BuzzFeed, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. BuzzFeed is a digital media company with brands including BuzzFeed, HuffPost, Tasty, Complex Networks and First We Feast. Revenue comes primarily from advertising, content and commerce.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $77.9 million | $106.8 million | $145.1 million | $198.3 million |
| Operating loss | $20.1 million | $24.9 million | $49.8 million | $60.2 million |
| Net loss | $27.8 million | $23.6 million | $64.1 million | $68.1 million |
| Adjusted EBITDA | $(0.1) million | $2.1 million | $(20.3) million | $(14.7) million |
| Cash used in operating activities | Not provided separately | Not provided separately | $7.7 million | $3.8 million |
Q2 gross margin was approximately 35%, down from 42% a year earlier; operating margin was approximately (26)%, versus (23)%. First-half gross margin was approximately 33%, versus 38%. Adjusted EBITDA is a non-GAAP measure defined by the company.
- Q2 revenue fell 27% year over year. Advertising declined 33% to $35.4 million; content fell 22% to $31.5 million; commerce and other fell 17% to $11.0 million.
- Q2 advertising weakness reflected fewer programmatic impressions (down 17%) and lower pricing (down 8%) for impression-based products, alongside declines in other advertising products. For the first half, impression-based advertising revenue was down 22%, with pricing and impressions each down 11%.
- Content revenue comparisons were affected by $6.3 million of feature-film revenue in the prior-year period and no comparable 2023 revenue. Management also cited weaker customer spending, particularly in technology, telecommunications and retail, and fewer branded-content advertisers.
- Operating expenses declined, reflecting prior cost reductions and lower stock compensation, among other factors. However, cost of revenue fell less than revenue, and restructuring costs partly offset savings.
Cash, debt and liquidity
- Cash and cash equivalents were $41.3 million at June 30, 2023, down from $55.8 million at year-end 2022. Current assets were $134.4 million and current liabilities were $106.7 million.
- Total debt carrying value was $156.0 million: $34.3 million outstanding on the revolving facility and approximately $121.7 million net carrying value on $150 million principal of convertible notes. The notes bear 8.5% stated interest, mature in December 2026 and are convertible at an initial $12.50 per share. Q2 net interest expense was $5.6 million.
- The $50 million revolving facility matures in December 2025 and is secured by cash, receivables and related assets. It had $15.5 million of letters of credit and just $0.2 million of remaining borrowing capacity at quarter-end. Its covenants require at least $25 million of unrestricted cash; BuzzFeed reported compliance at June 30. The borrowing rate was approximately 9%.
- First-half investing cash outflow was $8.0 million, mainly $7.7 million of capitalized internal-use software. Financing provided $1.4 million. Cash declined by $14.5 million during the first half.
- Management said it expects sufficient liquidity for the next 12 months, while acknowledging significant liquidity challenges and no assurance it can generate cash, raise additional capital or implement further savings. The company had no firm outside-capital commitments beyond its at-the-market offering.
Material changes, outlook and risks
- On April 20, BuzzFeed announced an approximately 15% workforce reduction as part of a strategic reprioritization intended to accelerate revenue growth and improve profitability and cash flow. Q2 restructuring charges were approximately $9.7 million, of which $3.4 million remained unpaid at quarter-end and was expected to be paid primarily in Q3.
- Management expected macroeconomic pressure to continue affecting advertising and content revenue in 2023; it also expected near-term declines in advertising pricing and impressions. No numerical revenue or earnings guidance was provided.
- Audience Time Spent, as defined by the company, declined 9% in Q2 and 6% in the first half. Branded-content advertiser revenue retention was 61%, down from 89%; the number of qualifying advertisers was over 90 versus over 120.
- BuzzFeed recorded a $3.6 million loss on a private-company investment in Q2 after a recapitalization reduced its recorded value to zero.
- The company raised approximately $0.8 million net through its ATM offering by June 30, selling 1.7 million shares at an average $0.52 per share; 11.6 million shares remained available for sale. Further issuance could dilute existing shareholders.
- Nasdaq notified BuzzFeed that its stock had closed below the $1 minimum bid requirement for 30 consecutive business days. The initial compliance deadline was November 27, 2023; delisting could follow if the company failed to regain compliance or qualify for an additional period.
- Management reported material weaknesses in internal control over financial reporting and concluded disclosure controls were not effective as of June 30. Remediation was ongoing; the weaknesses were not considered resolved.
- Two mass arbitrations concerning former employees’ inability to convert shares after the 2021 business combination remained pending. The company said it did not expect a material adverse effect; damages sought were unspecified.
Investor verification points
- Whether revenue declines, especially in advertising, stabilize and whether pricing, impressions and branded-content retention improve.
- Cash burn, ATM proceeds and dilution, remaining borrowing availability, and compliance with the $25 million minimum-cash covenant.
- Progress toward sustainable operating cash flow and the assumptions supporting management’s 12-month liquidity expectation.
- Whether workforce reductions and other cost actions produce durable savings without impairing revenue generation.
- Progress in remediating internal-control weaknesses and regaining Nasdaq’s minimum bid-price compliance.
- Developments in the employee arbitrations and any changes to the company’s assessment of potential exposure.