Hello, and welcome to the BuzzFeed, Inc. Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the call over to Amita Tomkoria, Senior President, Investor Relations. Please go ahead.

Hi, everyone, and welcome to BuzzFeed, Inc.'s fourth quarter 2022 earnings conference call. Joining us today our Founder and CEO, Jonah Peretti; President, Marcela Martin; and CFO, Felicia DellaFortuna. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our annual report on Form 10-K to be filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin. The use of non-GAAP financial measures allows us to measure the operational strength and performance of our business to establish budgets and to develop operational goals for managing our business. We believe adjusted EBITDA and adjusted EBITDA margin are relevant and useful information for investors because they allow investors to view performance in a manner similar to the method used by our management. A reconciliation of these GAAP to non-GAAP measures is included in today's earnings press release. Please refer to our Investor Relations website in today's press release, along with our investor letter and investor presentation. And now I'll pass the call over to Jonah.

Thank you, Amita. Good afternoon, everyone, and thank you for joining us today. We continue to face a tough operating environment for digital media. However, our value proposition is consistently resonating in the marketplace. With iconic brands and a massive audience and a differentiated technology platform, we occupy a unique position in the ecosystem of audiences, creators, platforms, and advertisers. Our premium brand-saved content reaches millions of young people each day and appeals to hundreds of advertising clients, the biggest tech platform, and emerging creators all looking to break through in a crowded market. We are a scale-diversified digital media company that is poised to cash them on the future of the industry and deliver long-term value to shareholders. And we have a lot of exciting work underway, some of which I will share today. Before I turn to that, let me briefly discuss our performance. 2022 was a challenging year for our business, and we navigated the dual headwinds of a weakening digital ad environment and the ongoing shift to short-form vertical video while also integrating complex networks into the company. First, on the operating environment. Over the course of last year, many of our clients were forced to constrain ad budgets in order to navigate deteriorating macroeconomic conditions, which pressured year-over-year growth in our advertising and content retires. In this operating environment, our global teams also work to integrate complex networks into the business. While that integration resulted in meaningful cost synergies, we believe we have not yet reached our full revenue potential as a combined company. We have enough more work to do in order to overcome these challenges, which Marcela will speak to shortly. Turning to the ongoing shift to short-form vertical video, A year ago, at our first earnings call, I discussed the implications of…

Thank you, Jonah and good afternoon everyone. I will recap our Q4 performance, including some of the actions we have taken towards the ongoing challenges as we are facing. I also want to share with you the earlier stages, we are driving through our focus on creator led on technology enabled content creation. We delivered Q4 results in line with the high end of our November guidance range for both top and bottom line. Q4 also marked the one-year anniversary of the Complex Networks acquisition. We made great progress with the integration in some areas, executing against our resting plans to realize the cost efficiencies of our broader scale as a combined company. However, as Jonah discussed, the fourth quarter revenue trends reflect some of the operational challenges that we are facing as well. Advertising and content revenue both declined year-over-year in the fourth quarter as further softening in the digital ad market more than offset the incremental revenue from Complex. Additionally, while each of our brands individually continue to resonate with clients in the marketplace, we have more work to do to fully realize the revenue benefits of the combined brand portfolio. The steps we took to combine the BuzzFeed and Complex sales team created operational challenges in bringing the combined portfolio to the market which has negatively impacted our revenue performance, particularly in the fourth quarter, alongside seasonally high revenues. As clients tightened budgets and meet the broader market downturn, we struggled to bundle the brands and cross-sell new products. These lingering challenges are contributing to Q1 revenue expectations that lags the broader U.S. digital advertising market in terms of year-over-year growth. To address this, as part of our broader reorganization in December, we made changes to the sales team structure to better leverage industry knowledge and drive…

Thank you, Marcela. We delivered fourth quarter results in line with the high end of our guidance range for revenue and adjusted EBITDA. On a year-over-year basis, overall revenues for Q4 2022 declined 8% and to $134.6 million as further softening in the ad environment more than offset incremental revenues from the complex acquisition. As a reminder, December marks the one-year anniversary of the acquisition of Complex Networks. As a result, year-over-year comparatives reflect approximately one month of Complex Network results in Q4 and 2021. Performance by business is as follows: Advertising revenues declined 27% year-over-year to $50.5 million which was primarily the result of the ongoing price on question on our owned and operated properties, driven by the broader macro environment as well as sustained declines in time spent on Facebook. Content revenues declined 9% year-over-year to $54.8 million as the incremental revenues from Complex were more than offset by a weak digital advertising market. and the operational challenges that Jonah and Marcela discussed earlier. Commerce and other revenues grew 76% to $29.3 million, benefiting primarily from our advised shopping and experiential events ComplexCon in November. This revenue performance resulted in adjusted EBITDA of $17.6 million in the quarter. We also incurred charges that did not impact adjusted EBITDA, including a noncash goodwill informed charge of $102.3 million triggered by is decline in our stock price during month of December. A full reconciliation of our GAAP to non-GAAP measures can be found in today's press release available on our Investor Relations website. We ended the quarter with cash and cash equivalents of approximately $56 million. Turning to audience engagement and time spent. We continue to gain momentum in the quarter, generating billions of eases of our short-term content in Q4 and tripling viewership year-over-year. This gives us further confidence…

[Operator Instructions] Today's first question comes from John Blackledge with TD Collins. Please go ahead.

Hi, good evening, thanks. A couple of questions. And I think you maybe just flush it out a little bit. But on the 1Q '23 top line guide, how should we think about the revenue trends at the three segments as we roll up the total revenue guide? And then the second question on Gen AI, when should we start to see the usage of the gen AI technology rolled out at scale and across which products? I think you mentioned you started using it with the Quiz content, but is it going to be used on any other content creation? And then a similar area, is BuzzFeed partnering with companies like Open AI? Or do you guys have internal technologies that you're using? Or is it a mix of both? Any kind of color there would be helpful. Thank you.

So, as it relates to Q1 2023 revenue and each of the segments, we are seeing a continuation of the Q4 question, especially as we anticipate a higher level of activity from clients in the back half of 2022, as they lost budgets for the start of 2023 of certain verticals such as CPG, retail and tech platform have also been impacted by the market softness, compounded by the challenges from the integration of the sales team. So, as I mentioned, as it relates to advertising, we do expect trends in Q1 to align with Q4. As I noted, we have shown three quarters of consecutive improvement on origin operated time spent, and that is the majority of our advertising revenues. However, we are faced with certain price concessions as you can see from the Q4 results. We do anticipate content to decelerate year-over-year as that has been most impacted by the complex integration with complex being majority content and branded content being most impacted by the macro environment. And with Commerce, we do anticipate a similar trend in Q1 as we've seen outside, especially as we lap the Facebook declines in referred traffic on our organic affiliate business. And I mentioned commerce in Q4 had a one-time event in November with the addition of ComplexCon.

Yes. On the -- John, so on the generative AI front, we have a tremendous amount of energy within the company building new products and new systems on top of generative AI. It's obviously very relevant to the type of business we are and has a lot of potential to enhance the creativity of our team and allow us to create things that wouldn't have been possible. We see something similar to what social media was a decade plus ago, which is a major new platform that we'll be able to build on for a lot of years to come. We started with Quizzes, the Infinity Quizzes that Marcela mentioned in her remarks, where we upgraded the BuzzFeed Quiz from being able to have maybe 12 possible results when you take a quiz to an infinite number of personalized results, and we've seen very strong time spent and very strong user signal that people really love these new products. We also just yesterday at South by Southwest, shared a new product that is a chatbot game, where you try to be an influencer and a chatbot is giving you feedback on your ideas about how you're going to build your influencer career and telling you how many followers and how much money you're making in the simulated influencer game. And again, we had very strong and positive feedback from that, both from the audience and people playing online. We are -- you asked whether -- how we're building these things. We are -- we have a partnership with OpenAI and a great relationship with OpenAI and are using their APIs. We also are building some of our own systems. We're not building our own large models, which is an expensive and very different kind of activity. But we are using…

Thank you. Great color.

The next question comes from Jason Kreyer with Craig-Hallum. Please go ahead.

Thank you, guys. I just want to start out on the short form content. I know we've got -- the first platform is now rolling out monetization plans there. So as that rolled out over the course of Q1, just curious if there are any meaningful takeaways from that? And if that makes you maybe feel more optimistic about your prospects there leaning into short form and being able to kind of fill in that monetization gap?

Yes. Thanks, Jason. Great question. It's obviously something that all the platforms are very focused on. As I said, I think on our previous call, the platforms mostly ramped up short-form vertical video because of the threat of TikTok and we're more focused about audience share. And now they have all pivoted to really care about revenue, including TikTok. YouTube Is the first to operationalize Shorts and announced that they were providing monetization. The monetization works a bit differently. So instead of a share of pre-roll, it's a share of the ads that appear between the vertical videos because the monetization obviously is more challenging to put a pre-roll out on short videos. And the rev share is something that the platforms are you used to generate more incentive or sustainable content production. So, it's happening as we expected it to happen and the YouTube announcement was very validating of our thesis that the platforms we're going to start to share revenue like we've done with other forms of video. So that is encouraging. The other piece is that are creator initiatives, and we're seeing a real inflection with our greater programs and creator revenue outpacing other revenues. It plays well in vertical video because one way of creating revenue through vertical video is to how creators make vertical video on behalf of brands, and that's something that we've seen a lot of success with, and where the sales team is getting more versed in selling those kinds of deals that are creators plus vertical video. So, expanding our creator network and platform is another way that we are attacking the monetization of vertical video. And then I think newer initiatives like AI have potential, in part because AI video is still a little earlier than text and images. But it will really ramp in short term before it ramps a longer-form video, and we're with particularly things like our animated characters and things like that, being able to use AI to automate that and improve and streamline the process of making that kind of content will also help. But our box franchise on YouTube shorts is one of the star performers for vertical video for us. And so that's being able to apply AI to our characters is another area where we think there's exciting opportunities.

Thanks Jonah. And then just the longer-term role of AI for BuzzFeed. I mean it certainly seems like there would be some long-term cost benefits, but just curious if you can lay out what the other benefits are that you see.

Yes. I think one of the benefits that I feel most strongly about this AI is really enabling almost a new medium for contact creation. So, the Infinity quizzes are a nice example of this. It used to be a writer would write a few questions. They would define the logic for how the questions would result produce a result, then they would write maybe eight or 12 different results that the user might get. Now our writer still writes the question, but then they write a prompt and that front defines how the answers should be generated from the user input and then create an infinite number of possible personalized outputs. And when you look at content personalization, and I think historically, content personalization has happened, at the level of curation, where the feed you look at on an Instagram or Facebook or any of the -- or TikTok certainly, the feed of content is alrithmically organized for you, but that content itself is not personalized. And I think this generative AI is enabling the possibility of making more personalized and where the content itself can be more personalized. And so, having a large library of content, having lots of knowledge about the frames and types of topics that audiences are interested in. is going to -- and then also having trusted brands that our audience trust in respect to create great content, coupled with AI-powered personalization and AI power content generation. It's going to be an exciting frontier to make really differentiated content that is more engaging to audiences and more personalized. There also will be some opportunities for more efficiency and for producing content in ways that is more efficient. And I think that there is a lot of focus on that from sort of broader narratives about AI. But I think if you listen to, for example, Sam at OpenAI talking about the things that are working on best things that are only possible with AI and things that are creating new experiences and new forms of interaction that AI enables, not just doing what you already do a little bit more decently.

Thank you, Jonah.

The next question comes from Brent Navon with Bank of America. Please go ahead.

Thanks for taking my question. Just circling back to your 1Q guidance and the broader macro, it just seems like the news just by the day the market is just rapidly changing. And I'm just curious if even the news of the past few days with Silicon Valley Bank is having any disruptive impact on your advertising business? Or any verticals in particular worth calling out? I'm just curious if you've seen anything so far.

Thanks, Brent, for the question. You sounded it was super light, but I think I got it I mean, so far, with the events that have occurred in the last 72 hours with Silicon Valley Bank, we have not yet seen any impact in our operations or from our customers. So far, business continues to be as usual. What we have seen in Q1 that yes, you know we have projected guidance with a decline year-over-year. It's a result of the trends that we saw starting in Q4 and continue to materialize in Q1. There is an impact related to macro, and there is also an impact related to some operational challenges that we have had -- and we took some steps to further create a structure that aligns a lot more with what the market requires, aligning industry knowledge and driving the focus on the verticals from an advertising perspective.

Got it. Okay. So, I mean, did you guys, at least in your guidance, build in any potential cushion if things were something like a shock like we saw the market would slow things down further? Or is it just sort of a continue of trends?

In looking at the historical guidance as well in the current guidance based on our estimates as they stand today and everything that we are aware of in the moment that we think and have seen an impact to our overall revenue profile.

Got it Okay. And then.

I don't see the Silicon Valley, bank situation definitely impacted our weekends, but I don't think it will have a big impact on our business.

Okay. I guess, that's good to hear at least on the advertising side than insulin potentially worse? And then just on the on the cost savings. Obviously, you guys have announced several efforts there. I mean is there -- do you guys see any more opportunities for you on the cost reduction side? -- if need be? Or are you sort of -- do you think that you're okay with what you've done so far? Do you think there's more potentially that could be there to improve profitability as well?

Yes. I mean the restructuring that we performed at the end of 2022 was dictated by how the market played out and our operational needs. But of course, we cannot control the pace at which the market is going to shift. And Basil has historically been adaptable to change, both from an industry perspective, from a macro perspective, have been operating a business for more than 15 years, and we are committed to continue to focus on execution. Moving forward, we do see opportunities to drive gross margin improvements over the course of 2023 by further optimizing our product mix and cost structure.

This concludes the question-and-answer session. I would like to turn the conference back over to CEO, Jon Poretti, for closing remarks.

Thanks, everyone, for joining us. We look forward to speaking with many of you in the coming workout weeks and stay tuned for more information on our upcoming virtual Investor Day on Thursday, May 11. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.