Good day, ladies and gentlemen, and welcome to the Ziff Davis fourth quarter and year-end 2022 earnings call. My name is Paul, and I will be the operator assisting you today. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [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.

Thank you. Good morning, everyone, and welcome to the Ziff Davis investor conference call for Q4 and fiscal year 2022. As the operator mentioned, I’m 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 email 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 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 that 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 this 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.

Thank you, Bret, and good morning, everyone. These are challenging times, particularly for businesses in the digital media and advertising market. Our strategy in this difficult environment is uncomplicated. First, focus on earnings and mitigating risks in the portfolio. Second, invest for organic growth through the careful reallocation of resources and costs. Third, attract and retain the best talent in our markets. And fourth, continue to build our balance sheet so that we're in a position to acquire highly accretive and quality assets. For the fourth quarter, we grew our adjusted EBITDA by over 4%, notwithstanding a nearly 3% decline in revenues. For the full year 2022, we grew revenue, excluding our divested assets, by 1%, and adjusted EBITDA by nearly 5%. We're proud to have generated revenue growth in this climate, while also expanding our adjusted EBITDA margin by nearly 150 basis points. While we experienced an organic revenue decline in Q4 that was consistent with what we experienced in Q3, we take some solace in the flattening of organic decline, particularly in the fourth quarter, which represents the largest quarter of our fiscal year. I’ll discuss our 2023 outlook in a moment, but let me provide some texture around our Q4 and fiscal 2022 results. Advertising revenues declined by 8% in the quarter. Like I've described in previous quarters, it's always useful to unpack this by category. Our gaming vertical, which has been a bright spot for most of 2022, saw a mid-single digit decline largely due to the delay in the release of AAA titles. In the shopping vertical, we were pleased to see that RetailMeNot grew low single digits, following up a Q3 that was flat. Where we continue to see decline is at our smaller offers.com property, which, as I said in our last call,…

Thank you, Vivek. Let's discuss our financial results. Our earnings release reflects both our GAAP and adjusted financial results for Q4 and fiscal year 2022. As discussed during our previous earnings calls, our UK voice assets were sold in February 2021, and we completed the sale of our B2B backup business in September 2021. The results related to these divestitures are reflected in our fiscal year 2021 GAAP financials through their respective date of sale. However, these divestitures do not impact the presentation of our Q4 or fiscal year 2022 GAAP results. Our earnings release also reflects adjustments for the removal of the results of these 2021 divested businesses. Explanations for, and reconciliations of, these adjustments are provided in the release. On October 7th, 2021, we completed the spinoff of Consensus. Our fiscal year-end Q4 2021 GAAP income statement reflects the financial activity related to Consensus and discontinued operations. We'll focus our discussion today and my commentary will primarily relate to our Q4 2022 adjusted financial results from continuing operations, and our comparisons to prior periods, which exclude the contributions from Consensus business for the 2021 period prior to the spinoff, as well as the divested businesses. Now, let's review the summary of our quarterly financial results on Slide 4. We reported revenue of $396.7 million for the fourth quarter of 2022, as compared with revenue of $408.6 million for the prior year period, reflecting a decline of 2.9%. Although there was some improvement during the fourth quarter in the value of certain foreign currencies, FX negatively impacted the Q4 year-over-year growth rate, and if the comparable 2021 currency values were applied to our 2022 Q4 results, revenue would have declined by approximately 1.3%. Adjusted EBITDA from continuing operations was $168.3 million for Q4 2022, as compared with $161.6 million…

Thank you. As a reminder, slides for today's event can be viewed at www.ziff.davis.com. We'll now be conducting a question and answer session. [Operator instructions]. And the first question is coming from Shweta Khajuria from Evercore ISI. Shweta, your line is live.

Okay, thanks for taking my question. Vivek, you mentioned in your prepared remarks that in Q4 you were seeing flattening of decline. So, perhaps if you could comment on how - what kind of trends did you see through the quarter as the quarter went through from October through December, and then what you are seeing so far as of mid-February this year. You also commented on seeing some green shoots. So, that's the question. What do you mean by flattening of decline, and then what green shoots are you seeing right now?

Thanks for the question, Shweta. So, with respect to Q4, I think we had - at least with the shopping business, in particular RetailMeNot, as I mentioned, some slight growth, which I think was helpful in offsetting some of the pressures we had in technology. And as I also pointed out, what we typically see in health advertising in Q4 is a pretty significant release of budgets that didn't really take place in Q4. Now, as we think about 2023, I am cautiously optimistic. It is early. Of the advertising business where we have more than a near-term view, that's really in the health business. So, in the health business, we have what are called upfronts where we are booking programs in advance for the remainder of the year. It is relevant because the health category for us is 40% of our advertising revenues. So, with respect to that 40%, as I mentioned on the prepared remarks, we are seeing single-digit increases year-over-year on bookings. So, we feel good about that. If the shopping vertical also maintains its modicum of growth, that's the second largest ad category. So, those are the pieces that give us some foundation for cautious optimism as we enter into 2023. Obviously, a lot depends on the general operating environment and climate, but right now, we feel that in fact we have hit stability and things should improve from here on out.

Okay, thanks, Vivek. And if I may add one more question, please, any comments on the - just the overall M&A environment? You mentioned you are very active, but any thoughts on timing or opportunities?

Yes, look, I think, again, the activity that I refer to is really a function of our approach to how we source deals, and we do it across all seven of our platforms, and we do it at the corporate level too. So, you've got eight organizations inside of the company who are all actively looking at opportunities. So, it creates a pretty significant pipeline. That's not new. That's what we've always done, but it ensures that we see a lot. And right now, our focus is great businesses at fair prices. We do believe the market is rotating towards that point of view, and I think that we will be active this year. I can't give you specific timing obviously at this point, but we do see a lot and I think a lot of sellers view us as a great home because they also look at our balance sheet as often they have opportunities that they're looking to acquire and add to their businesses. And so, I think for a variety of reasons, I think we're an attractive place for a lot of businesses.

Okay. Thanks, Vivek.

Thank you. The next question is coming from Shyam Patil from Susquehanna. your line of live.

Hey guys, this is Jared on for Shyam. Thanks for taking the question. Thanks for all the color that you've provided around the topline and potential pacing as we roll through the year. As you're thinking about the bottom line, is there anything that you could share with us on pacing there? Maybe how you're thinking about OpEx growth through the year, if this might pick up a bit as you expect this second half to improve a bit. And then I’ve got one more after that, if that's okay.

Yes. So, I’d just say, with respect - and I’ll let Bret jump in here in a moment. I think with respect to margins, as we said, look, I think the margin expansion we experienced in 2022, I think was quite remarkable when you consider the organic decline that we suffered, right, close to five points or about five points in the year. And so, that often is very punitive from a bottom line point of view. So, the fact that we were able to drive bottom line growth notwithstanding organic revenue pressures, I think is a great statement around how we have, I think, really optimized the cost base. That will continue into next year. Having said all of that, we are investing in the business at the CapEx level, at the OpEx level, and we're going to continue to do that because we see a lot of growth opportunities. I listed a few of them during the prepared remarks. So, we're going to continue to do that. So, we're not going to be overly pressured about it, but to me, we are in the - as we say, I think in the guidance of 35% to 36.5% EBITDA margin range. I don't know, Bret, if there's anything you'd add to that?

Sure, yes. And I think we're just being thoughtful with regards to our spend. As we trafficked through 2022, we obviously uncovered pressures at various points in the year, and we slowed our spending. We talked about how we had operating expense savings with regards to our employee base, mostly through just natural attrition. We did take on a small action at the end of the year. What we want to do is find the balance of allowing each of our businesses to pursue opportunities in the marketplace, and fund those pursuits, but fund them with a degree of confidence rather than hope. So, as we see the marketplace being more receptive to spending in the case of advertising to growth, in the case of subscriptions, we have dollars there to fund those opportunities, but we're being thoughtful about when to spend them.

Great. Thank you. And then maybe a broader picture question. In the past, we've discussed the longer term shift towards zero click search and the potential there. Given all the recent generative AI developments, how are you guys thinking about that at this point, and what type of impacts might we be able to expect on your digital media properties in particular?

So, I think you're specifically asking if generative AI turns search engines into answer engines. If they're answer engines, will we get click-throughs? Is that essentially the question?

That's certainly a part of the question, and then just any broader impact that you might expect from that as well.

Yes. So, look, I think from a traffic point of view, depending on whatever the underlying algorithms are of any search experience, I believe every of the search operators, whether it's Microsoft or Google, understand that the underlying content providers need to get value, and that value is expressed in traffic flow, and I don't think that's going to change. If the engines they use and the algorithms they use refine the answers, I think properties like ours who provide, I think, the highest value intellectual property in that equation, will do best. So, I don't view the evolution of search engines or answer engines or whatever you want to call them, as being anything but really positive for high quality content providers who provide the underlying information for that query.

Great. Thank you.

Thank you. And the next question is coming from Cory Carpenter from JPMorgan. Cory, your line is live.

Hey, thanks for the questions. I had two. Maybe, Vivek, first for you. There's been a ton of volatility in the ad market, but just kind of stepping back, how do you think about the right level of longer-term growth and margins for the business? And has your view changed here at all? And then secondly, connectivity has been a big bright spot for a while, but it's also kind of hidden within the subscription segment. Could you just help frame how big this business is, or maybe what its margin profile looks like? Thank you.

Thanks, Cory. So, look, I think with respect to the advertising market, in terms of long-term growth rates and margin profile, my views are unchanged. I continue to be bullish on the ad market. I continue to be bullish about the categories we're in, and then the types of ad solutions we provide, which as you know, are performance-driven. So, I think if we took a non-linear view on our advertising business and took a multi-year view, you'd actually see that it is not inconsistent with the kind of growth rates that we're looking for, which we've talked about as a company, we look for total growth of 15% top and bottom line with a mixture half and half roughly of organic and inorganic. So, our views around target growth rates for the company and the advertising business around that are unchanged. We've been through cycles before. I've been in the advertising business now coming on almost 30 years. I've seen this, and these pendulums do swing. And so, nothing changes in terms of my views there. With respect to connectivity, obviously we don't break it out as a business unit, but I will tell you that I am incredibly excited with the addition of Stephen Bye. As I described a little bit on the call, his background is sensational. He is a very well respected, established, and known name within the telecom and broadband and wireless industries generally. I think this was an announcement in that industry that got a lot of attention and a lot of inbound calls as to things that people can do with us, and understanding the broader range of our connectivity businesses. It has always been a growth engine for us, but I think it'll continue to be even more so. It does operate at a very high percentage margin, higher than the average of the company and at a growth rate that's higher. So, it is a - whatever rule it is, it's a high rule of something, and I think that'll continue. And then I think with Stephen, I think it's going to get to the next level, and I think when that happens, we'll have a lot of interesting options.

Great. Thank you.

Thank you. The next question is coming from Ross Sandler from Barclays. Ross, your line is live.

Hi, this is Joey Petroline on for Ross. Thanks for taking the question. So, a follow-up on the generative AI question. Could you kind of talk about how ChatGPT-type products could lower the cost of editorial content on the advertising business? And then if I can squeeze in a second question. Thanks for the breakout of category performance within advertising during 4Q. Any callouts to categories that are especially strong or weak in 1Q, whether that's historically, or what you've seen this year? Thanks again.

Sure. So, with respect to AI, think we look at it in two ways. One is what you described, which is generative AI. How do you use AI technologies to assist in the creation of content? And when you think about the editorial workflow, there are a lot of elements to it, from origination of story idea, to assignment of story, to outline of story, to drafting of story, to copy editing of story. I certainly believe that artificial intelligence has a role in parts of that editorial workflow, and we've been using it and will continue to use it. I will say though, that I think for high quality content generation, human plus artificial intelligence, I think, yields the best outcome. So, I think the answer to your question is that generative AI will allow us to produce more better content over the long-term. It's a productivity gain more than anything else, which we're excited about and we currently use and have been using. The second part of AI, which is as, if not more exciting from my point of view for our company, is how you can take AI models, so right, ChatGPT is an AI model, and how do you then train it on proprietary data? The experiences we're all seeing right now are training AI models on non-proprietary broad accessible data, and you see the power of that. Imagine though, training AI models on proprietary data sets not available to others. And I think of three data sets within our company that are very relevant to the discussion. The first is the connectivity dataset, the dataset of Ookla, Ekahau, and that family of businesses. As you know, that business is a data business. The ability to use AI to generate even greater, more frequent, and accessible insights, I think is a big idea. If you think about our RetailMeNot and shopping business, we have a multi-merchant view into shopping behaviors, shopping traffic patterns. So, from a shopping insights and analysis point of view, training AI models on that proprietary dataset is compelling. And then our mod business, as a third example, sits on a universe of XEO data that is very valuable, and in fact, has already been licensed. So, basically the largest AI model we've all heard of, has licensed mod data already. So, we're actually in the business and we think that has long-term and interesting potential. So, both generative AI and proprietary data that AI models can be trained on.

Thank you. And the next question is coming from James Breen from William Blair. James, your line is live.

Thanks for taking the question. Can you talk a little bit about the subscription business and what you're seeing there? Obviously, we've seen the quarterly revenue per sub coming down over the last couple of quarters. Churn is up a little bit, but where are you gaining and losing subs there across several different businesses? Thanks.

Yes. I mean, I think, look, Jim, I think in the subscription business, on the upside our connectivity, as we described, continues to be a bright spot for us. On the downside has been cybersecurity principally, and that's been in our direct-to-consumer business, and that is largely our VPN business. As I think - as we've described in the past, we find customer acquisition in the VPN space challenging. The CAC LTV equation continues to evade us. It's not profitable from our point of view. We do run a high-margin VPN business, probably in contrast to maybe others in the space. One thing I am optimistic about, and I mentioned on the prepared remarks, is that we have improved our buying experience and principally taking foreign currencies - foreign language and including other payment options that should allow us to start acquiring outside of North America. Most of the consumer VPN market is actually outside of North America, yet the majority, the vast majority of our business is inside North America. So, we have been geographically disadvantaged because we haven't - we didn't have a buying experience that appeals to those outside of principally the United States. So, we're hopeful that that can help overall buying experience. We continue to test different sources of customer acquisition to try to find a CAC LTV equation that can work for us. I'll also point out, of the part of the company that has had the most FX headwinds, it has also been within the cybersecurity and MarTech segment.

And Jim, the only thing I'd add, your comment about some of the trends, is just a reminder that these are sort of an amalgamation or a consolidation of different businesses across the company on an inorganic basis. And if you look at the number of subscribers and the average quarterly revenue per subscriber, in the middle of 2022, we added LoseIt, and LoseIt as a business within our health and wellness business that is a subscription business and characterized by a large volume of subscribers at a low average revenue per subscriber. So, we brought those in in the second quarter for I believe about a month. And then in Q3 and Q4, those were full quarters of that change. So, that did have a more significant impact on the quarter-over-quarter changes than really any other factor.

Great. Thanks.

[Operator instructions]. And the next question is coming from Ygal Arounian from Citigroup. Ygal, your line is live.

Hey, good morning, guys. Vivek, I want to go back to what you led to call off with and talked about focusing on organic growth, reallocation of resources. And I guess the ad market is well understood here at this point as we have gone through earnings and heard a lot of commentary. Can you talk a little bit more about what you're doing and the things you can control, maybe how you guys are setting yourselves up to benefit better as we rebound and kind of the things that are happening within the organization outside of the macro?

Yes, no, look, it's a great question. And again, I’d go back to categories because we do talk about the ad market as a monolith, and as you know, it's not a monolith. It's got different pockets and it's got different dynamics and different categories. Given that 40% of our advertising business is health and wellness, it is worth really focusing there. And that's where we believe the solutions we're building for pharma, the nature of the pharma pipeline, the pharmas embrace of really targeted advertising away from mass market print and television, all benefits us. And so, we're focused across the board on ways to create ad solutions for the pharma category. I'll also tell you that part of our health and wellness business is actually recruitment advertising for doctors and nurses. And as you may know, in the healthcare industry, there is a huge labor shortage, particularly around nurses. And so, our ability to help healthcare and health systems find nurses through our platforms and through recruitment advertising solutions, is another example. And I think I mentioned that. That's our Health eCareers business. And then in our shopping business, where we have seen really great success is with membership. So, historically, with RetailMeNot, which has had a significant amount and continues to have a significant amount of users who come to the platform, whether it's the website or the app to find a coupon code to then transact and we get compensated on utilization of a code, that will continue. But our membership business, where it's largely cashback, as well as the browser extension, the unit economics there are super compelling. And so, we are investing in improving the product experience, removing friction in signup, and making it super simple, and investing in member acquisition. So, those are just a few examples of where I think we can control what we're doing to better position ourselves in the overall ad market.

Okay, that's helpful. Thanks. And then shifting just over to cybersecurity for a second, can you update us on the sales org and the kind of new go-to-market strategy and how that's evolving and if it's starting to improve the trends and results there?

Thanks. Yes, no, listen in the B2B part of the cybersecurity business, and I just want to remind everyone that it's the B2C part, which is largely IPVanish and the VPN businesses where we're having our significant struggles. But in the B2B security business, the new sales org started to hit its stride really in Q4, a lot of nice logo wins for our email security offering. We've got a product called Safe Send that has signed a bunch of multi-year deals with some significant enterprise customers actually. So, we're happy with that. We've got some new partners and distributors, both in the United States and in Europe. Our email - just overall the email security business, email is the leading attack vector, and it's the primary delivery mechanism for phishing and ransomware and other malware attacks. And I would say that of our cybersecurity offerings, I think our email security offerings are the strongest. So, good progress in B2B, continuing to claw and think through B2C, and I think we'll get there. I think we'll - once we find a formula that works on the B2C side, I think some interesting things will start to develop for cybersecurity.

Great. Thanks so much.

Thank you. The next question is coming from Rishi Jaluria from RBC. Rishi, your line is live.

Oh, wonderful. Hey, Vivek. Hey, Bret. Thanks so much for taking my question. I’ll keep it to one question, which is just drilling a little bit more into the cybersecurity MarTech business. Would love to hear a little bit more about kind of what you've seen so far from a macro perspective. And for simplicity's sake, we can keep it at the B2B level and kind of strip out the IPVanish business. But what have you seen so far in terms of churn and maybe even businesses that are just kind of disappearing? And maybe more importantly, as we think modeling 2023, what sort of assumptions are you making from a macro perspective on those businesses? Thanks.

Yes, no, all good questions. I would say that with respect to churn in B2B cybersecurity, we don't see much of it. It's very sticky, right? Once a company installs any of our solutions, they generally stay installed for a while. The switching costs and the difficulty can be significant. So, we don't see it there. Within MarTech, because we have a more of an SMB audience, there are some churn dynamics where just business failure leads to not needing to do really any more email marketing. But what I will say that we're excited about from a Mar’s point of view is that we're building technologies to help our customers build their email lists, attach signals to their email initiatives, and so that they're better targeted and getting better ROI, integrating demographic data across the larger demographic. The data management platform of Ziff Davis is basically going to be plugged into our eye contact and campaigner units so that there can be more insight into the various customer databases that we have with our customers. So, there's a lot of different things going on in both cybersecurity and MarTech. I think with respect to - maybe I'll let Bret talk a little bit about just subscription revenue in general and sort of how we're thinking about guidance and where we think subscription revenue may fall for 2023.

Yes, I mean, we gave some color on that as part of our prepared remarks. I mean, we're looking at subscription revenue as sort of a contributor in 2023, and we're projecting growth in the low single digits. And I think it's important to kind of almost widen the lens, because we've been talking about our B2B go-to-market approach for several quarters now. And it's the timeline sort of on track. Like you go back to the end of 2021, we sort of re-envisioned a go-to-market strategy somewhere around the end of the first quarter, beginning of the second quarter. We bring in leadership. Q2, Q3, we're rebuilding the go-to-market team so actual sort of feed on the Street, if you will, to reach out to customers, simultaneously with upgrading elements of our product set. Vivek just noted some of those products we're bringing to market. And then as we get into the fourth quarter, we start to see some of the fruits that labor beginning to grow, and we enter into 2023 with the beginnings of momentum. So, we believe if you look across our subscription revenue, there's a drag with regards to our consumer privacy business. But then we've talked about how excited we are about connectivity. We've talked about some of the momentum that we're seeing in B2B within cyber and MarTech. We're excited about our LoseIt acquisition, both from a subscription standpoint, but also the ability to expand the revenue base there by adding advertising. We haven't had that business under our leadership for a full year yet. Contributions in the gaming market, there's excitement in our subscription businesses, and being a business that's levered to the digital advertising market and the digital advertising market being so sensitive to macro activity, we think it's a very strong positive that a significant portion of our revenue has a subscription characteristic.

All right, great. Really helpful. Thank you so much guys.

Thank you. And the next question is coming from Jon Tanwanteng from CJS Securities. Jon, your line is live.

Hi guys, thanks for squeezing me in. Vivek, one for you. You mentioned getting closer to more and bigger deals in the M&A pipeline and most interesting but perhaps in a vertical. What kind of scale and returns would you need to see to take on additional risk and bandwidth requirement of running another business right now and if it would need to be synergistic with any of the other PUs to get there. Just help us understand what you're looking at and the kinds of opportunities that are out there.

Yes, look, I think if we were going in on any platform, it would likely be aligned with just our overall theme of decision media. We like being in a position where providing content and tools to inform high value decisions, purchase decisions. That's why it's a lot of what we do, whether it's in health or it's in technology or it's in gaming or it's in shopping. We like to be at the transaction. We like to be between buyer and seller. That's where we can extract the best value and rent. And so, obviously, there are a lot of categories in which we don't do that. And so, I think that's how we would think about in a platform. I think it would have to be something that we do believe that we have technology and we have know-how and we have business models to create sort of an unfair advantage. It can't just be a good business that we're adding to the portfolio. There needs to be value creation that is just in excess of that. It has to be the first thing, but we need to have a path to creating value that is unique to us, that is a function of know-how, a function of skill, a function of technology platform, a function of leadership that we may have here that we can deploy into the business.

Okay. Great. Thanks a lot.

Thank you. There are no other questions in queue at this time. I would now like to hand the call back to Bret Richter for any closing remarks.

Thank you, Paul. We appreciate everybody joining us today for our Q4 and our fiscal year 2022 earnings call and results. Our upcoming conference participation is detailed our Investor Relations website. We recently put out an a release on that, and the details are there. We hope to see some of you in the coming weeks and continue our dialogue. Thank you all and have a great day.

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.