BuzzFeed, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results; BuzzFeed reports one operating segment. Comparisons with Q1 2021 are affected by acquisitions: Complex Networks was acquired in December 2021 and was not included in the prior-year quarter.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $91.6 million | $72.6 million | Up 26% |
| Gross profit / margin | $30.7 million / 33.6% | $30.5 million / 42.0% | Margin down 8.4 percentage points |
| Operating loss | $35.3 million | $16.5 million | Loss increased |
| Net loss | $44.6 million | $11.3 million | Loss increased |
| Adjusted EBITDA loss | $16.8 million | $4.3 million | Loss increased |
| Operating cash flow | $1.1 million provided | $9.5 million provided | Down $8.4 million |
| Cash and cash equivalents at period end | $74.5 million | $79.7 million at Dec. 31, 2021 | Down $5.2 million |
Advertising revenue grew 26% to $48.7 million and content revenue grew 65% to $32.3 million; Complex Networks contributed materially to both increases. Commerce and other revenue fell 27% to $10.6 million, reflecting lower purchasing activity versus the pandemic-boosted prior-year period and lower Facebook-referred traffic. Excluding Complex Networks, advertising revenue declined 32%, with programmatic impressions down 35%, partly offset by 13% higher pricing.
Costs and expenses rose to $126.9 million from $89.2 million. Cost of revenue increased to 66% of revenue from 58%; total costs reached 139% of revenue. Higher acquisition-related costs, compensation, amortization, public-company costs and restructuring contributed to the wider operating loss. Q1 included $1.8 million of restructuring costs, $3.9 million of stock-based compensation, and $5.0 million of losses from changes in fair value of warrant and derivative liabilities. Interest expense was $4.8 million, primarily associated with the convertible notes.
Liquidity, debt and balance sheet
- At March 31, 2022, total assets were $655.8 million, total liabilities $321.3 million, and stockholders’ equity $332.1 million. Accumulated deficit was $367.0 million.
- Debt was reported at $143.0 million. This includes $28.5 million drawn on the revolving credit facility and convertible notes with $150.0 million principal outstanding and $114.5 million net carrying value.
- The $50.0 million revolving facility had $6.0 million of remaining borrowing capacity and $15.5 million of outstanding letters of credit. It requires at least $25.0 million of unrestricted cash; BuzzFeed reported compliance at quarter-end. The facility matures in December 2023.
- The unsecured notes mature in December 2026, bear 8.50% annual interest, and are convertible at an initial $12.50 per share. The company reported an effective interest rate of 15% for accounting purposes.
- Management stated that cash, operating cash flows and available revolver capacity were expected to fund working capital and capital expenditure needs for at least 12 months. The company also disclosed that additional capital may be needed if these sources prove insufficient.
- Operating lease liabilities were $90.4 million, recognized after adoption of the lease accounting standard on January 1, 2022. The company reported a current ratio of approximately 2.1.
Changes, outlook and risks
- Management attributed the decline in commerce revenue partly to the normalization of shopping after pandemic restrictions eased, supply-chain and labor challenges, and reduced Facebook referral traffic. Inflation, consumer spending shifts and broader economic conditions were also identified as uncertainties.
- BuzzFeed approved organizational changes following the Complex Networks acquisition and a strategic repositioning of BuzzFeed News. The $1.8 million Q1 restructuring charge was mainly severance; a separate voluntary buyout proposal was presented to News employees in May, with the eventual cost dependent on employee participation.
- On May 12, 2022, the board waived a liquidity condition for certain RSUs. BuzzFeed expected to recognize approximately $8.2 million of related stock-based compensation in Q2; vesting and share sales could also affect dilution and trading activity.
- Management provided no specific financial guidance in the supplied filing text. Its liquidity statement is an assessment, not earnings guidance.
- Management concluded disclosure controls and procedures were not effective as of March 31, 2022, citing material weaknesses in the financial close process and segregation of duties, technical accounting staffing, and control activities including IT general controls. Remediation was ongoing.
- BuzzFeed disclosed arbitrations initiated by 91 purported former or current employees over alleged inability to convert and sell shares after the business combination. The company challenged arbitrability in Delaware and said it did not expect a material adverse effect; the claimants seek unspecified damages.
- The filing highlighted potential share-price pressure as transfer restrictions expired, including a significant number of shares becoming eligible for sale on June 2, 2022, and possible RSU-related sales. The company also disclosed ordinary-course legal matters and a lease guarantee with a maximum remaining amount of $2.3 million; no liability was recorded for that guarantee.
Important facts for investors to verify
- How much of revenue growth reflects Complex Networks and HuffPost acquisitions versus underlying performance, particularly given the decline in Facebook-related impressions and commerce revenue.
- Whether BuzzFeed can improve gross margin and reduce operating and Adjusted EBITDA losses as acquisition and public-company costs continue.
- Cash use, revolver availability and covenant headroom, alongside debt interest, maturity and conversion terms.
- Actual cost and workforce impact of the BuzzFeed News buyout proposal and the Q2 RSU compensation charge, including potential share dilution and sales.
- Progress in remediating the disclosed material weaknesses and the outcome or financial exposure, if any, from the employee arbitrations.