Ziff Davis, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Ziff Davis operates Digital Media and Cybersecurity and Martech businesses.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $314.5 million | $307.1 million | +2.4% |
| Operating income | $35.9 million | $26.3 million | +36.3% |
| Operating margin | 11.4% | 8.6% | +2.8 percentage points |
| Net income (loss) | $10.6 million | $(7.6) million | Returned to profitability |
| Diluted EPS | $0.23 | $(0.16) | — |
| Operating cash flow | $75.6 million | $115.3 million | Down $39.7 million |
| Capital expenditures | $28.1 million | $30.0 million | — |
Revenue by segment was $239.1 million for Digital Media (+2.1%) and $75.5 million for Cybersecurity and Martech (+3.3%). Digital Media operating income increased to $31.6 million from $28.5 million; Cybersecurity and Martech operating income increased to $19.4 million from $11.6 million, according to the segment table.
At March 31, cash and cash equivalents were $734.8 million; short- and long-term investments totaled $156.4 million. Total cash, cash equivalents, and investments were $891.1 million, versus $905.6 million at year-end. Long-term debt was $1,001.9 million, with no borrowings under the $100 million revolving credit agreement. Current assets were $1,293.1 million and current liabilities were $663.3 million.
Material changes and drivers
- Advertising and performance marketing revenue was essentially flat at $156.1 million. Digital Media subscription and licensing revenue rose to $73.5 million from $69.1 million; Cybersecurity and Martech subscription and licensing revenue rose to $75.5 million from $73.0 million.
- Consolidated operating expenses declined 0.8% to $278.6 million. General, administrative, and other costs fell 4.4%, primarily on lower depreciation and amortization; sales and marketing costs rose 0.9%.
- Net income improved amid lower unrealized losses on the Consensus investment ($10.7 million versus $20.3 million) and a smaller equity-method investment loss ($0.6 million versus $9.2 million). Q1 2024 also included a $3.8 million loss on sale of a business and an $8.2 million income-tax expense, compared with a tax benefit in Q1 2023.
- Operating cash flow declined primarily due to higher vendor payments. Management said the acquired TDS Gift Cards business reduced operating cash flow by $39.1 million from acquisition date through quarter-end.
Outlook, risks, and unusual items
- No numerical full-year revenue, earnings, or cash-flow guidance is provided. Management expects existing cash, operating cash flows, and revolving-facility availability to be sufficient for anticipated needs for at least the next 12 months.
- On February 5, 2024, the company acquired TDS Gift Cards for approximately $187.5 million of consideration, or $44.5 million net of cash acquired. Purchase accounting remains provisional. The filing reports acquisition-related incremental revenue as $7.5 million in the notes and $7.8 million in MD&A; this difference should be verified.
- Indirect-tax reserves were $28.1 million. The company says additional liabilities are reasonably possible and could materially affect results. Uncertain income-tax-position liabilities were $36.6 million.
- A Digital Media reporting unit with approximately $79.2 million of goodwill had no fair-value cushion following a 2023 impairment; a further decline in estimated fair value could trigger another impairment.
- Management cites economic conditions, advertising and customer trends, acquisition execution, competition, data privacy and regulation, cybersecurity and system failures, AI-related content and intellectual-property risks, taxes, foreign exchange, and debt refinancing as risks. Fixed-rate debt principal of $550 million matures in 2026 and $460 million in 2030.
- A securities class-action dismissal was affirmed by the Ninth Circuit on April 19, 2024. Management does not consider the disclosed legal matters likely to have a material adverse effect, but notes that an unfavorable resolution could materially affect an individual period.
Investor facts to verify
- Reconcile the $7.5 million versus $7.8 million acquisition-revenue disclosures and confirm TDS’s cash-flow contribution and preliminary purchase accounting.
- Assess the sustainability of operating cash flow given the vendor-payment increase and TDS’s reported cash use.
- Review the assumptions and impairment sensitivity for the Digital Media reporting unit with no fair-value cushion.
- Monitor the $28.1 million indirect-tax reserve, $36.6 million uncertain-tax liability, and any developments in related audits or litigation.
- Track Consensus share-price exposure, debt maturities and refinancing conditions, and compliance with debt covenants.