3% to $6.65 compared to $6.44 for 2021. Excluding divested businesses⁽⁸⁾, Adjusted diluted EPS⁽³⁾⁽⁴⁾ for the year increased 7.1% to $6.65 as compared to $6.21 for 2021.

Adjusted EBITDA⁽⁵⁾ for the year increased 1.6% to $507.2 million compared to $499.0 million for 2021. Excluding divested businesses⁽⁸⁾, Adjusted EBITDA⁽⁵⁾ for the year increased 4.6% to $507.2 million compared to $484.9 million for 2021.

Net cash provided by operating activities from continuing and discontinued operations was $336.4 million during 2022 compared to $516.5 million in 2021. Free cash flow from continuing and discontinued operations⁽⁶⁾ was $230.3 million during 2022 compared to $403.5 million in 2021.

The following table reflects Actual Results from Continuing Operations and Results from Continuing Operations excluding divested businesses, except for Cash provided by operating activities and Free Cash Flow, which are on a combined basis of continuing operations and discontinued operations, for the years ended December 31, 2022 and 2021 (in millions, except per share amounts). Results from Continuing Operations excluding divested businesses below exclude the operating results from Voice assets in the United Kingdom that were sold in February 2021 and the Company’s B2B Backup business that was sold in September 2021.

ZIFF DAVIS GUIDANCE

The Company’s full year 2023 outlook is as follows (in millions, except per share data):

* Adjusted diluted EPS for 2023 excludes share based compensation ranging between $28 million and $30 million, amortization of acquired intangibles and the impact of any currently unanticipated items, in each case net of tax. It is anticipated that Adjusted effective tax rate for 2023 (exclusive of the release of reserves for uncertain tax positions) will be between 23.0% and 25.0%.

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, shopping, gaming and entertainment, connectivity, 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 “Ziff Davis Guidance” portion regarding the Company’s expected fiscal 2023 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 risks related to supply chain disruptions, inflationary conditions and rising interest rates; the risk of liability for legal and other claims; and the numerous other factors set forth in Ziff Davis’ 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 “Ziff Davis Guidance” 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: Revenues excluding divested businesses, Adjusted diluted EPS and Adjusted diluted EPS excluding divested business, Adjusted net income from continuing operations and Adjusted net income from continuing operations excluding divested businesses, Adjusted EBITDA and Adjusted EBITDA excluding divested businesses, Adjusted EBITDA margin and Adjusted EBITDA margin excluding divested businesses, 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 non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe that these 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 non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity. We believe these 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 non-GAAP financial measures, please see the appropriate GAAP to Adjusted reconciliation tables that are presented in the attached schedules.

^* The reconciliation of Net income per diluted share from continuing operations to Adjusted diluted EPS may not foot since each is calculated independently.

^* The reconciliation of Net income per diluted share from continuing operations to Adjusted diluted EPS may not foot since each is calculated independently.

^* The reconciliation of Net income per diluted share from continuing operations to Adjusted diluted EPS may not foot since each is calculated independently.

The Company discloses 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, we believe 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 reconciliation of Net income per diluted share from continuing operations to Adjusted diluted EPS may not foot since each is calculated independently.

The Company discloses 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, we believe 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 our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: Revenues excluding divested businesses, Adjusted diluted EPS and Adjusted diluted EPS excluding divested business, Adjusted net income from continuing operations and Adjusted net income from continuing operations excluding divested businesses, Adjusted EBITDA and Adjusted EBITDA excluding divested businesses, Adjusted EBITDA margin and Adjusted EBITDA margin excluding divested businesses, and Free cash flow from continuing and discontinued 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.

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 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, Net. 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 months and year ended December 31, 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 our 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 months and year ended December 31, 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 months and year ended December 31, 2022. We have also 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 months and year ended December 31, 2022, we recorded a gain on extinguishment associated with the repurchase of our 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 our 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 the 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 cost of revenues, Adjusted sales and marketing, Adjusted research, development and engineering, Adjusted general and administrative, Adjusted goodwill impairment on business, Adjusted interest expense, net, Adjusted gain on sale of businesses, Adjusted interest expense, net, Adjusted (gain) loss on extinguishment of debt, net, Adjusted loss on investments, net, Adjusted unrealized loss on short-term investments held at period end, net, Adjusted Other income (expense), Adjusted income tax expense (benefit), Adjusted income (loss) from equity method investment, net and Adjusted 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.

Financial Results Excluding Divested Businesses

Key financial results excluding divested businesses for the years ended December 31, 2022 and 2021, are set forth in the following table (in millions, except per share amounts). The financial results excluding divested businesses below reflect the Company’s results 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 in a prior period presented.