Ziff Davis, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report; the filing provides selected Q4 operating metrics but no clear standalone Q4 financial statements.
Business context
Ziff Davis operates two reportable segments: Digital Media, spanning technology, shopping, gaming, connectivity and health properties; and Cybersecurity and Martech, primarily subscription-based software and services. Digital Media is more exposed to advertising budgets and seasonal holiday demand, while Cybersecurity and Martech is subscription-led. The 2021 cloud fax separation is reported as discontinued operations.
Financial performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $1.391 billion | $1.417 billion |
| Operating income | $198.9 million | $167.3 million |
| Operating margin | 14.3% | 11.8% |
| Continuing-operations net income | $65.5 million | $401.4 million |
| Net income, including discontinued operations | $63.8 million | $496.7 million |
| Net cash from operating activities | $336.4 million | $516.5 million |
- Revenue declined 1.8%. Digital Media revenue increased 0.9% to $1.079 billion, while Cybersecurity and Martech revenue fell 10.2% to $312.6 million.
- Digital Media advertising revenue declined to $788.1 million from $838.1 million; Digital Media subscription revenue rose to $244.7 million from $197.4 million. Cybersecurity and Martech subscription revenue was $312.6 million, down from $348.6 million.
- Operating income increased despite slightly lower revenue, principally reflecting lower general and administrative costs and the absence of the prior-year Cybersecurity and Martech goodwill impairment. Segment operating income was $198.9 million for Digital Media, down 8.5%, and $50.2 million for Cybersecurity and Martech, up from $10.1 million. The latter comparison includes a $32.6 million impairment in 2021.
- Net income fell sharply from 2021, when results included a $298.5 million unrealized gain on the retained Consensus investment and $95.3 million of discontinued-operations income. FY 2022 included $46.7 million of realized investment losses, a $7.1 million unrealized Consensus loss, and a $58.0 million income tax expense.
- Cash, cash equivalents and investments were $839.1 million at year-end, down from $1.047 billion. Current assets were $1.084 billion and current liabilities $432.4 million. Operating cash flow less $106.2 million of capital expenditures was approximately $230.3 million.
- Year-end debt principal was approximately $1.010 billion: $550 million of 1.75% convertible notes due 2026 and $460.0 million of 4.625% senior notes due 2030. The company had no amounts drawn under its credit agreement and reported compliance with debt covenants. It repurchased $181.2 million principal of senior notes for $167.7 million during 2022.
Material changes and unusual items
- Revenue comparisons reflect the absence of approximately $33.5 million of 2021 revenue from divested B2B Backup and Voice businesses, partly offset by acquired-business revenue and organic growth in some businesses.
- Six acquisitions were completed in 2022, contributing approximately $33.0 million of revenue; total consideration was $121.7 million net of cash acquired and assumed liabilities. Acquisition spending was $104.1 million, net of cash acquired.
- A $27.4 million goodwill impairment was recorded in Digital Media following a forecast reduction and higher discount-rate assumptions. A Digital Media reporting unit’s carrying value approximated fair value after the impairment.
- The company exchanged 2.8 million Consensus shares for $112.3 million of term-loan principal and related interest, and sold 73,919 additional shares. It held approximately 1.1 million Consensus shares at year-end.
- Adoption of ASU 2020-06 changed convertible-debt accounting and increased FY 2022 basic and diluted continuing-operations EPS by $0.25, according to the filing.
Outlook, risks and contingencies
- Management expects Digital Media to benefit over time from online advertising growth, platform monetization and acquisition integration, and expects to continue enhancing Cybersecurity and Martech services. Acquisitions remain part of the strategy, but management noted macroeconomic conditions could affect acquisition pace. No numeric earnings or revenue guidance is provided.
- Management stated existing cash and cash equivalents and cash generated from operations should be sufficient for anticipated working capital, capital expenditure and potential repurchases for at least the next 12 months.
- Key risks include advertising-market weakness and short-term advertiser contracts; competition for audiences, advertisers and subscribers; search-engine and platform changes; privacy, cybersecurity and health-data regulation; cyber incidents; acquisition integration and goodwill impairment; economic uncertainty; and foreign-exchange exposure. The company reported no foreign-currency hedging transactions.
- Indirect-tax audits and assessments are covered by a $25.5 million reserve; the filing says additional liabilities are reasonably possible and could materially affect results. The balance-sheet liability for uncertain tax positions was $40.4 million.
- Several securities and derivative lawsuits remain pending or on appeal. Management did not accrue material loss contingencies because materially unfavorable outcomes were not considered probable, while acknowledging an adverse resolution could materially affect a particular period.
- Management and the auditor reported effective internal control over financial reporting as of year-end. A material weakness related to the 2021 Consensus separation was reported as remediated in 2022; controls at 2022 acquisitions, representing 5.4% of assets and 2.4% of revenue, were not assessed due to acquisition timing.
Important facts for investors to verify
- Whether Digital Media advertising stabilizes: Q4 net advertising revenue retention was 92.0%, versus 111.9% a year earlier; advertiser count was 2,044 versus 2,198.
- Whether subscriber growth translates into revenue: Q4 subscribers rose to 3.032 million from 2.206 million, while average quarterly revenue per subscriber fell to $46.33 from $60.89 and churn increased to 3.81% from 2.97%.
- Whether operating improvement converts into sustainable cash flow, given the $180.1 million year-over-year decline in operating cash flow and continued acquisition and capital spending.
- Debt-service and refinancing capacity, including the $550 million convertible notes due in 2026, senior-note obligations, and conversion or repurchase provisions.
- Potential variability from Consensus investment values, pending legal matters, indirect-tax exposures, and the recently impaired Digital Media reporting unit.